Ramon Martinez Is The General Manager Of Classic Inn A Local

Ramon Martinez Is The General Manager Of Classic Inn A Local Mid Pric

Ramon Martinez is the general manager of Classic Inn, a local mid-priced hotel with 100 rooms. His job objectives include providing resourceful and friendly service to the hotel’s guests, maintaining an 80 percent occupancy rate, improving the average rate received per room to $88, and achieving a 5 percent saving on all hotel costs. The hotel’s owners, a partnership of seven people who own several hotels in the region, want to structure Ramon’s future compensation to objectively reward him for achieving these goals. In the past, he has been paid an annual salary of $72,000 with no incentive pay. The incentive plan the partners develop has each of the goals weighted as follows: Measure Occupancy rate (also reflects guest service quality) Operating within 95 percent of expense budget Average room rate Percentage of Total Responsibility 40% % If Ramon achieves all of these goals, the partners determined that his performance should merit a bonus of $23,000.

The partners also agreed that his salary would be reduced to $60,000 because of the addition of the bonus. The goal measures used to compensate Ramon are as follows: Occupancy Goal: 29,000 room-nights – 80 percent occupancy rate x 100 rooms x 365 days Compensation: 40 percent weight x $23,000 target reward- $9,200 $9,200 /29,000- $ 0.315 per room-nights Expense Goal : 5 percent savings Compensation: 25 percent weight x $23,000 target reward-$5,750 $5,750/5- $1,150 for each percentage point saved Room Rate Goals : $3 rate increase Compensation: 35 percent weight x $ 23,000 target reward - $8,050 $8050/300 - $ 26.83 per each cent increase Ramon’s new compensation plan will thus pay him a $ 60,000 salary plus 31.5 cent per room- night sold plus $1,150 for each percentage point saved in the expense budget plus $ 26.83 per each cent increase in average room rate.

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The compensation plan for Ramon Martinez at the Classic Inn hotel exemplifies a performance-based incentive structure designed to align his personal rewards with the hotel’s operational goals. This plan integrates fixed salary components with variable incentives tied directly to measurable performance metrics—occupancy rate, expense savings, and room rate increases—each weighted according to their relative importance. Analyzing the plan’s structure and its projected outcomes reveals both its potential effectiveness and areas for improvement in motivating manager performance.

At the core of the plan, Ramon’s base salary is set at $60,000, a reduction from his previous $72,000 salary, reflecting a shift toward performance-based pay. The incentive components are designed to motivate Ramon in three critical areas: increasing occupancy, controlling costs, and boosting revenue per room. Each component is associated with specific targets and reward calculations rooted in the potential achievement of maximal bonus benefits, which are capped at $23,000.

The performance metrics are thoughtfully weighted: 40% for occupancy, 25% for expense savings, and 35% for room rate increases. These weights indicate a strategic emphasis on guest occupancy and revenue enhancement, aligning with typical hotel profitability levers. For occupancy, Ramon can earn a bonus component of $9,200 if he achieves 29,000 room-nights, translating to 31.5 cents per room-night sold. This metric directly incentivizes him to maximize room utilization, which is crucial for hotel revenue.

The expense savings component provides a bonus of up to $5,750 if Ramon reduces costs by 5 percent, earning $1,150 per percentage point of savings. This element encourages effective cost management, critical for maintaining profitability in a competitive industry. The room rate increase component, offering up to $8,050 or about $26.83 per percentage point increase, incentivizes Ramon to enhance revenue through strategic pricing while balancing occupancy to avoid losing guests due to excessive rates.

Considering the three different performance scenarios:

• Scenario A: 30,000 room-nights, 5% saved, $3.00 rate increase.
• Scenario B: 25,000 room-nights, 5% saved, $1.15 rate increase.
• Scenario C: 28,000 room-nights, 0% savings, $1.00 rate increase.

In Scenario A, achieving 30,000 room-nights exceeds the target, earning the full $0.315 per room-night bonus, which equates to 30,000 x $0.315 = $9,450. The 5% expense savings yields the maximum $1,150 bonus. For room rate increases, a $3.00 raise corresponds to approximately 11.2 percentage points (since $3/$26.83 ≈ 0.112), earning about 11.2 x $26.83 ≈ $300. Summing these bonuses with the fixed salary results in a total compensation of $60,000 + $9,450 + $1,150 + $300 ≈ $70,900.

In Scenario B, with only 25,000 room-nights, the bonus for occupancy would be 25,000 x $0.315 = $7,875. The expense savings bonus remains at $1,150, while the room rate increase of $1.15 equates to approximately 4.3 percentage points ($1.15 / $26.83 ≈ 0.043), earning about 0.043 x $26.83 ≈ $1.15 in bonus. The total compensation then sums to roughly $60,000 + $7,875 + $1,150 + $1.15 ≈ $69,026.

Scenario C, with 28,000 room-nights and no savings, but a $1.00 rate increase, yields occupancy bonus of 28,000 x $0.315 ≈ $8,820; the expense bonus is zero since savings are not achieved; the room rate bonus is about 4 percentage points (1 / 26.83 ≈ 0.037), earning roughly $1 in bonus. Therefore, total compensation would amount to approximately $69,821 combined with the base salary.

The effectiveness of this incentive plan hinges on its alignment with hotel performance and its capacity to motivate Ramon toward strategic priorities. The plan’s blend of fixed salary and performance-driven bonuses appropriately rewards contributions to occupancy, cost control, and revenue growth. However, it may face challenges such as potential overemphasis on room rates at the expense of occupancy, or insufficient motivation for cost savings if the bonus potential is limited. Furthermore, the plan’s reliance on achieving specific targets can incentivize Ramon to meet only those metrics, potentially neglecting other vital areas like guest satisfaction or service quality, which are harder to quantify and incorporate in bonuses.

Overall, a well-designed incentive plan should balance quantitative targets with qualitative measures, providing Ramon with motivational clarity and fairness. Periodic review and adjustment of incentives are essential to ensure they reflect current market conditions and organizational goals. Incorporating customer satisfaction scores or online review metrics, for instance, could complement these financial incentives and foster a more holistic approach to hotel management performance.

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