IN LARGER INDUSTRIES—the airline industry or automobile manufacturing for example—major players exist. Because of their size, these bigger companies have influence and the ability to drive change. The club industry, on the other hand, is highly fragmented. Made up of thousands of individual clubs, in many ways it looks and acts like a cottage industry. As such, best practices and evolution of knowledge are much slower to spread throughout the industry. It is common to see two clubs separated by only a couple of miles with very different governance policies and practices, different manners of accounting, and completely different approaches to handling important issues like compensation and benefits and capital planning.
Change does not usually happen quickly in the club world, but there are a number of influential forces at work that appear to be driving things forward: Government regulations, demographic shifts in the marketplace, multi-course owners and management companies acting as consolidators, and strategic education provided by associations such as the National Club Association and the Club Managers Association of America are all serving as change agents in the industry. According to the global management consulting firm McKinsey & Company, data analytics is another major factor driving change in every industry, clubs included. “Big data and analytics promise to transform the way companies do business, delivering the kind of performance gains last seen in the 1990s when organizations redesigned their core processes. And as data-driven strategies take hold, they will become an increasingly important point of competitive differentiation.”
Measuring Your Most Valuable Resource
The core business of a private club is to provide hospitality in various forms and that hospitality is delivered by the club’s most important resource—its staff. One sea change in the business world has been the realization that while companies have historically been very good at managing physical assets, their focus on human capital (the people that make companies succeed or fail) has been subpar. The new icons of industry, high tech companies like Google, Facebook and Twitter for example, have set the bar high, developing very advanced programs to recruit, motivate and retain staff. For those companies, systematic, data-driven analysis of compensation and benefits is a key component of human resource management. While there are some clubs that have evolved significantly in their approach to human resource management, the vast majority of the industry has a long way to go.
Over the last several months, Club Benchmarking has been working with a pilot group of 62 private clubs on a project designed to advance the state-of-the-art in compensation and benefits benchmarking in clubs. Our approach to the project, the 2016 Advanced Compensation Study, was developed over the course of numerous conversations and planning sessions with top compensation and benefits experts and human resource professionals currently working in the club industry.
Traditionally, compensation benchmarking in clubs has centered on key members of the executive staff such as the general manager, the golf professional or the golf course superintendent. Human resource professionals engaged in this project saw a need for a broader view of compensation covering the entire staff of a club—both salaried and hourly (those exempt from overtime and those nonexempt. NOTE: For the purposes of this study, the term “exempt” means any employee earning more than $50,000 per year, and “non-exempt” means any employee earning less than $50,000. However, these figures and categories are not based on the Department of Labor’s new Overtime Exemption rule that goes into effect on December 1, 2016. These figures and terms are only used to offer a general benchmark for this study. For more information on the overtime regulation, please visit nationalclub.org. Their interest in deeper and more comprehensive benchmarking motivated us to undertake the Advanced Compensation Study. Coupled with the looming changes in minimum wage laws and the pending change in overtime regulations, the timing seemed right.
The Advanced Compensation Study
Sixty-two clubs submitted complete payroll data for every member of that club’s staff. All totaled, data for 15,163 positions was submitted. Each club’s data went through a mapping process very similar to what Club Benchmarking does with financial data. Each club’s information is mapped into a common format so that all of the information is “apples to apples” and appropriate to benchmark.
The clubs submitted department and title information, which allowed Club Benchmarking to zero in more closely on job function. Ideally, compensation benchmarking compares people performing the same work as opposed to those with the same titles but different responsibilities. The next step in the process was mapping each of the 15,163 people into standard departments and standard titles (with every effort to do so based on function). The resulting list of 133 standard titles can be viewed at clubbenchmarking.com/acs-summary. Examples of the 17 standard departments and sub-departments include Buildings & Facilities, F&B Front of House, F&B Back of House, Golf Operations, General & Administrative, Greens & Grounds, Golf Operations, Other (Childcare, Driver, Valet, Other), Sports & Recreation (Aquatics, Fitness, Other, Spa, Tennis, Yachting, Youth Camps).
The participating clubs generated their data by exporting reports directly from their payroll software and then adding information not stored in the payroll database, such as clothing or auto allowances, etc. Those participating agreed that submitting a report in an excel spreadsheet format was easier than other common methods such as answering specific questions from emails or manually entering the data into a website. Many added that after going through the process once, they thought it would be even easier to replicate in the future. Given that the information covers every position at every club and that the compensation data is directly out of the payroll system, the process is clearly more comprehensive and accurate as well.
The data submitted included hire date (for tenure), hourly rates, salary rates, total compensation in previous year, total gratuities, total hours worked, total performance bonus, holiday bonus, target bonus for 2016 (dollar amount or percentage of base salary), allowances for clothing, housing, auto, education and association activity, competitive dining, health insurance split between club and employee, life insurance coverage, contributions by the club to 403b, 457b and 457f plans. To this data, we added the cost of living index for the club’s location and the operating revenue of the club.
Study Findings
With access to data for every single position in a club, much can be learned. Some of the information is tactical and may be of help with the pending changes in the overtime regulations, but much of the information is of great strategic value. We will review data on both counts throughout the rest of this article and then summarize the bright future for wider efforts in this regard across the industry.
The most critical starting point in compensation and benefits benchmarking is to grasp the big picture, which in this case centers on the payroll to revenue ratio. Many clubs’ leadership teams (board and management) struggle from information starvation that has a profound effect on governance and decision-making. One area often at the center of banter in grille rooms and boardrooms across the country is how many people work at a club and how much they make. Payroll is the largest single expense in every club, so it is definitely a critical matter. Discussions around club payroll should always be supported by data so that emotion and opinion don’t interfere with the decision-making process. Figure 1 above shows the distribution of the payroll to revenue ratio at clubs with and without golf. This critical ratio is extremely consistent year-in and year-out. The ratio is calculated by tallying total salary and wages and payroll taxes and benefits and dividing it by total operating revenue (all revenue excluding any capital income from initiation fees, capital dues/assessments, debt service assessments and investment income). The only way to discuss the issue of staff size and how much those staff members earn is to use the payroll ratio and understand your club’s position on the distribution. The ratio does not vary based on size of club or geographic location of club (and associated cost of living) or whether the club employs union labor or not.
The data collected from the Advanced Compensation Study allowed us to analyze the details behind the payroll to revenue ratio. Across the compiled 15,000+ positions, let’s take a look at how things break out. The figures below summarize some of the key findings.
Figures 7 and 8 above show the breakout of head count by department and the proportion of overall payroll by department. The proportion of payroll by department comes from the Club Benchmarking database and F&B is grouped into one department (many clubs don’t separate their front of house and back of house in their financial accounting), while the advanced compensation study did allow for the segregation of Front of House and Back of House. Also, please note for clubs with guest rooms, those heads and related payroll are included in the Clubhouse and Buildings department. The two figures serve to illuminate at least two key points:
- F&B Front of House, Sports & Recreation, Golf Operations and Clubhouse & Buildings comprise 68 percent of the head count and represent the “front lines” where staff and members constantly meet and interact.
- Two departments represent the higher paid staff. While G&A and Course Maintenance combine to represent only 17 percent of the headcount, they consume 34 percent of the overall payroll. As the possibility of a national minimum wage law looms and while dozens of states have already begun increases their minimum wages, it is interesting to look at how it may affect clubs in terms of what people currently earn. The numbers used for this analysis include gratuities earned. What would be the impact if a national wage of $10 per hour were established? According to this study, 22 percent of the hourly earners at clubs make less than $10 per hour. If the minimum wage was $11 per hour, the 32 percent of hourly staff who earn less than $11 and the 41 percent of the hourly staff earn who below $12 per hour would see a change. Clearly, if a national wage is set, where it falls can have a significant effect on the outcome for clubs.
In relation to the December 1 implementation of the Overtime Rule, 29 percent more staff will fall under the new overtime annual salary threshold of $47,476.
The Future
We believe there is a path to widespread participation in industry-wide compensation and benefits benchmarking using the process described. The insight that can be gained from broad participation is critical. Even after studying compensation fairly deeply for the last seven years, this work served as quite an epiphany for the researchers. There are a few critical conclusions that pertain to all involved in managing and governing clubs:
- Historically, most if not all of the focus on compensation benchmarking revolves around the executive staff even though their total compensation only comprises 25 percent of the club’s overall payroll expense. Myopic focus on this segment of staff leaves a significant gap in understanding how your club’s compensation practices compare to the industry.
- The much higher proportion of headcount related to hourly staff is eye opening. The 89 percent/11 percent breakdown between hourly and salaried staff members confirms the need for club-wide compensation benchmarking and analysis.
- A quick review of Bureau of Labor Statistics puts the median annual earnings at $43,000 meaning half of all workers in the country make less than that amount and half make more. Our study data shows that 89 percent of the employees from participating clubs earned less than $50,000 per year. Assuring that every member of the staff is compensated appropriately in terms of the broader labor market while also assuring the overall payroll falls within industry norms for a well-managed club is a strategic undertaking. The management team must ensure that such critical information makes its way to board and Compensation Committee meetings.
- ● Changes in minimum wage laws must be considered pro-actively. The National Club Association has been diligent in keeping its members apprised of changes and new developments and continues to work in the best interests of the industry. We believe the hourly wage data and analysis produced by this study affirms the tremendous importance to those efforts. CD
Ray Cronin is co-founder and CEO of Club Benchmarking. He can be reached at [email protected]. Compensation Specialist Mary Callahan can be reached at [email protected]. For questions about the report or to be included in future studies, please email [email protected]m.