A major portion of a club’s total operating revenue goes to payroll—about 55 percent at the median. Extensive analysis of club industry data has provided valuable insight into how that money is distributed and what drives the particulars of salaries, benefits and bonuses for the members of a club’s executive team. An overview of that research, conducted by Club Benchmarking, is shared here in two parts.
PART 1: Executive Compensation in the Private Club Industry
One of the most firmly held beliefs in the club industry is that executive compensation is directly related to the club’s geographic location. Historically, the general assumption has been that a general manager in metropolitan New York, for example, would be paid more than a manager employed in a smaller rural area based on a higher cost of living. An in-depth analysis was undertaken in order to explore that tenet and to identify what does or does not drive compensation in clubs.
The Basis
In every industry, there are a wide variety of factors that affect compensation, and the club industry is no exception. These factors include: !
- Individual characteristics such as experience, education, age, and tenure. !
- Club characteristics regarding scope and scale, such as number of employees, revenue, member service and quality expectations and the club’s financial and operating results. !
- External factors represented mainly by geographic location and cost of living.
External Factors
Our executive compensation research began with an analysis of the impact of cost of living on compensation. To that end, the Club Benchmarking database containing Head of Club compensation from more than 400 clubs was analyzed to isolate the 50 highest and 50 lowest paid general managers in the data set. A Cost of Living Index (COLI) from the Bureau of Labor Statistics was then assigned to each of the 100 clubs based on each club’s location. The results are presented in Table 1
Table 1 shows that 72 percent of the country’s highest paid general managers are located in Cost of Living zones equal to or lower than the lowest paid GMs. Additionally, we can conclude from the minor variation in average COLI and median COLI between the 50 highest and lowest paid managers that compensation of GMs is independent of cost of living as related to geographic location. So if location is not a factor, what does drive compensation in clubs? Let’s take a closer look at how characteristics of the club and the individual executive effect compensation. Manager
Tables 2 and 3 indicate that as a group the 50 highest paid GMs are older, more experienced, better educated and are leading much larger and broader clubs in terms of revenue. The 50 highest paid GMs on average are being paid three times the 50 lowest paid GMs and running operations that are three times the size and complexity.
Conclusion
Compensation of GMs correlates directly to the size and complexity of a club while showing very little correlation to geographic location or cost of living. Ultimately, there is a correlation for compensation of the Head of Club in relation to Operating Revenue as illustrated in Graph 1. Clubs that are in the upper quartile—with a ratio higher than 4 percent are analyzed in Table 4. They tend to be clubs that are smaller. There is a base level compensation for a Head of Club—essentially the “ante”—and as a result smaller clubs bear a higher burden.
PART 2: Executive and Staff Bonus Plans
In the process of developing a customized compensation benchmark for a group of 22 top-tier clubs in late 2014, a thorough review of GM and executive staff bonus plans was undertaken. The study group for this research was made up of select, very successful, professionally managed clubs distributed across the country in 19 different states with operating revenue ranging from less than $10 million to nearly $50 million. All of the clubs have golf courses and most would be considered “country clubs” because they offer a broad array of amenities and services beyond golf.
The top executive typically has the title general manager/chief operating officer but may also be general manager or general manager/chief executive officer.
The executive staff members represented in the study include the CFO/controller, the superintendent, the head golf professional (also titled the director of golf), the executive chef, the head tennis professional, the assistant GM and/or clubhouse manager, the F&B director and in some instances the membership/marketing director.
Who is Eligible?
There are three approaches to eligibility for bonuses: No team member receives a bonus, only the general manager receives a bonus or the entire executive team receives a bonus. Chart 1 presents the proportion of each. Two of the clubs in our study offer bonuses only for the GM and one club does not offer bonuses for the GM or team members. The reasons cited for the approach were clear. Table 3. Analysis of Variance in Individual C
First, at the club with no performance bonuses, the assumption is that the manager and staff should meet expectations without the need for variable incentive compensation.
The second reason was common to all three clubs. Each of the clubs eliminated performance bonuses to the staff after it became apparent that the objective criteria established to determine the bonus were regularly overridden by board/ committee decisions.
The two clubs that offer performance bonus only to the GM rely on the GM to manage the staff such that financial and organizational goals and objectives are met. In one case, the GM’s bonus is decided annually in a discretionary manner by the Compensation Committee (which also does a cursory review of the staff salary increases). In the other case, the GM has a documented list of specific financial, operational and strategic goals for the year which the Committee uses to determine the amount of that GM’s bonus.
The study group’s results are consistent with findings in overall industry data. Approximately 10 percent of the general managers in the overall database do not receive a performance bonus. In terms of the remaining executive team, there is some variation but between 5 percent and 10 percent of the team do not receive performance bonuses.
What Proportion of Base Salary is Bonus?
Nearly all clubs relate the amount of a performance bonus to a proportion of the individual’s base salary. There is a clear variation in the proportion of base available between the GM and executive team member with the GM proportion almost always being higher.
Charts 2 and 3 below show the distribution of the proportions for both the GM and the executive team. As can be seen, the GM generally has a higher proportion of base tied to their bonus than the average executive team member.
Regarding the GM bonus, a survey of the Compensation & Benefits data in the Club Benchmarking database shows a clear correlation with the study group data presented in Chart 2. Three quarters (75%) of the GM’s in the overall database have a bonus that is 20 percent or less of the base. One quarter (25%) have a bonus that is over 20 percent of the base.
In overall industry data related to the executive team bonus, we see a slightly different story. About three quarters (75%) have a bonus of 10 percent or less of their base compensation and one quarter (25%) have a bonus of 10 percent or more. In the study group, the proportion of executives having a bonus of 10 percent or less of base compensation is much lower (39% versus 75%). Clubs in the study group appear to offer their executive team members a higher proportion of base than the industry at large—not surprising given the “best in class” nature of the study group.
Is There a Clear Bonus Formula?
There are two schools of thought regarding how a bonus is determined in the private club industry—either a very specific formula is used to tie certain portions of the potential bonus to quantitative or qualitative goals, or there is no formula and the bonus is determined in a more subjective or discretionary manner. Chart 4 shows the split amongst the study respondents.
Who Determines the Bonus?
The general manager’s bonus is determined by either the board or a committee—typically a Compensation or Executive Committee (Chart 5). The determination of the bonus for the executive team is made by either the GM or the GM in concert with a board/committee (Chart 6). In all cases, the board and/or committee are cognizant of bonus decisions and that awareness extends to compensation generally. In regard to the executive team, when the GM determines the bonus it is with the general support of the board/committee. In the scenario of the GM making the determination in concert with a board/committee, the approach is more collaborative.
What Criteria Determine the Bonus?
Our analysis identified three generic categories of criteria: Purely Discretionary, Quantitative Criteria and Qualitative Criteria. In terms of the Quantitative and Qualitative Criteria, there are two generic approaches; the adoption of universal criteria common amongst the GM and the executive team or adoption of criteria that are related to the specific team member and/or their department. Table 5 below summarizes the criteria that have been isolated.
Across the clubs participating in the study there are various strategies and approaches regarding how each of the criteria affect the bonus calculation. Tables 6 and 7 summarize the proportion for each criteria, for each club, for both the GM and the executive team. The analysis leads to a few observations: !
- There is a clear preference for using individual and department goals for determining bonus amounts. The fundamental concept is that team members are incented to control their own “sphere of influence.” !
- Two of the clubs have distinct club-wide financial formulas that must be met before any member of the team (including the GM) are eligible to receive any bonus. One club in particular sets the bonus pool based on the club having favorable variance on all non-dues income. The club must meet a clubwide income hurdle (excluding dues) and then once over that hurdle, 50 percent of the excess (up to $200,000) is used to fund the bonus pool for the GM and the team. !
- A key philosophy that emerges relates to the balance between individual goals and club-wide team goals. !
- There is significant effort expended in most of the clubs to define a documented formula to calculate bonuses for the GM and the executive team.
Documented Goals
- The responding general managers submitted documented goals for themselves and their executive team. A review of those goals revealed the following common themes: !
- The simplest team-wide goals measured everyone on the same two criteria: financial goals (meeting budget) and member satisfaction. !
- The inclusion of specific safety goals by department. !
- Emphasis on updating F&B offerings to reflect trends in restaurants and the “outside the club” culinary scene. ! Emphasis on efforts to increase member engagement throughout the club.
Conclusions
The norm within
the industry is clearly to offer bonus incentive to the GM and the executive team. There is wide variation as to the percentage of one’s base salary that can be earned by bonus and how the bonus is calculated. Despite the variation, there is a clear tendency to tie bonuses to goal-based criteria. The spectrum of goal-based criteria is wide, ranging from individual qualitative goals to team-wide quantitative goals.
Relative to executive team members, one can conclude there is a basic choice between measuring a given team member based on his/her own department’s results versus measurement based on team-wide and club-wide results. The survey group clearly leans towards individual vs. club-wide goals. When club-wide goals do appear, they tend to be specific quantitative goals.
The blend between individual goals and club-wide goals seems logical. Overall, bonus determinations favor calculations related to specific qualitative or quantitative goals versus purely discretionary awards. It is also apparent that continuous improvement in membership satisfaction and/or engagement is central to goal setting and bonus results.
Ray Cronin is co-founder and CEO of Club Benchmarking. This article was excerpted from two Club Benchmarking whitepapers. To download the unabridged versions, visit www.clubbenchmarking.com/whitepapers.