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Weaving your benefits into your profits.

If you're not convinced that handing out generous employee benefits can really pay off for a company, read the numbers.

While we realize at the Camberley Hotel Company that the primary goal of each of our employee benefits is to provide value to our employees, we've found that benefits also can help us -- directly or indirectly -- meet our financial objectives. Some call this new approach of linking employee benefits to company performance revolutionary. For us, it's simple sense.

Just how has Camberley improved with our new benefits program?

* Morale and teamwork are better than they've ever been because our employees see their benefits working for them on a daily basis.

* Marketing has become a company "religion." Making the product as good as possible at all times is a mission shared by both management and line staff.

* Providing quality efficiently and cost-effectively has become a companywide mission tackled from the bottom up, not from the top down.

Our total benefits package, for 600 employees, cost the company $1,860,000 in 1991 and $2,096,000 in 1992; however, from 1991 to 1992 we enjoyed a 40-percent increase in our net operating income. We attribute these successes to increased employee awareness and sensitivity to company goals -- achieved despite the fact that the hospitality industry has been taking it on the chin these past few years because of the recession.

The cost of our benefits plan, including the expense of an administrator, is 29 percent of our payroll, which is at or below industry norms. If it were 35 percent, as many we've seen are, that extra 6 percent would mean an extra $350,000 in expenses.

A byproduct of our benefits program is reduced turnover. Our annual turnover rate is 56 percent below industry standards, which range from 100 to 150 percent. We calculate that the cost of orientation and training for one employee is from three to six weeks of pay. If our turnover rate equaled the industry norm, our costs would have been $350,000 higher in 1992.

As an example, we looked at one Camberley hotel and how our "new" benefits there relate to profits: In 1989, the hotel was running a net operating deficit of $300,000. In 1990, under a new manager, we implemented an employee incentive plan, which we've fine-tuned over several years. By 1992, this hotel showed a swing of $1,250,000 in net operating income.

That's evidence of why this program works. We commit to providing meaningful benefits for every full-time employee (which we define as a person who works 30 or more hours per week), because we believe a company TABULAR DATA OMITTED must be "in service" to its constituents. And our constituents aren't just our guests -- they're also our employees.


The benefits that are helping create such a favorable climate for Camberley's growth are these:

A Self-Insured, Managed Care Health Plan

Many large companies are in the forefront of "managed care," today's health care buzz word. While Camberley didn't invent managed care, we're taking an aggressive stance on the issue on behalf of our employees, and we think that's highly unusual for a small company.

Camberley began exploring the concept of self-funding in 1989 when we had just 60 employees and one hotel. Today, with five hotels, our self-funded insurance program covers 400 employees. And thanks to managed care we've lowered our insurance costs every year.

We believe our managed care program gives excellent coverage to our employees through medical, dental and life insurance plans. Here's how it works: Employees pay for one-third of their insurance coverage, and Camberley pays for the remainder. There's a $25 weekly cap on the amount an employee pays. The average monthly cost to insure a Camberley employee is $137, compared to going through an HMO, which is $150, or through a fully insured plan, which is $165.

The percentage of payroll that our health care program costs has dropped every year and stands now at 6 percent, compared to an industry standard of between 8 percent and 14 percent. We attribute this in great part to the team approach we take to health care management. Every year, Camberley's CEO and CFO meet with the corporate vice president of human resources and the human resources managers of each of the hotels to analyze and refine the health care benefits program.

Our approach to funding the insurance is unique, because we take employee compensation into consideration. While most companies charge participants an across-the-board flat fee, our employees contribute 2 percent of their base salary -- regardless of the salary level -- with the cap of $25 weekly protecting highly compensated employees. Our employees also have the added benefit of pretax insurance premiums through Camberley's cafeteria plan. (This is covered in section 125 of the Internal Revenue Act.)

To be fully self-insured, however, is to take on every bit of insurance risk. To limit that risk, we determine exactly how much we want to risk and purchase stop-loss insurance to cover us for any amounts above those limits.

On a monthly basis, Camberley accrues in an interest-bearing account what we call a "monthly attachment," which is our estimate of normal medical costs per employee and dependents in the course of a year. We fund for a worst-case scenario up to the stop-loss limit. In this way, we're in control of our claims dollars throughout the year. If we have a good claims year, our hotels retain these funds as an asset, instead of using the money for the premium for an insurance company. If there's money left over at the end of the year, we simply roll it over into the next. For example, 1992 was a good claims year, and we rolled over $158,000 with interest.

Employee Incentives Attuned to Performance

This year, we anticipate that 40 percent of Camberley employees' total compensation will come from incentive performance related to revenues, expense controls, profit retention, energy costs, labor costs, receivables and other categories.

All of our employees can earn incentives. A housekeeper, for example, has a vested interest in controlling energy costs, because a monthly energy conservation incentive is a split 50-50 share with the house on amounts below the budgeted costs for energy consumption per occupied room.

For example, at The Brown Hotel in Louisville, Kentucky, 57 room attendants have earned up to $16.50 extra per month on average since the incentive began. How do they do this? One way is by quickly checking all guestrooms before cleaning begins to see that the lights are off and the thermostats are regulated.

Last year, at The Crowne Plaza in Tampa, our kitchen staff averaged $58 in monthly incentives by focusing on labor and food costs. In fact, at four Camberley hotels, cost incentives in the food area alone brought costs down 5 percent from the previous year and added $82,000 to our net operating profit.

For instance, in February of 1993, The Brown showed these results from the incentive program: The chef, whose incentive is 20 percent on food revenues and 40 percent each on labor and food costs, achieved 35 percent of his 100-percent potential because his labor costs were under budget. So he pocketed an extra $306.

The housekeeping supervisor received $258 in incentives because she achieved 45 percent, or all but 5 percent, of a 50-percent potential on labor costs; 30 percent of 100 percent of her potential on room expenses; and 20 percent of 100 percent of her potential on energy costs. (Among the room expense considerations are guestroom amenities, linens, cleaning and paper supplies, printing and stationery, and uniforms.)

Overall, The Brown was $3,647 under budget in salaries and wages in February. These examples, multiplied department by department, mean increased profitability for Camberley. While there's no specific savings, the incentives as much as anything are responsible for a 40-percent increase in our net operating income in 1992.

A 401(k) Plan Based on Company Performance

We've had a 401(k) plan in place since 1990. However, this year for the first time we're tying employer contributions to the plan to the performance of Camberley's hotels. We used to follow the standard of matching 50 cents with every employee dollar that was contributed. Now, employees still contribute biweekly through payroll deduction, but at the end of this year, if all our hotels have met their combined operating profit goals, then we'll compensate employees based on a schedule that matches their contributions. If Camberley achieves its targets, it pays 50 percent of the employee contributions. But if the company is ahead of its budgeted gross operating profit, employees also will make more money. This is the formula we're using: If we're 5 percent ahead of our budget, Camberley will match 75 cents on the dollar. If we're 10 percent ahead, we'll match $1.00, or 100 percent. If we're 15 percent ahead, we'll match $1.25.

This program involves everyone in the risk that Camberley's owners are taking -- and doesn't give rewards without some risk. Our budgets help the owners achieve their goals, and since the people who help us achieve our budgets are the employees, they, too, benefit. We figure if we're doing better than our budget we can afford to reward employees for having taken the risk of participating in a 401(k) plan with the possibility of no matching funds.

Our employees seem to be excited about it. As of March 1993, we were ahead of budget in every single hotel. So, if we're 10 percent ahead of budget in February and the trend continues, employees will be able to see on their 401(k) charts that they're off to a good start. This is also a great way for our employees to get a tax-deferred, 5-percent annual increase.

Partially Subsidized Employee Cafeterias

We understand that a quality employee cafeteria is valuable to our employees. This is where a lot of morale-boosting and problem-solving occurs. And the cafeteria also promotes intradepartment communications. However, we've gotten away from the financial minefield of a fully subsidized employee cafeteria.

Two years ago, to help make the transition to a partially subsidized program easier, we upgraded the food menu. At the same time, we began charging each employee $1 a day for cafeteria privileges. The result? An employee benefit left intact that costs the company $405 a year per employee -- but that's 58 percent less than if we fully subsidized the meals. We also believe the company gains time from its staff because they're eating in-house.

Of course, an on-premise cafeteria makes sense for a hotel because food is part of a hotel. And it probably makes sense for larger companies because it does cut down on the amount of time that employees waste going to and from lunch. However, if a company has to lease or retrofit space to accommodate a cafeteria and then staff up for it, it may not make good economic sense.

A Family Leave (and Burnout) Plan Camberley had a type of family leave policy in place long before Bill Clinton started running for president. Our maternity leave provides as much as 12 weeks off for the mother. And we've recently expanded that program to include up to six weeks of paternity leave for the father. We also provide leave for a family death and to care for critically ill immediate family members; we haven't established time constraints in either of these cases.

But, in addition to babies, there's also burnout. Our philosophy is to accommodate staff as we would a guest. Rested, energetic employees produce the best results, so we do whatever we need to adjust their work schedules for requests for "burnout" time off. If an employee needs what we think is too much time off, then we consider transferring that person to a less stressful position.

The result of such an innovative program? Employees know we care, so they care -- and they don't abuse the system. We haven't tracked this program carefully yet, but the costs are so minimal they're almost unnoticeable.


An area the hospitality industry constantly struggles with is marketing. What does it mean? We know it's not just selling -- that is, putting a price tag on a service and then walking the payment to the bank.

At Camberley, we approach every transaction, from changing a light bulb to firing the furnace to plumping a pillow to answering a reservation phone to greeting our guests, from this perspective: Every single thing we do is marketing. So when you consider a hair in the bathroom sink, a cranky reservationist or a burned-out bed lamp can all affect the guest's perception of your hotel -- and whether they'll return to stay with you or refer you to others -- then every employee is part of the marketing team.

The benefits outlined above, in particular the employee incentive plan, have a direct impact on how seriously people take their work. Sure, some employees are motivated by an internal need to do the right thing at all times. But others may need some prodding, and that's what our employee incentive program does. In the process, it helps to ensure that the presentation of our product is excellent at all times.

By department we can calculate how improving our efficiency and attention to detail are increasing Camberley's net operating income, thanks to employee incentives. This well-defined incentive program will pay 100 percent in incentive potentials if we've achieved 100 percent of our goals. We believe, in a real sense, we can quantify marketing and guest satisfaction through this program.

For example, when we're running 30 percent to 35 percent annual repeat business companywide, as high as 40 percent to 45 percent in one of our hotels, and our occupancies are climbing even as we raise our rates, then we know our product is being positioned and marketed effectively from start to finish. (The industry standard for repeat business is in the 20s.)

There's nothing like marketing to increase revenues and nothing better to increase profits than increasing revenues. But we realize we can increase profits only so far. It's in every one of Camberley's employees' interest to "up sell" guests, worth it to talk up our in-house restaurant and beverage facility. Employees' enthusiasm for the product they're working on is probably directly proportional to the pride they take in producing it.

For us, quantifying lost business due to unhappy guests is difficult because we don't hear from every dissatisfied customer, but we do hear from a larger proportion of dissatisfied than satisfied. But lost business is measurable in terms of our operating statements and how our properties are performing against their goals. If a department isn't meeting its goals, this doesn't necessarily mean dissatisfied guests, but it's usually a contributing factor.

We rely heavily on our guest comment cards, which are reviewed by Camberley's president. (If there are billing-related problems, then our CFO gets involved.) We've noticed a definite drop in the number of complaints we've received over the last two years. These are typical hotel complaints: The front desk clerk wasn't friendly, or the room wasn't as clean as it should be. When incentives for the people supervising these functions are linked to the financial performance of that department or that segment, then the supervisors definitely pay more attention to the details of service and food presentation and inspect a room to make sure it's clean.

In short, our employee benefits aren't about making miracles, but they do help us run our business better. As with everything, you get out of something what you're prepared to put into it. While scrimping and saving on employee benefits might help with short-term financial objectives, Camberley is taking the position that in the long term this is false economy.


Twenty-five percent of the Camberley Hotel Company's eligible employees are enrolled in its 401(k) plan. Our full-time employees are eligible to enroll after they're employed for six full months and can enroll during two annual open enrollment periods in January and July. Through the plan they can save as much as 15 percent of their earnings on a pretax basis.

The plan's outside administrator offers employees 15 types of investments. These include both variable interest rate accounts and guaranteed interest funds. Camberley pays the administrative fees associated with the plan and doesn't pass those fees on to the employees.

Through the administrator, Camberley offers employees an educational seminar each year. Using a lap-top computer, the administrator's representatives compute savings assumptions for employees based on their salaries, taxes, other deductions and the percent of contributions made to the 401(k) plan. Then they provide retirement-age income scenarios.

Camberley's human resources staff also provides information that will help our employees make decisions on what kinds of investments are best for them. The company doesn't provide investment advice, but it does help employees look at the investments relative to such variables as age, family and income.

Each employee in the plan has a personal identification number that allows that person to access account information at any time through an 800 number to the outside administrator. The administrator also provides quarterly account statements. Employees have full control over their investment and can adjust their variable interest funds as they wish.

On a payroll basis, 401(k) payroll deductions of up to 15 percent (Camberley's average contribution is 4 percent) are made on a pretax basis, and these are sent by the company to the administrator. As explained in the accompanying article, the 401(k) plan is structured as an incentive. If the company is below its budgeted gross operating profit, then Camberley doesn't match the employee contributions to the plan. If Camberley achieves its targets, it pays 50 percent of the employee contributions. After that, the employee match increases on a percentage basis as the gross operating profit exceeds the budgeted amount.

Mr. Stewart is vice president of finance of The Camberley Hotel Company based in Atlanta, Georgia.
COPYRIGHT 1993 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Employee Benefits; includes related article
Author:Stewart, Barry A.
Publication:Financial Executive
Date:May 1, 1993
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