Managing Human Capital in China's Luxury Hotels

Since China opened its borders to the outside world in 1978, millions have flocked there to see sites including the Great Wall, Beijing’s Forbidden City, and the Yangtze River. And the Beijing-based 2008 Olympics only intensified tourists’ desire to see more of China. But with this growth in tourism have come significant challenges for China’s luxury hotels, especially in the domain of human resources. This article considers challenges luxury hotel management face retaining and recruiting employees, along with implications and best practices related to these.

Tourism and China’s Hotel Market

The World Travel and Tourism Council estimates that travel and tourism will contribute directly 2.6% of China’s Gross Domestic Product, or $109 billion, in 2008. This figure also represents a direct contribution of 2.5% of total employment, or 19.1 million jobs. China is expected to become the world’s top tourist destination by 2014. Hong Kong’s tourism is even more powerful proportionately, representing $64 billion, or about 3.7% of GDP.

Given these trends, the number of hotels in China and Hong Kong has grown dramatically. In 2006, China had almost 14,000 “star-grade” hotels, over 11% more than in 2005. Shanghai is expected to double its luxury hotel room capacity of 2004 by 2010, and Beijing is on similar pace, fueled in part by the 2008 Olympics.

Human Capital Management Issues

Growth in China’s tourism industry has driven strong revenues for the hospitality industry, along with creating significant challenges. For example, Mark Hoplamazian, Global Hyatt Corporation’s president, noted that retaining qualified employees in Chinese hotels has been a constant struggle. In line with this, Hyatt has required intensive language, grooming, and behavioral training programs for hotel employees in China since opening its first hotel ther in 1986. But even in that first year retention issues arose: of the 120 employees trained, 35 were hired by a cruise line the day after the hotel opened; a number of others were hired by hotel guests. Since then Hyatt, which operates nine luxury hotels in mainland China and plans to open 18 more, has learned to hire about 20% more employees than needed for operations. And the need for new employees is expected to continue. A Marriott HR Vice President, for example, notes that the hotel chain currently has 16,000 employees in China, but needs over 8,000 more. Thus retention and recruitment are the primary challenges for luxury hotel operators in China.

Retention of Employees
On-site research was conducted in three mainland Chinese cities and Hong Kong to understand hotels’ current recruiting practices. Lure of higher pay was cited as the primary reason for employee turnover. Cheong Wai Meng, Director of HR for Grand Hyatt Beijing, noted that hotels advertise 30% wage increases for individuals with hospitality experience. Beyond competition among hotels, non-hotel US joint venture (JV) firms recruit hotel employees for their English and other skills; this often occurs when JV-related guests stay at hotels and get to know the staff members. JVs often pay higher wages than hotels, so hotels stress their family-oriented cultures and exciting work environments. The hotels also monitor current wage levels very carefully through annual or even quarterly market surveys and other means, as going rates seem to change almost overnight.

Annual bonuses are another retention tactic, with payments tied to the hotel’s overall performance. But, likely as a move to improve retention, the Grand Hyatt Shanghai paid employee bonuses in 2007 even though it failed to meet annual goals. Beyond bonuses, the Grand Hyatt even covers portions of their higher-level employees’ mortgages for a set period, given the challenge of purchasing real estate in major Chinese cities, as well as paying for employees to pursue outside courses and degrees. Most hotels don’t even require that employees remain in their positions for a specific period of time after completing their degrees. Hyatt also offers three high-profile employee awards: HyStar (like an employee-of-the-month award, based on positive guest comments); HyInnovator (for high-impact creative suggestions); HyAchiever (annual award for the employee who has contributed the most to guest satisfaction).

Despite these compensation-related benefits, many hotel employees (e.g., 100% of Grand Hyatt Beijing employees) cite “opportunities for personal growth” as their primary motivation for remaining with their employers. Hyatt identifies high-potential employees quickly and offers enhanced training and membership. Hyatt also offers a cross-training program to keep employees sharp and expose them to other functions that may suit their skills and preferences better. In addition to these formal programs, Hyatt coaches employees on how best to manage their careers.

In addition to compensation-related benefits, the Portman Ritz-Carlton has focused on developing a highly family-oriented culture based on its worldwide corporate motto: “We are Ladies and Gentlemen Serving Ladies and Gentlemen.” Each employee carries a card with this motto at all times. A Ritz manager cites this cultural element as one of the reasons the hotel enjoys a relatively low turnover rate of 25%.

The hotels also stress strong communication programs as central to retention. Hyatt hosts a quarterly general employee meeting and requires division heads to host quarterly individual employee meetings. The Portman Ritz-Carlton administers an annual survey to understand employee concerns.

In contrast to mainland China hotels, Hong Kong-based ones have had an easier time with retention, enjoying lower annual turnover rates. Vida Chow, HR Director for Grand Hyatt Hong Kong, notes that about a third of the hotel’s employees have been with the firm over 10 years. But several Hong Kong hotel managers noted that employees are being tempted by ongoing development in Macau, where approximately 120,000 new jobs in the hospitality industry were expected between 2005 and 2010. In part to offset this source of attrition, the Kowloon Shangri-La offers a Well-Being Passport whereby employees earn points redeemable for gifts by participating in yoga, massage, and other classes.

Recruitment of Employees
Given the current market, China’s luxury hotels struggle not only to retain existing employees but to attract new ones. Even convincing qualified but inexperienced candidates to enter the hospitality industry is a challenge, largely because the parents of young adults remain heavily involved in their career decisions—in part because of the One Child policy—and prefer medicine and law to hotel management’s service-based positions. Thus many hotels emphasize the breadth of career opportunities they offer. Interestingly, the Ritz sends a thank-you letter to parents of new hires, in an effort to make allies of potential detractors.

To find candidates, hotels use newspaper and Internet ads. Unfortunately, often up to 90% of applicants are unqualified for advertised positions, so hotels sometimes rely on firms such as US-based Talent Plus to screen candidates. Hotels also create relationships with nearby universities and vocational schools to find interns and permanent employees. Hiring processes include interviews with high-level managers, and training typically involves a general overview followed by department-specific instruction.

A Hyatt executive noted that the general skill sets of Hong Kong citizens are higher than those of individuals from mainland China, making it easier to recruit employees there. And recruiting may be easier in Hong Kong due to the absence of a One Child policy.

Hiring employees is a challenge for hotels in China, but firing them may be an even greater one. China’s highly worker-friendly government regulations, including the China Employment Law 2008, present challenges for luxury hotels there. For example, workers can only be terminated under very specific circumstances including criminal conduct, and termination of employees with over ten years of employment with a given hotel is even more challenging.

Best Practices

Today, attracting, training, and retaining luxury hotel employees is a major challenge across China, even in lower-tier cities. Annual and quarterly wage surveys and the provision of housing and education are among the best practices revealed by this research, along with a focus on multiple advancement opportunities and individual development. But global hotel brands must continually innovate human-resource-related practices to meet the challenges documented here and those that will certainly arise in the future, as tourism in China and Hong Kong rises even further.