Let's take an example of a hotel with 24 management employees. Let's assume that management salaries, bonuses, and fringe benefits total $1,420,000. Next let's assume projected Gross Operating Profit for the year is $4,900,000.
Eight of the management employees have been in their current positions with the hotel one year or less, six employees have been in their positions 2 years, 6 employees 3 years, and 4 employees have worked in their jobs at the hotel for over three years.
|Team Contribution Factor
|8 employees x 5 (their expected contribution factor)
6 employees x 3 (their expected contribution factor)
6 employees x 1.5 (their expected contribution factor)
4 employees x 1 (their expected contribution factor)
|Total contribution from 24 employees:
|Average Contribution: (71 divided by 24 employees)
|$1,420,000 x 2.95
Expected employee GOP contribution
(Payroll x Average Contribution Factor
= Expected GOP)
|Shortfall between projected GOP and expected employee contribution to GOP
Adding up the total contributions expected from the 24 employees gives us a raw contribution of 71. Divide that by the 24 employees to get an average contribution for the team of 2.95. Now multiply the 2.95 times the $1,420,000 payroll to arrive at the expected GOP contribution ($4,189,000) from this team based on their experience in their current jobs. The hotels projected GOP of $4,900,000 is $711,000 higher than is realistic to expect from this management team.
Based on the Contribution Factor this hotel has three options:
- Identify exactly how the extra $711,000 is going to be obtained by this team.
- Restructure the management team so the projected profit is achievable, or...
- Reduce the projected GOP.