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4 Employee Retention Strategies For The Hospitality Industry

David Ramirez
March 20, 2023
4 Employee Retention Strategies For The Hospitality Industry
Table of contents

Employee retention is a serious issue in the Hospitality and Food Services sector.

According to the Bureau of Labor Statistics, the sector has an annual turnover rate of 73.8%, with over 6% of staff leaving every month.

This figure by itself is alarming, but it doesn’t stop there. With almost 3 quarters of staff departing every year, this begs the question: just how much is turnover costing hospitality businesses?

As it turns out, it’s costing them a lot.

According to a study by Cornell University’s School of Hospitality Management, employee turnover costs hospitality companies an average of $5,864 per employee. For a company with 500 employees with an industry-average turnover rate, employee turnover would cost over $2 million a year.

That’s a lot of money. Money that could be spent on marketing, property upgrades, and other initiatives that enhance the bottom line.

This problem has always been bad, but it might be worse now than ever before. Unemployment is currently at 4.1%. This means companies in the hospitality industry are competing over a small talent pool, which is likely driving the cost of turnover even higher.

All things considered, it’s easy to see why employee retention in the hospitality industry is such a hot button issue. That’s why we put together this overview of 4 employee retention strategies. Hospitality industry professionals can use these strategies to engage employees and lower turnover to make a major impact on their bottom line.

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Employee Retention Strategy #1: Use Benefits to Incentivize Long-Term Employment

It’s long been known that employee benefits are a major factor in attracting and retaining talent. When it comes to benefits (not including compensation), retirement benefits and health care are the most important.

Retirement Benefits

According to a study by Willis Towers Watson, 35% of surveyed employees said retirement benefits were an important factor in deciding to work with their current company, while 47% rated them as being important in their decision to stay with their company. In other words, retirement benefits like the 401(k) are important drivers of recruitment and employee retention.

Retirement benefits like the 401(k) are effective because they uniquely incentivize long-term employment – especially when offered with an employer match. Hotels, restaurants, or other companies in the hospitality industry can use the employer match with a special vesting schedule to incentivize employees to stay with the company – even through retirement. When employees know that their company takes an interest in securing their financial futures, they’re more likely to stick around and put in their best work.

Retirement benefits are also especially effective at retaining older employees, who often perform complex, higher value jobs. Retaining these employees is especially important considering that Cornell’s study found that losing employees who perform complex job duties costs hospitality companies $9,932 – much higher than the average of $5,864 per employee. With these being the highest value workers, warding off high turnover rates in this employee segment might be the most critical employee retention strategy in the hospitality industry.

As important as retirement benefits are, most hotels, restaurants, and hospitality companies aren’t getting anywhere near as much retention benefit as they could be from their retirement plans. Most are plagued with issues such as low employee participation, ineffective plan design, and huge administrative burdens on their HR teams. One frequent case we’ve heard is highly-compensated employees being severely limited in their 401(k) contributions due to low participation and failed non-discrimination testing. This could be leading to higher turnover rates among the most valuable and difficult-to-replace segment of employees.

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Health Care Benefits

Health care benefits are also hugely important in warding off employee turnover. The Willis Towers Watson study found that 46% of employees considered health care benefits an important factor when deciding to work with their current company, while 55% rated them as an important reason to stay with their employer.

With medical costs on the rise, this should come as no surprise. Though employees need to know that their employer has their future in mind, they also need to know that they’re taken care of in the present. Providing good health care benefits can do just that.

Employee Retention Strategy #2: Build an Attractive Hospitality Company Culture

A culture in which employees feel engaged isn’t just a nice-to-have; it’s a strategic necessity that can have a major impact on employee retention. According to a study by Achievers, engaged employees perform 20% better and are 87% less likely to leave than employees who are disengaged. This same study found that companies with high employee engagement reported revenue growth that was 2.5x higher than companies with low employee engagement. Simply put, an engaging culture can lead to success for hotels, restaurants, and other companies in the hospitality sector.

So just how do hospitality companies build cultures that combat high turnover rates and engage employees?

Research shows that companies can build engaging cultures by excelling in one crucial area.

Employee Recognition

Most employees are willing to go above and beyond. They just want to be recognized for their achievements. If they’re not in an environment where they’re recognized, they’ll have little incentive to work hard or stay with the company.

The Achievers study found that lack of recognition was the number one reason why employees quit. The study also found that over 65% of employees don’t feel recognized at work. So hospitality companies that get employee recognition right stand to gain a major competitive advantage.

There are a lot of ways to make employees feel recognized. For instance, when employees go above and beyond, general managers and other supervisors should make it a point to thank them.

One example of a hotel company that does a great job recognizing their employees is Kimpton. The company celebrates individual success stories in their Kimpton Moment – an award recognizing employees who go above and beyond for a guest or fellow employee. Kimpton Moment winners are celebrated every month, and one of them is even selected at the end of the year as the “Ultimate Kimpton Moment Winner.” This winner is recognized at Kimpton’s annual Chef/General Manager Meeting where they receive a $10,000 prize for exemplifying Kimpton’s values.

Really, the possibilities are endless. The important thing is to show employees that their efforts don’t go unnoticed.

Evaluating 401(K) providers? Download our insider checklist now.

Employee Retention Strategy #3: Help Employees Develop Their Careers

Employees have many concerns when it comes to deciding to stay with a company. One of the most significant of these concerns is how well the company facilitates a successful, progressive career path.

According to a study by BetterBuy, companies that offer professional development opportunities like tuition reimbursement or in-house training programs had a 34% higher retention rate than those that didn’t. 75% of employees with development opportunities said they were likely to stay with their employers for another five years, compared to 56% who had no development opportunities.

Marriott is an example of a hospitality company that includes professional development as part of its human resources strategy to attract and retain the right people. Marriott offers training and development programs for all levels of employees, focusing on developing role-specific skills as well as broadening employee expertise to different disciplines within the company. These programs promote hospitality expertise which opens up multiple opportunities for career advancement, while also providing Marriott with a pool of proven, trained employees they can promote to upper-level positions as they become available.

Employee Retention Strategy #4: Focus On Providing Good Leadership

Conventional wisdom says that employees don’t leave companies; they leave managers. As it turns out, the conventional wisdom is true. A study by Gallup found that 75% of the reasons for voluntary employee turnover can be influenced by managers. Whether it’s a lack of people skills or an unwillingness to help employees develop, bad managers can be real heart attack. Literally. One Swedish study found that having a bad boss raises an employee’s chance of having a heart attack by as much as 60%.

All of this is to say that focusing on the quality of your managers is critical to preventing high turnover rates. This starts with surveying employees on their manager. Keep an eye out for negative feedback. This could be something like unclear expectations or a lack of opportunities for progress or development. Any negative feedback towards managers could be a strong warning sign and lead to high employee turnover rates.

Hospitality companies might benefit strongly from programs which promote good management practices. Managers should be trained on how to delegate effectively, communicate expectations, recognize employee achievements, and more. Ultimately, focusing on good leadership might be one of the most effective employee retention strategies in the hospitality industry.

Want to Improve Employee Retention? Start With Your 401(k)!

Offering great retirement benefits is one of the easiest ways you can make a positive impact on employee retention at your company. Advances in technology and behavioral design have made it easier than ever to offer a great, low-cost 401(k) that your employees will love. Talk to us today to learn how you can turn your 401(k) into a recruiting and retention machine.

Evaluating 401(K) providers? Download our insider checklist now.
Download 401(k) Employee engagement eBook
Top strategies to boost participation, pass non-discrimination tests and make your 401(k).
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About Author -
David Ramirez

David Ramirez, CFA, is a recognized 401(k) expert with over 20 years of experience in 401(k), ERISA, cash balance plans, and ESOPs. A UC Berkeley graduate, he played a pivotal role at Financial Engines, a 401(k) advisory firm founded by Nobel Laureate William Sharpe, Ph.D., where he was a portfolio manager who helped manage over $50B in 401(k) assets.  His clients included some of the largest Fortune 500 companies and state governments.

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1 Schwab 2022 401(k) Participant Study - Gen Z/Millenial Focus, October 2022.
2 As of 12/31/2022. Employees include both current employees and terminated participants with a balance.
3 "Morgan Stanley At Work: The Value of a Financial Advisor" Morgan Stanley, March 2022.
4 Sarah Britton was a client when she provided this testimonial through an independent third party review website. She received no compensation for her remarks. There are no known conflicts of interest in the provision of her comments related to the services provided.