Do Higher Wages Pay for Themselves? An Intra-firm Test of the Effect of Wages on Employee Performance

Conference: AAA 2015 Management Accounting Section (MAS) Meeting, AAA 2015 Annual meeting, Volume: http://ssrn.com/abstract=2482829This study uses field data from 490 hotels in a single lodging chain to investigate three questions related to the efficiency-wage hypothesis. (1) Does paying workers higher relative wages ex ante result in better ex post actual performance, either by motivating workers to exert greater effort or by attracting higher quality workers? (2) Is the magnitude of the relation between performance and wages the same when workers are overpaid versus underpaid? (3) Do the overall benefits of paying higher wages outweigh the costs? The data enable us to perform powerful tests of wageperformance relations because exogenous factors that likely affect employee behavior are standardized across hotels. Our results suggest that actual performance (measured by customer satisfaction, revenues, and profit) is increasing in the relative wage, and that higher performance is the result, and not the cause, of higher wages. We find that the magnitude of the wageperformance relation is at least as large for workers who are overpaid compared to those who are underpaid. This result, which differs from the results of experimental studies, suggests that overpaid workers do not rationalize away wage premiums. Finally, our results indicate that increases in wages do, in fact, pay for themselves. A $1,000 increase in the general manager’s relative wage results in a$1,080 increase in profit for the mean hotel. This research contributes to a series of studies that investigates the extent to which wages influence performance (e.g., Levine, 1992; Fehr and Falk, 1999; Hannan, Kagal, and Moser, 2002; Hannan, 2005), and whether the marginal benefit of wage increases justifies their costs (Levin, 1993)

The impact of renovation capital expenditure on hotel property performance

This study investigates the impact of renovation capital expenditure on multiple measures of hotel property performance. We conduct analyses in two time periods: for a 3-year period immediately following renovation (short-term impact), and 3 to 6 years following renovation (long-term impact). The study is based on proprietary project, operational and financial data obtained for 305 renovation capital expenditure projects of individual properties within a single budget hospitality chain. We find renovation capital expenditures offer significant short-term beneficial impact in terms of increased revenue, profitability gains, higher customer satisfaction, and decreased repair and maintenance expense. Altogether, these outcomes should be advantageous to hotel property performance. In the long-term, a significant decline is apparent in revenue and profitability. Surprisingly, customer satisfaction does not decline, and repair and maintenance expense does not increase, which are both favorable

Accounting Research in the <i>Cornell Quarterly</i>: A Review with Suggestions for Future Research

An analysis of accounting-related articles published in the Cornell Hospitality Quarterly shows a shift from prescription to description, with an increasing use of scientific research methods. The authors found that the literature has examined the industry’s use of the Uniform System of Accounts, cost management, and management control systems, including the effects of nonfinancial measures and the balanced scorecard. Although a uniform system of accounts offers consistency, it may limit a hotel manager’s ability to match costs with departmental revenues. Budgeting and capital budgeting are particularly difficult issues for the hospitality industry, due to the fact that most hotels involve independent parties as ownership and management. One oddity of the hospitality industry is that few managers adjust budgets to reflect operational outcomes. In addition to their review, the authors provide suggestions for future research.Potter2_Accounting_research.pdf: 392 downloads, before Aug. 1, 2020

Accounting Research in the \u3ci\u3eCornell Quarterly\u3c/i\u3e: A Review with Suggestions for Future Research

An analysis of accounting-related articles published in the Cornell Hospitality Quarterly shows a shift from prescription to description, with an increasing use of scientific research methods. The authors found that the literature has examined the industry’s use of the Uniform System of Accounts, cost management, and management control systems, including the effects of nonfinancial measures and the balanced scorecard. Although a uniform system of accounts offers consistency, it may limit a hotel manager’s ability to match costs with departmental revenues. Budgeting and capital budgeting are particularly difficult issues for the hospitality industry, due to the fact that most hotels involve independent parties as ownership and management. One oddity of the hospitality industry is that few managers adjust budgets to reflect operational outcomes. In addition to their review, the authors provide suggestions for future research

Competitor monitoring and revenue performance: Evidence from the hospitality industry

This study examines how firms’ use of competitor-focused accounting information, specifically competitor monitoring information, impacts their pricing, demand, and overall revenue performance. The monitoring activities examined are the scope of monitoring, monitoring above and below one’s own hotel class (i.e., market segment), and the extent of reciprocity of monitoring. Competitor analysis is a central element in strategic management accounting (SMA), yet little empirical research has been done since companies do not disclose competitor monitoring activities. Proving the value of competitive monitoring provides strong support for SMA. Archival, proprietary monitoring information regarding pricing, demand, and revenue were obtained from one of the largest hotel markets in the United States. Using regression, we modeled the relationships between performance measures (pricing, demand, and revenue) and monitoring behaviors, while controlling for quality (hotel characteristics and management skill), competitive intensity, hotel class, geographic location, and ownership type. Our results indicate that two aspects of competitor monitoring impact hotel pricing that, in turn, impacts hotel demand and revenue performance. Specifically, a hotel monitoring more competitors (what we refer to as Scope) achieves higher prices with unchanged demand, resulting in higher revenue performance. Most hotels monitor within their class. However, deviating from one’s class has profound outcomes: looking at lower (higher) quality hotels results in a hotel setting lower (higher) prices, resulting in higher (unchanged) demand and lower (higher) revenue performance. Surprisingly, we did not find support for the reciprocity of monitoring. That is, whether the competitors monitored by a hotel, in turn follow the target, has no impact on hotel revenue performance outcomes. While the SMA literature notes the importance of competitor monitoring, this study fills a gap in an important, under-researched area by documenting the link between competitor monitoring behaviors and organizational revenue performance. This may help promote greater diffusion of SMA practices