Am I paying my staff too much? Improving profits and peace of mind: A case study from Oaxaca, Mexico

Alvin Starkman, M.A., LL.B.

It’s now two months before Day of The Dead in Oaxaca, and Juanita’s hotel still has rooms available for one of the busiest times of the year.  The City of Oaxaca, a UNESCO World Heritage Site in Southern Mexico, relies on tourism for its very existence.  Juanita is trying to figure out where she went wrong, realizing that Día de Los Muertos should top up her bank balance, just like the Christmas season, the summertime festival weeks known as Guelaguetza, and Easter.

Time and again Juanita asks herself, “Am I paying my staff too much?”  Merely asking the question reveals why her bottom line is so low.

Oaxacan business owners with non-unionized staff who either think they’re overpaying, or provide a level of remuneration only because they believe they can’t get away with paying any less, will never maximize their profit potential.  Attitude towards employees, and failing to recognize the importance and potential value of each and every staff position, affects how business fares. 

Here in Oaxaca it’s a well-known fact that non-Mexicans (extranjeros) pay their help more (i.e. “too much”) money relative to Oaxacan employers.  Until recently I had assumed that the reason was simply that Americans and Europeans resident in Oaxaca come from wealthy societies in which entrepreneurs can afford to pay large salaries, and although now living and working here in Oaxaca they still think and operate in American Dollars --- not understanding or accepting Oaxacan economics.  But now, armed with data concerning the salaries customarily paid to employees in diverse positions of trust, authority and responsibility, and having conducted a rudimentary analysis of comparative levels of success between foreign and domestically owned businesses, it’s clear that the differences are rather simple, and relate to three fundamentals: 1) business acumen; 2) attitudes towards leisure time and piece of mind, and; 3) willingness to acknowledge that “you get what you pay for.”  Each is integrally related to the other. 

Juanita (names have been changed) pays her receptionists 115 pesos (roughly $9 USD) per day, and her chambermaids 100.  Mary, an American who owns a bed and breakfast, never pays staff less than 150 pesos per day.  The American travels outside of the country to promote and conduct business, and to vacation, on a regular basis.  The Oaxacan rarely leaves the city or takes a vacation of longer than three days, and does so only when there are virtually no guests in the hotel.  The Amercan says that she knows she pays her staff too much relative to Oaxacan salaries, but when she stops to think about what “overpaying” enables her to do, and how her business fares, acknowledges that perhaps she is not being unreasonably generous with her staff.

Why is Mary’s B & B one of the top-ranked tourist accommodations on a major international travel website, while Juanita’s is in the doldrums?  Juanita says she’s paying her staff double minimum wage, and could pay even less if she really wanted to.  Mary has had the same staff for several years, and even acknowledges their birthdays.  Juanita has high employee turnover.

Juanita’s financial outlay is significant. She spends an inordinate amount of effort making her hotel look pretty, and money promoting it.  Her hotel is in a high rent district in the downtown sector of the city.  It should be packed day in and day out given its location and the expenditure to maintain it.  Yet two months prior to Day of The Dead, she is one of only two lodgings in her association with rooms still available for the high season.  Funds are earmarked for the wrong places; prioritization is skewed.

Juanita’s retort strikes a familiar chord, and at first instance might seem rational:  “It wouldn’t matter if I paid my receptionist 30, 40, or even 50% more,” she laments. “She wouldn’t work any harder or be more dedicated, because more money doesn’t motivate them; that’s just the way they are.  And besides, I can’t afford any more, with all my other expenses, and business generally down.”

Juanita’s response can be summarized as twofold:  paying more won’t yield results, and; she can’t afford it anyway.  Dealing with the first, Juanita has to step out of the box, out of the colonial way of thinking. She sees “the culture of poverty,” insofar as it relates to native workers from small towns and villages, not allowing employees to break from a fatalistic pre-determined mold, because that’s just the way they are. More money won’t make a difference to their lot in life and therefore won’t motivate.

It does not behoove me to tell Juanita she’s wrong, and it is beyond the scope of this essay to even try to illustrate that she is, which may or may not be the case.  But there’s another solution to Juanita’s dilemma which does not threaten or test her ingrained beliefs.  She can seek out prospective employees whose expectations are higher to begin with; those who have perhaps had a taste of higher earnings and what they can provide, or have achieved advanced education, if only a high school diploma which has lead them to a career path (una carrera). Juanita then begins with the knowledge or at least an expectation that the change in hiring will bear fruit. But that might entail going as far as paying her receptionists 200 pesos a day.

Can Juanita afford to pay her daytime and evening receptionists, Alma and Rosita, almost double?  And why would she?  After all, reception is a non-management position.  This leads us to the second prong of the equation, that is, affordability and making a difference.  We must look at the question in terms of higher profit potential, and peace of mind and its natural consequences.  What then would be the implications for Juanita’s after-tax income, and more generally the quality of her life?

Juanita has eight rooms in her hotel.  She would be increasing the pay of only two of three receptionists, on the basis that the all-night position might not yield results with a higher level of pay.  It would therefore cost an additional 170 pesos per day to raise each of the two shifts to 200 pesos, plus other sundry expenses, so call it 200 pesos more per day.  Juanita could make it up by raising room costs by 25 pesos, or roughly 4%.  Or she could absorb the extra cost and see if it makes a difference.  Let’s assume, although I’m not certain we should, that vacationing couples would resist paying 625 instead of 600 pesos per night, or 12.5 pesos more per person. 

How would Alma react to having a 200 peso per day job, rather than working for 115?  Her sense of self-worth would receive a shot in the arm; her name would be on her uniform; she would be more likely to stay at work after her shift has ended, without resentment, if for example Rosita arrived late on occasion; she would less likely be constantly looking for a job paying 10 pesos more a day; and she would feel that her education has paid off.  Juanita might even give her the responsibility of making bank deposits if she proved completely trustworthy and loyal.  Without a doubt she would be more likely to provide hotel patrons with “value-added service” … and with a smile, literally. 

Alma and Rosita would remember patrons returning the next year, and the guests would surely recall them, because of their friendly faces and the service they provided.  There’s nothing like returning to a hotel and seeing familiar faces. It breeds comfort … more so than a soft duvet.  Both Mexican nationals and foreigners tend to be family oriented.  They would perceive the hotel and its staff as a family, again leading to familiarity and comfort.  They will be more likely than not return to the same establishment next year, and recommend it to friends.

Over time the nature of and expenditure for advertising can be adjusted, from paying out higher costs every year for the same and new promotional techniques, to the more economical promotion of emailing those on the client list from time to time to keep the hotel’s name in their minds. The hotel will be able to use the written testimonials of its guests, which will undoubtedly be received, instead of pay its marketing specialist to come up with catchy slogans of questionable value (at least that’s the Oaxacan norm). 

Once the level of trust has been established, Juanita can take the odd day off, knowing that Rosita will be able to resolve small problems on her own such as calling the plumber, the electrician, the water delivery man and the municipality.  She’ll have the confidence and the sense to call Juanita when she cannot resolve problems, not feeling as though she’s been a failure for not dealing with issues on her own.  Juanita won’t be constantly calling the hotel to make sure everything is running well.

Rosita will sense her value to Juanita, and anticipate regular raises, which will keep her content.  And Juanita will hopefully have the sense to not wait until Rosita takes the bold step of asking. 

Juanita will be able to take off not only the odd day, but actual vacations. 

Reception is the most important staff position a hotel can have. It provides the first impression that a prospective patron will receive about Juanita’s hotel, whether the inquiry is by phone, or in person.  Unless Juanita wants to be the one answering the phone and selling her hotel to off-the-street tourists, she’d better begin paying Alma and Rosita the value of their positions … or they’ll be gone, and Juanita will in fact be working 24/7.

Once her staff is patterned to provide value-added service, Juanita can raise her prices.  No one will begrudge that extra 25, or better yet 125 pesos per night.  After all, Alma and Rosita will be doing the selling for her.

Next adjustment?  Think of the level of responsibility entrusted to chambermaids, and how much they are being paid.  They ensure patrons’ valuables do not disappear, and the cleanliness of surroundings and level of comfort for a full one-third of the time travelers are on vacation!