The Compensation Situation
By Jamison Stoike
WHEN THE COVID-19 PANDEMIC FIRST HIT in full force last spring, many wondered what the long-term effects would be on compensation and benefits in the industry. Many predicted that salaries would fall. Yet, an intensely competitive labor market means that spas are now paying more than ever to attract the service providers they’ll need to handle the coming post-COVID travel boom.
More than a year out from the initial wave of spa closures, we checked in with ISPA members to uncover industry-wide compensation trends and discover innovative ideas and bold new compensation strategies.
THE STATE OF THE INDUSTRY
“There was a high expectation that there would be a cut in wages,” says Michael Tompkins, partner at Hutchinson Consulting, “simply due to the fact that the pandemic ate through all of the profits in the hotel and hospitality industries.”
Tompkins’ words summarize the general mood of a year ago—as spa directors, spa owners and hotel operators confronted the bleak bottom line of pandemic-era balance sheets, many resigned themselves to a commensurate long-term reduction in pay across the industry. When spas closed, many employees were laid off. These employees were predominantly service providers and desk staff, but many spas also shed their assistant spa directors or spa managers, sometimes leaving only the spa director on staff. Those who remained employed most likely had their salaries reduced to cope with the financial shock of the tap of spa-goers being turned off. The fear was that this decrease would become a new normal: There would be no way, the thinking went, to bring back staff at their previous salaries when spas finally reopened. The losses had simply been too great.
“There was a natural assumption that there would be a ten, twenty or thirty percent cut in the long-term like there was when the pandemic first started, yet what we’re seeing is exactly the opposite,” Tompkins adds.
Instead, compensation has been up for several months now, at least for service providers. Indeed, throughout the hospitality industry, the lower you go, the faster salaries are climbing. Generally, executive level positions (such as vice presidents, executive directors, etc.) have been making less than they were before the pandemic. Management positions (spa directors, spa managers) have been making the same amount. Meanwhile, service providers and linelevel positions are seeing salary increases of double-digit percentages. Looking forward, Tompkins expects salaries to continue increasing and that those increases will climb the ladder: that is, the coming onslaught of domestic travel will likely drive up salaries not just for service providers, but also for spa director positions. The pandemic delayed the construction and opening of many new spas; this fall, many of these projects are expected to finally open and, in turn, hire spa directors. The coming wave of management-level movement will, says Tompkins, increase salaries for spa directors and managers “more towards the end of the year.”
The root cause of any industry-wide compensation increase is an increase in demand; this is certainly the case for 2021. MMGY Travel Intelligence’s 2021 Portrait of American Travelers recently published some exciting (or frightening) statistics. Among them: 81 percent of U.S. adults intend to travel for leisure in the next twelve months. Sixty-two percent plan to do so within six months. Travel for sustainability and wellness, according to their survey, is more popular than ever. And the top states of interest to U.S. domestic travelers over the next two years are states that are well-known bastions of spa: Hawaii, Florida and California. The coming travel boom will likely turn the current flow of spa-goers into a torrent as excited travelers flock to spa destinations. If your spa is located in one of these hot markets, securing the labor necessary to make the most of the boom will require participating in a fiercely competitive market for service providers and spa managers.
PERCEPTION IS EVERYTHING
How will your spa cope with the demands of the day, then? For several ISPA members, a big piece of the puzzle is simply making how you compensate employees clearer to prospective hires.
Gadabout SalonSpas, a 40-year-old salon and spa with five locations in Tucson, Arizona, recently overhauled its compensation structure. The first goal was to, quite literally, make it simpler. “We have to make our team feel like they’re earning more and getting more,” says Megan Jasper, director of marketing and operations, “and when we’re having a recruitment conversation, we have to be able to explain our compensation structure in less than a sentence. We couldn’t do that before.” The issue, it seems, was a 10 percent operational charge. Before Gadabout’s service providers earned commission on any service, a 10 percent operational charge was taken off the top. Then, commission was earned on the remaining 90 percent. This made it hard for service providers to look at weekly service dollars and quickly understand what they could expect to take home. “You can’t look at your stats on your phone and see that you had a $3000 service week and that you’re going to take home forty-eight percent of ninety percent of that,” Jasper comments.
Now, service providers earn commission off 100 percent of gross, rather than 90 percent—the operational fee has been eliminated. While this itself constituted a pay raise, Gadabout doubled down and raised service commission rates by 2 percent across the board. Retail commission rates are unchanged, though Gadabout is considering adjusting those.
With a simpler compensation structure in place, it became imperative to effectively communicate this to recruits, applicants and new hires. Gadabout created collateral just for interviewees that explains both compensation and benefits in clear, easily understood terms. A clearer expression of benefits, in particular, allowed Gadabout to actually keep their benefits relatively unchanged yet still attract more applicants and hires. Despite being a local business, Gadabout offers many benefits associated with bigger corporations—group health insurance, short-term disability, a 401(k). Yet many applicants and current employees didn’t realize the scope of benefits offered. By including these benefits more explicitly in collateral provided to both applicants and employees, it makes what they already offered seem even richer.
In this sense, the perception of a spa’s compensation and benefits package is just as important as the reality of that package. Angela Biehl, senior director of talent acquisition for WTS International, would likely agree with this idea. WTS International, a global spa consulting and management firm, operates spas in a variety of markets. At one spa, they’ve recently revamped compensation to increase the curbside appeal, if you will, of their job listings. The spa had a higher-than-typical price point for services; therefore, massage therapists still earned more than those at other area spas despite having a lower commission percentage. Yet, this lower percentage hampered the spa’s ability to attract new therapists: applicants just couldn’t see past the lower percentage. Says Biehl, “We reduced the hourly rate and increased the commission amount. It did raise compensation just slightly, but being able to post and advertise that higher commission rate seemed to make a difference in the perception of applicants.” WTS International made similar changes in compensation at another spa. There, the overall compensation amount under the new structure remained the same as it was before. Despite this, the spa began receiving more applicants purely because of the higher commission percentage.
When listing a job opening, think of the curbside appeal and perception of your compensation and benefits. How will applicants perceive these numbers? Finding ways to lift service providers’ compensation percentages and better showcase your existing suite of benefits is essential to succeed in a hyper-competitive job market.
MAKING BIG CHANGES
While perception is important, it might be equally important for your spa to update your overall compensation and benefit strategy—changing the perception of them can only do so much. Like Gadabout SalonSpas, you might try simplifying your structure and raising the commission rate to encourage what Jasper calls an “intrapreneurial mindset.” Or, like WTS, you might try a structure that places greater emphasis on commission and less on an hourly wage. However, the key is to remain flexible depending on your market. WTS International has tailored recent pilot programs for signon bonuses, referral bonuses and more to specific regions, says Biehl.
Hawaii serves as a useful microcosm for a localized approach to compensation changes, according to Shawn Hallum, regional director of Freedom Spas LLC, because “each island brings its own opportunities and challenges.” Freedom Spas operates ten locations across the state and has altered compensation differently at different spas. At one location, Freedom Spas has “implemented a wage plus commission structure,” while Hallum says that most locations now compensate service providers through a feeper- service based on treatment time, rather than service type. The previous structure based on service type “worked quite well with predictable business volume,” but didn’t mesh well with the realities of the pandemic.
Legislation in Hawaii—the Hawaii Prepaid Healthcare Act—already requires employers to provide health insurance to any employee working at least 20 hours per week. Freedom Spas has moved beyond this and now offers health benefits to service providers working 15 hours per week; the hope is that this will make job offers “compelling and meaningful,” Hallum notes.
Tompkins would agree with this decision. “With the shortages that are out there,” says Tompkins, “it is time for resorts, hotels and spas to make health insurance available to parttime service providers—specifically massage therapists and estheticians—working over sixteen hours.”
Rolling out substantive changes to compensation and benefits will likely look different for every spa. It might take the form of increased commission on services or retail or a more robust hourly rate, which Hallum advocates for. It could also mean providing more benefits to part-time staff, offering bonuses to staff who work high-demand hours, or providing financial support for licensure, an idea espoused by Biehl. There are limitless ways to tweak compensation in our industry, but two concepts are essential. First, tailor everything to your local market. Second, treat your business like it’s a first-year business, because there’s never been a better time to rethink how you approach the fundamental opportunities and challenges of operating a spa. In other words, the pandemic has provided an unheard-of-opportunity to overhaul how your spa compensates its employees, says Jasper: “We were able to make the changes that we never would have been able to make if we hadn’t had this time in our lives.”