A hotel chain CEO says bigger tips, not raises and bonuses, could stop workers quitting and ease the labor shortage. He’s now encouraging guests to opt into tips as they arrive.

Restaurant server US
Ted Darnall said that gratuities aren’t meant to replace competitive wages, but that HEI’s work to drive bigger tips was having an ’emotional effect’ on staff. Noam Galai/Getty Images
  • HEI Hotels is rethinking how it encourages customers to tip because of the labor shortage, its CEO said.
  • This included letting guests opt-in to gratuities when they arrive, which they don’t pay until they leave.
  • CEO Ted Darnall also said that raises and bonuses weren’t the solution to the labor shortage.
  • See more stories on Insider’s business page.

The CEO of HEI Hotels and Resorts said the chain was encouraging customers to authorize tips at check-in to ensure staff were recognized for their hard work.

Guests who opt-in would pay tips when they left the hotel, Ted Darnall told Insider on Thursday. The chain has more than 80 hotels and resorts in the US and around 6,000 staff.

Darnall said better tipping policies – not raises and bonuses – could help hotels and restaurants retain workers amid the US labor shortage. The US Chamber of Commerce has declared the shortage a “national economic emergency.”

Some hotels have been raising salaries and offering bonuses, but Darnall said that this has “never been the solution” for hiring challenges in the hospitality industry. “If somebody pays a dollar more then somebody else is going to match that,” Darnall said.

“I call that an unsustainable competitive advantage. In other words, you’re at a competitive advantage for an hour, until somebody decides to match it,” he said.

Before the pandemic, hotel guests would leave cash in an envelope in their hotel room for housekeeping staff – “but in today’s world people just don’t carry cash,” Darnall said.

The chain is also considering adding a minimum gratuity to restaurant checks. These tips would be pooled and distributed among staff based on the number of hours they work, he said.

Darnall said that “everybody’s struggling a little bit” with the shortage, HEI included. He said that South Beach was among the most challenging markets to find servers. HEI had turned to overtime and contractors to fill vacancies, he said.

“People are taking jobs, leaving them after three weeks,” Darnall said. “And that’s the worst thing that can happen because the cost associated with that is enormous.” The owner of a hotel in New York told Fox Business that some staff don’t even show up for their first shift.

People tipped more in the pandemic – but are now unsure

People started tipping more during the pandemic because they knew staff were making less money, Darnall said. But as the pandemic subsides, customers aren’t sure whether to return to previous tipping habits or stay at the higher level, he said.

He said that it was important to educate customers about how hard staff had been working, and to encourage guests to recognize this by leaving a tip.

Darnall said gratuities weren’t meant to replace competitive wages, but that HEI’s work to drive bigger tips was having an “emotional effect” on staff.

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This comes as travel rebounds in the US and hotels are starting to get busier. Darnall said that HEI’s hotels, which are mainly located in busy urban areas like New York, San Francisco, and Chicago, were at 52% capacity in May. This could rise to an average of 60% in June, he said.

The hospitality industry relies heavily on word-of-mouth recommendations to drive recruitment, so HEI focuses on creating a better working environment for staff, such as through healthcare insurance, training opportunities, and free meals, Darnall said

“Recruitment comes from satisfied associates,” he said. “The best-in-class employers will be the first to stabilize.”

Darnall said that HEI was focusing on creating a good first impression for new hires because “if they stay 90 days, they stay three years.”

“They’ve got to like walking through that door in the morning,” he added.