Hotel Management Contracts and Deficiencies in Owner-Operator Capital Expenditure Goal Congruency

Abstract

A review of the findings of prior empirical research concerning hotel management contracts between owners and operators is undertaken. It is noted that management contracts have become increasingly commonplace in the international hotel sector and that gross revenue and gross operating profit are the most extensively used determinants of operator incentive fee remuneration. These findings present a platform for examining how revenue and gross operating profit are deficient in promoting owner—operator goal congruency. In light of this, return on investment (ROI) and residual income (RI) are examined as potential alternative determinants of operator reimbursement. Although it is appears that both ROI and RI as determinants of hotel operator fees would represent an advance in promoting owner—operator goal congruency, a rationale outlining how RI is preferable to ROI is outlined.