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Association of Nonfinancial Performance Measures with the Financial Performance of a Lodging Chain

Anderson School of Management at the University of California, Riverside, rajiv.banker{at}ucr.edu

Gordon Potter

Cornell University School of Hotel Administration, gsp6{at}cornell.edu

Dhinu Srinivasan

University of Pittsburgh, dhinus{at}katz.pitt.edu

A test of nonfinancial measures used as part of a management-incentive program by a U.S.-based, full-service hotel chain found that improvements in the nonfinancial measures were followed shortly by increases in revenue and profit. The two nonfinancial measures are customer satisfaction as measured by guests’ comment card indications of likelihood to return and level of complaints. The lag between the nonfinancial measures and changes in revenue and operating profit was six months in this case. While the test applies directly to that one chain, the lesson is important to the rest of the hotel industry.

Key Words: nonfinancial performance measures • performance evaluation • incentive plans • customer satisfaction • executive compensation • hospitality industry • balanced score card

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