How a hotel burnt its fingers

C. Gopinath

In an advertisement on its pages, the US business daily, The Wall Street Journal, proudly proclaimed ‘Hyatt has great news’. The paper was pleased to announce that copies of the paper would henceforth be available for our reading pleasure if we stayed at a Hyatt hotel.

Unfortunately, at about the same time last month, the news about Hyatt was anything but great. The international hotel chain was being accused of treating its cleaning staff unfairly, and the company was doing a poor job defending its actions.


It all began as a simple decision to outsource. The company decided that, as of end August, it would lay off about 100 of its housekeeping staff from three of its hotels in Boston and give the cleaning contract to a firm in Atlanta, called Hospitality Staffing Solutions. The objective, of course, was to cut costs. Hyatt’s corporate revenues had fallen by about 18 per cent during the first half of the year. Its Boston hotels had also experienced revenue shortfalls, with the recession forcing people to cut back on their travel. So the company, faced with “these unprecedented economic challenges” (in the words of its manager), took the efficient managerial decision of handing over the cleaning contract to an outside firm and laying off its employees.

Early September, the news started leaking out. It turns out that the employees who had been laid off were paid about $15 (Rs 705) an hour while the cleaning contractor’s employees were going to be paid $8 (Rs 376) an hour. That made sense, right? Cutting cleaning costs by almost 50 per cent!

But when you put paper and pencil together, knowing that an employee is expected to clean about 20 rooms in an eight-hour work day, you would quickly figure that Hyatt was looking to save about $3 (Rs 141) per day in cleaning costs for a room that it probably charges its guest about $175 (Rs 8,225) to sleep in. Well, any saving is a saving in these hard times, you would say.

But these were fairly low-level staff, some of whom had been working at the hotel for close to 20 years. At a time when the nation’s unemployment was touching 10 per cent it was not going to be easy for them to find another job. But that wasn’t all. The local paper also reported that these employees had been asked to train some other persons to do their job and were told that those being trained would fill in during vacations. Only later did they realise that they were training their replacement.


That seemed to touch a raw nerve and the local reaction was swift and bitter. The Governor of the state said he planned to direct state employees to boycott the hotel unless it took the employees back.

A couple of professional groups which were planning to host seminars or conferences at the hotel cancelled plans. Although the laid-off employees were not members of a union, a local union that normally represents hotel workers announced that it would rally in their support and picketed the properties.

The hotel chain was clearly caught off-guard. It first announced that it would help the dismissed workers find other jobs, retrain them if necessary, and extended their health care for three months.

It vehemently denied that the training of the replacements was done secretly. But you must wonder about a company’s well-paid human resources personnel who would think of a scheme as this. Meanwhile, the public indignation spread and even the city taxi union announced a boycott and refused to service the chain’s locations.

Something else started happening. The company announced that the laid-off employees would be offered work with another Hyatt contractor, a Chicago-based firm called United Service Cos. And they will be paid the wage they received at Hyatt till the end of the year.

The contractor was confident that the employees would almost surely be able to find some other job after that. (In other words, quieten down and everything would be forgotten in a few months.)


Clearly, Hyatt was completely missing the point. The company believed that if it found work (at least temporarily) for those who had been laid off, everything would be back to normal.

On the other hand, the public reaction to the cleaning staff being replaced by contract labour at lower wages was only the event on which was riding a whole lot that was perceived as wrong with modern management. Any lay-off, and especially due to outsourcing, is a sore subject, especially at a time when unemployment is rising, even while everyone is claiming that recession is over.

A lot of mid-level management personnel, currently laid off and looking for work in corporate America see their work being given to cheaper personnel, within the company or outside, and can empathise with the Hyatt employees. Yet, corporations that are penny-pinching seem to be able to find enough money to continue to pay lavish top-management salaries and bonuses.

Newspapers crow that productivity is at an all-time high — what that essentially means is that fewer people are being used to produce the same or more output.

There must be something fundamentally wrong with a measure that undermines human capital. On top of it all, when Hyatt (allegedly) made those employees train their replacements, it just seemed morally wrong.

To compound its misfortune, Hyatt’s reluctance to meet with the press to present its side of the story, and its tendency to hide behind corporate press releases did not go down well. Even when the company sensed that its response to the situation was less than exemplary, it did not know how to say it.

Look at this: “Contrary to the way our actions have been characterised by many, we did attempt to implement this staffing change in a respectful manner and many of the assertions that have been made are false. We do, however, recognise and regret that we did not handle all parts of the transition in a way that reflects our organisation’s values.”

And the final irony: Business Week, a US business magazine recognised Hyatt as among “the best places to launch a career” about the same time as the layoffs. Of course, the magazine was referring to entry-level workers in the company’s corporate training programme, not entry level housekeepers.

Courtesy: Business Line

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