StageAcquired | Acquired
About Hospitality Staffing Solutions
Hospitality Staffing Solutions (HSS) provides supplemental and outsourced staffing solutions for the hospitality industry. On January 13th, 2020, Hospitality Staffing Solutions was acquired by Kellermeyer Bergensons, terms of the agreement were not disclosed.
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Latest Hospitality Staffing Solutions News
Mar 20, 2022
getty Investors, both ESG and non-ESG, might want to ask deeper questions about scope 2 labor housed in financially engineered off balance sheet entities of asset-lite firms Business and personal travel is finally picking up and chances are you will check into a Marriott or a Hilton or one of the several hotel and motel chains across the country in the coming months. It turns out that Marriott and Hilton and several hotel chains have shrunk themselves to asset-lite brand management companies. Most of the grimy labor-intensive work associated with running a hotel – cooking, cleaning, dishwashing, vacuuming the rooms, laundering, and changing the sheets – has been outsourced to other entities. The financial and legal engineering that enables such a structure is complex. And, as investors, we know very little about the actual operations underlying such engineering. In the following analysis of Marriott, it’s clear that for some of these asset-lite brands, off-balance sheet entities house large numbers of employees and next to nothing is publicly known about the composition of the workforce used, labor costs incurred, staff turnover, the working conditions of labor, and the wage rates paid to this off-balance sheet workforce. There is a strong business and ESG case for more scope 1 and scope 2 labor disclosures. To clarify, the scope 1 and 2 terminology comes from the world of carbon emissions. The EPA defines scope 1 emissions as “direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organization.” Scope 2 emissions are “indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling. Although scope 2 emissions physically occur at the facility where they are generated, they are accounted for in an organization’s GHG inventory because they are a result of the organization’s energy use.” I have adapted the emissions definition to scope 1 labor, which we can define as labor costs incurred to compensate employees officially on the payroll of a company. Scope 2 labor relates to labor engaged by the company via outsourced or off-balance sheet entities that is indirectly controlled by the mother company. Defining an employee is a complex legal task and such definitions differ across federal, state and common law. Investors need to ask for a more expansive version of scope 2 labor disclosures precisely to pierce the thicket of financial and legal engineering associated with such definitions. 1.0 Business case for additional disclosures Consider Marriott as a case study. MORE FOR YOU 1.1 Only 1% of rooms in Marriott’s ecosystem are on its books as “property and equipment” Page 25 of Marriott’s 2021 10-K indicates that its ecosystem has 1,479,179 rooms. Of these, 15,692 rooms are owned/leased by Marriott. It appears the land and building component of the “property and equipment” line, on Marriott’s balance sheet is roughly $1.3 billion. A technical aside: that number is not explicitly disclosed. However, $1.3 billion is reported as lease liabilities in note 8 and an equivalent $1.3 billion is presumably the corresponding asset related to rooms owned and leased (including long-term leased). This calculation seems to pass the smell-test as the cost of each room works out to roughly $83,000 ($1.3 billion/15,692 rooms). In essence, 1% of the rooms (15,692/1,479,179) shows up on Marriott’s balance sheet. The rest show up on the books of its affiliates, franchisees, or on the balance sheets of lodging REITs. I hope to cover the economics and reporting structures of lodging REITs in my next column. 1.2. Only 16%-40% of the eco-system’s labor are on Marriott’s books, depending on accounting used In Marriott’s 2021 10-K filing, the treatment of property, plant, and equipment and labor servicing the property appears to be quite asymmetric. On page 9, Marriott reports that it employs 120,000 associates at properties, customer care centers and what it refers to as “above property” operations in 2021. Marriott clarifies that “these numbers do not include associates who are employed by our hotel owners but whose employment is managed by Marriott or hotel personnel employed by our franchisees or other management companies hired by our franchisees.” In the same breath, Marriott states that it “manages approximately 205,000 associates who are employed by hotel owners.” The word “manage” here is open to interpretation. What does it mean for Marriott to be managing people employed by someone else? And are there other people employed by others in their ecosystem that Marriott is not managing? How many workers actually service the entire ecosystem of 1.4 million rooms? Things become somewhat murky here. In its 2020 sustainability report , Marriott states that 745,000 workers at its managed and franchised properties wore the Marriott badge globally. That disclosure is absent in their 2021 sustainability report . Taken at face value, this disclosure suggests that around 420,000 workers (745,000-120,000-205,000) or 60% of the ecosystem’s workforce are completely off-balance sheet on affiliates’ books. Of the 745,000, 120,000 or roughly 16% are on Marriott’s payroll. In addition, 205,000 or 28% are managed by Marriott but not employed by them. Marriott collects the payroll costs of this 28% as a “cost reimbursement” from hotel owners. 1.3. On and off-balance sheet labor disclosures of Marriott are vague Of course, as I have written before , Marriott and a vast majority of U.S. firms do not disclose even scope 1 labor costs related to its 120,000 associates. Page 55 of Marriott’s 2021 proxy statement mentions that the median compensated employee is paid $36,352. Current SEC requirements only require companies to disclose the median, or the middle-ranked employee makes, if we were to rank order the payroll number of every employee in descending order. The only reliable way to calculate Marriott’s labor costs is to multiply the number of employees by the mean or the average employee’s compensation. Statistically speaking, medians are equal to averages only under restrictive assumptions that usually do not hold in the real world and most likely in Marriott’s case. I believe that the average compensation number for Marriott must be smaller than $36,352, the median number. Why? Assuming they only consider the 120,000 employees for this calculation, at $36,352 an employee, Marriott’s scope 1 labor costs are perhaps in the range of $4.3 billion (120,000*36,352). Marriott’s G&A expenses and its “owned/leased/and other-direct” expense lines in the income statement add up to barely $1.5 billion and they contain many expenses other than labor costs such as advertising. Hence, actual payroll costs are likely much smaller than $1.5 billion. So, what are Marriott’s scope 1 labor costs? It is hard to tell from the disclosures, but I would have to guess that the average wage of Marriott’s employees is lower than $36,352 per year. This is worrisome as $36,352, by itself, is perhaps not a living wage in most metros of the country even for a single adult, let alone a family, as per MIT’s calculator on living wages . We know even less about the labor costs of the 205,000 employees they manage but do not employ and the 420,000 odd employees in the ecosystem or scope 2 labor that is not explicitly on Marriott’s books. These 205,000 employees lie in the grey zone between the legal definition of an “employee” as opposed to a “contractor.” Remarkably, these employees are discussed in Marriott’s sustainability report, as discussed next. 2.0 ESG case for more scope 1 and 2 labor disclosures 2.1 Voluntary turnover of scope 1 and scope 2 labor Page 60 of the 2021 sustainability report suggests that the voluntary turnover rate of the 321,000 employees (approximately 120,000 own and 205,000 managed by Marriott) is 19%. As an aside, it is interesting to observe that Marriott’s turnover statistics appear to include the 205,000 employees it manages but does not legally employ. It is worth noting that leisure and hospitality has had the highest quit rates and unfilled openings for the past five straight months across the entire Bureau of Labor Statistics (BLS) Jolts survey. These BLS reported rates are actually in the 5-6% range and hence much smaller than the turnover rates reported by Marriott. We also do not know what the turnover rate might be for the 420,000 scope 2 workers. The turnover there is presumably higher than 19%. Marriott clarifies on page 9 of its 2021 10-K : “franchisees and management companies hired by franchisees are responsible for establishing their own labor and employment practices.” However, we do not know much about the labor practices followed by these franchisees and management companies. Hospitality Staffing Solutions is often cited as the source of labor used by the hotel industry for housekeeping, janitorial, food, and beverage services. And I wonder if Hospitality Staffing uses subcontractors itself. That is hard to verify as the audit trail runs cold here. Hospital Staffing Solutions appears to be a private company, owned by Kellermeyer Bergensons Services , which, in turn, appears to be backed by Cerberus Capital Management , a private equity firm. Hospital Staffing Solutions does not publish a sustainability report. Even if it did publish such a report, attribution of that data to Marriott, assuming Marriott is even a client, would be difficult as Hospitality Staffing potentially provides sub-contracted labor for several other hotel chains besides Marriott. 2.2 Labor violations Figuring out Marriott’s record on labor violations is difficult. Marriott has been recognized by Fortune magazine as one among the “100 best companies to work for.” But it’s not clear whether Fortune magazine considers the status of the 60% of labor in Marriott’s ecosystem that appears to be off balance sheet. Marriott’s record on the Good Jobs First website, a non-profit that compiles statutory violations across regulators, is pretty good. However, Hospitality Staffing Solutions does not appear to be covered by the site. 3.0 Bottom line The asset-lite arrangement followed by many U.S. companies is a remarkable feat of financial engineering that brings benefits to consumers and investors. It is difficult for a brand management company to manage large and internationally dispersed operations without active involvement of franchisees and affiliates. Franchising also enables the entrepreneurial energy and financial capital of its franchise owners to partner with the reputational capital that brands such as Marriott and Hilton have built over decades. David Weil in his book, “The Fissured Workplace ,” points out the use of asset lite structures to exploit lower labor costs in several other industries such as fast food, cable services, coal mining, cellular phones, janitorial services, apparel, the food industry and in computer manufacturing. But asset-lite arrangements can create a host of disclosure issues for both the ESG and the non-ESG investors. We learned this lesson the hard way after learning belatedly about Enron’s scope 2 off balance sheet hidden away in special purpose entities. In the 2008 financial crisis, securitized assets were supposedly sold off to outside investors and hence off the bank’s balance sheets. Although not legally required, banks had to pick up losses from these supposedly off-balance sheet assets because they wanted to be able to go back to the capital market to raise funds in the future. In that spirit, investors might want to push asset-lite firms for scope 1 and more expansive scope 2 disclosures of labor and other aspects of operations rendered opaque by financial and legal engineering.
Hospitality Staffing Solutions Frequently Asked Questions (FAQ)
Where is Hospitality Staffing Solutions's headquarters?
Hospitality Staffing Solutions's headquarters is located at 100 Glenridge Point Parkway, Atlanta.
What is Hospitality Staffing Solutions's latest funding round?
Hospitality Staffing Solutions's latest funding round is Acquired.
Who are the investors of Hospitality Staffing Solutions?
Investors of Hospitality Staffing Solutions include Kellermeyer Bergensons Services, Caymus Partners and Littlejohn & Co..
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