IHG manages the hotel but ownership of the physical building remains with
a third-party owner. Typically, the senior management like the General Manager
and the Financial Controller are IHG employees with the third-party owner employing
all other staff. A management contract allows IHG more control over the application
of quality and service standards.
There is no standard management contract; terms are agreed through negotiation
with owners as the hotels involving management contracts tend to be more complex.
A management contract is made up of two separate fees: base and incentive.
The base fee is a percentage of the hotels total revenue paid to cover management
costs. A typical contract would have 1 – 3% of total revenue as the base
fee. However, this can vary by country and brand.
The incentive fee is a share of profits. A sample contract would have gross operating profit or other agreed measure of profit as the incentive fee, although the mechanics vary considerably. This is in place to align the interests of IHG with the owner of the property and rewards us for running the hotel profitably.