The hotel management agreement is sold as a partnership. In practice it binds two parties whose incomes come from different places. The operator is paid, in the main, on a share of revenue; the owner is repaid out of profit, and rewarded on the eventual value of the real estate. Revenue, profit and value are not the same number, and the gaps between them are where owner returns quietly leak away.
The asymmetry runs deeper than incentives. A global operator negotiates hundreds of these agreements; a typical owner negotiates one or two in a career. One side has written the playbook and knows every clause; the other is reading it for the first time, often under deal pressure.
The Alignment Myth
The incentive fee is presented as the mechanism that aligns operator and owner. Yet research finds many hotels never generate enough profit to trigger it at all - which means, for long stretches, the celebrated "alignment" is paying out nothing and aligning no one. Alignment is not a clause you insert. It is a structure you design.
Where the leak begins
Consider the performance test - the owner's supposed protection against a failing operator. In the standard form it leans on a RevPAR index and a profit measure pegged to a budget the operator helped set. An operator at risk of failing can simply propose a budget that is easy to beat, and the test that was meant to protect the owner becomes a shield for under-performance. Lawyers have a blunter phrase for it: fool's gold.
This is not a case against operators. The good ones create genuine value, and most owners are right to want someone else running the floor. It is a case against hope as a governance strategy. The owner who treats the HMA as boilerplate, signs the operator's standard test, and then looks away has not bought a partner. They have bought a decade of someone else's priorities.
Alignment is designed at signing. After that, you are negotiating with your own contract.
How it is fixed
The fixable version is unglamorous and effective: tie the performance test to the operator's own underwriting, not a movable budget; weight fees toward profit and an owner-priority return rather than top-line revenue; negotiate real termination and approval rights before the asset is encumbered; and keep active, owner-side oversight of every monthly pack - because reviewing a report is not the same as reading it. None of this is hostile to the operator. It simply makes the agreement do what it always claimed to.
- Stephen Rushmore - Understanding the Owner's Perspective in HMA Negotiations - Hospitality Net
- Pryor Cashman - Hospitality Performance Tests: Fool's Gold?
- HotStats - Is a profit-driven HMA fairer?
Figures and the performance-test analysis are drawn from the sources above. "The Alignment Myth" and the advisory reading are Fortitude Hospitality's own.