In the hotel industry, service quality is an important factor because it influences key outcomes such as guest satisfaction, reputation, and demand. High service quality can enhance a hotel’s reputation and lead to an increase in repeat customers and additional demand. Service quality depends on how hotels invest in their employees. Employee training can enhance employees’ service-related capabilities, while pay-for-performance can motivate employees to maintain high service quality. Based on this relationship, this study develops a Stackelberg game-theoretic model to examine hotels’ strategic decisions on employee training and pay-for-performance for long-term profit maximization. The model provides a framework for explaining how hotels may determine training and pay-for-performance levels over time. In the model, the hotel acts as the leader, setting two strategic decision variables: training investment and pay-for-performance. The employee acts as the follower and chooses an effort level based on individual utility. Reputation is modeled as a dynamic state variable. Higher service quality in one period accumulates as reputation, which in turn generates demand in subsequent periods. A central contribution of this study is that it jointly examines two key investments in hotels. Employee training improves employees’ service-related capabilities, and its effects can persist over time by contributing to reputation and future demand. Pay-for-performance can motivate employees to exert greater effort; however, as employees’ abilities and performance increase, hotels need to provide compensation that reflects their higher contribution. Therefore, this study proposes a decision-making model that jointly considers the interaction between these two factors. Overall, the proposed model serves as a hotel-based human-resource investment framework that considers both long-term capability development and short-term effort incentives, offering managerial implications for designing contracts that improve service quality, reputation, demand, and hotel profitability over time.