Tipping the Scales

14876811184_e694b850bb_oJoe’s Crab Shack has just decided to experiment with forgoing tips at a few of its locations. Tipping is a longstanding American practice that has recently been called into question. It has been largely done away with in other parts of the world, but has been standard practice at sit-down restaurants in America for a very long time. But some people are now starting to question the practice, with many taking to social media and posting opinions and anecdotes about their tipping experiences. As you can imagine, the debate has been lively and passionate.

A criticism raised against tipping is that it usually correlates with employees being paid very low wages, leaving them to fend for themselves to make much needed extra money. The meritocratic logic in support of tipping says that good employees will be rewarded for their work and earn a lot from tips, and that bad employees will be incentivized to work harder to earn more in tips.

Those in favor of tipping would argue that it encourages good service because employees are forced to earn tips. It also teaches customers to evaluate their service and reward good service when they get it. Common sense suggests this should promote good service. The counter-argument is that employees are completely at the mercy of unpredictable customers and their varied moods. A customer who might have had a particularly glum day, and is in a bad mood (or who is just a jerk), might decide not to give a tip, whether or not they were actually provided good service.

Look at Europe, where the tip percentage is automatically included in your bill, like it or not. And the service is often neither friendly nor efficient. They say you’ve never been truly insulted until you’ve been insulted by a French waiter!

Tipping has also become a social nicety to the point that some people tip a server even if they didn’t provide particularly good service. It’s also sometimes true that the size of the tip depends more on the income of the customer than the quality of the service provided. Add to this the fact that tips are calculated as a percentage of the cost of a meal – and often don’t correspond to the amount of work done by the employee – and it’s plain to see that tipping is not a perfect system, despite some of the benefits that it may provide when done properly.

Arguing against tipping may seem anti-free-market. But in a free market, should an employee’s income be in the hands of the consumer, or in the hands of the employer to whom they are ultimately accountable? If an employer chooses to hire bad employees and not incentivize them with competitive wages to reward good performance, it should show up in the lack of success of their business. Until service gets bad enough that people stop coming completely, an owner can run a business poorly and the employees (who are only half responsible) will suffer. Punishing a server by not tipping does little to stop an employer from hiring bad employees with a fast turnover rate and generally failing to promote the value of good service.

Some have argued that doing away with tips altogether will make employees feel more valued and induce them to work harder. It may also make them more loyal to their employers, helping to curb the extremely high employment turnover rate in the foodservice industry. Restaurant servers are on the front line, representing the restaurant to the customers. An employer who cares about the image and representation of his business may not want to rely on the fickle pocketbooks of customers as a means of evaluating their employees. The amount in tips an employee makes doesn’t necessarily translate into a reliable evaluation of their performance.

Some might contend that more servers are hurt by bad tipping practice than are helped by good tipping practice. The truth of the matter is that the argument won’t be decided by circumstantial evidence, anecdotes or arguments based in pure speculation. Public opinion may start to change, but it’s ultimately a restaurant owner’s decision as to whether or not they will use a tipping model at their premises. Joe’s Crab Shack is taking matters into its own hands and settling things with an empirical experiment. If it proves to help their business in terms of customer and employee satisfaction, we will have some hard evidence. However, the relative success or failure of a restaurant does not derive solely from its tipping policy; it may be the result of many factors, and there isn’t one right answer. In truth, the viability of a tipping model probably depends on the type of restaurant, the atmosphere, the location and the customer base.