Inequality in Restaurant Tipping: Is There a Better Way to Incentivize Great Service?

Research suggests tipping isn’t effective at motivating servers and could even land employers in hot water. Is there a better way to incentivize great service?

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In previous articles, we explored the history of tipping in America and the reasons why we tip from a psychological point of view.

We learned that tipping is commonplace across the country, is a powerful social norm, and is even codified in federal and state law as part of the minimum wage for service workers – despite the fact that it is technically a voluntary practice.

We also discovered that tipping was not universally popular when it was first introduced. Many saw the idea of rewarding service workers with cash as an aristocratic practice that amplified the inequalities in society.

With studies suggesting that tips may not be as much of an incentive for good service as is commonly believed and that the practice may violate equality law, tough questions must be asked:

Is tipping a fair way to compensate restaurant servers? Is there a better way to incentivize great service?

Does tipping incentivize good service?

One of the main benefits of tipping, so we’re told, is that it motivates servers to provide better service.

In a previous article, we learned that tips were originally given in advance “To Insure Promptitude”, turning on its head the concept of withholding the tip until the end of a meal as an incentive to provide better service.

In Tipping And Its Alternatives, an academic discussion of the pros and cons of different methods of tipping, Michael Lynn and Glenn Withiam look at a meta-analysis of studies into whether consumers tip more for better service. Given the weak correlation observed by the analysis, the authors conclude that “tipping may not provide as strong an incentive to deliver good service as many believe.”

This observation is backed up by the findings of our survey, in which 500 workers in the foodservice industry answered questions about compensation, tips, and performance-based incentives to see what really motivates them to provide the best service.

In our survey, we found that employees are extremely motivated by growing their skills, performance incentives, and being the best server, with 40%, 39%, and 37% selecting these reasons respectively.

Whereas over half of respondents found tips only somewhat motivating, with 16% finding them not at all motivating.

It seems, at the very least, that tips aren’t playing a major role in motivating servers to provide great service. And there may be deeper problems with the practice.


Is inequality inherent in tipping?

When tipping first became widespread in America, it was greeted with a backlash. The anti-tipping movement of the time saw it as an aristocratic practice that only served to deepen social class barriers at a time when many were fighting to eliminate such distinctions and promote social equality.

Fast-forward to today and the issue hasn’t gone away.

With the federal minimum wage set at just $2.13 for employees who receive tips, the extra income is, by law, making up the difference to provide a living wage for most restaurant workers.

That means the majority of restaurant workers’ wages are coming from the customer rather than the employer.

Labor laws state that employees must be paid the same for doing the same work and Title VII of The Civil Rights Act of 1964 says that employers cannot discriminate “based on race, color, religion, sex, or national origin”.

But what if tips aren’t distributed fairly by customers. That could mean a large proportion of the wages received by most restaurant workers are in violation of equality law.

A study published in the Journal of Applied Social Psychology looked at “the effects of server race, customer race, and their effects on restaurant tips”, controlling for other variables such as customers’ perceptions of service, food, and atmosphere quality.

In other words, the researchers wanted to know whether, all other things being equal, the race of customers and staff had any impact on the amount of tips employees received.

What they found is that both white and black customers discriminated against black servers, tipping them less than white servers.

For white servers the tips increased from 16.8% of the bill size when service was rated less than perfect to 23.4% when service was given a perfect rating. However, for black servers, tips were 16.6% of the bill size for both perfect and less than perfect ratings.


What are the implications of inequality in tipping?

With employers no longer responsible for most of the wages paid to their employees, a gray area exists in which customers can discriminate against servers.

The authors believe their study suggests that the use of tipping as a means of compensating workers may violate the Civil Rights Act, and employers could be held liable for their customers’ discrimination. They warn that large restaurant chains could be leaving themselves open to damaging lawsuits unless they can prove that no such discrimination is at play.

It’s difficult to prove beyond all doubt that discrimination is the cause of the discrepancy, and the results are yet to be replicated nationally. As the authors of the study admit, the sample size of 140 responses is small and the results are only from one restaurant. But they believe the issue is worth exploring further.

One thing’s for sure, leaving any part of a server’s wages to the discretion of the public leaves it open to unconscious bias and the potential for discrimination of all kinds.


Is there a better way?

In any other industry, would we accept an employee’s wages being affected by factors outside their control? What if there was a possibility that discrimination of any form would favor one person over another?

The core problem remains that factors outside of a server’s influence can affect the amount they're paid.

If tips aren’t a great way to incentivize better service anyway, what can be done to better incentivize employees without the risk of discrimination?

Our survey of 500 food service workers reveals that employees find performance-based incentives far more motivating than tips.

When asked how motivating performance-based incentives and rewards are and the same about tips, 86% said performance-based incentives are extremely motivating. While only 32% said they found tips extremely motivating.

What’s more, servers whose employers offer performance-based incentive programs are 50% more likely to report being valued and appreciated by their managers.

Overall, customers want better service, restaurants don’t want to risk being in breach of employment law, and servers want to feel more valued and motivated at work.

Perhaps operators should be looking at incentivizing their servers with performance-based rewards – rather than relying on an outdated custom that leaves the size of a server’s pay packet at the whim of the customer.

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