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Business Improvement and Paying a Tip

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“To Improve Performance” is one supposed acronym that describes the practice of tipping. Everyone assumes cash incentives improve performance. But what if they have the opposite effect?

First to dispell the rumor. “Tip” does not stand for “to improve performance” or “to insure promptness” or anything else, according to the definitive source on urban legends.

But does tipping help? One restaurant owner who abandoned tips writes:

When we switched from tipping to a service charge, our food improved, probably because our cooks were being paid more and didn’t feel taken for granted. In turn, business improved, and within a couple of months, our server team was making more money than it had under the tipped system. The quality of our service also improved. In my observation, however, that wasn’t mainly because the servers were making more money (although that helped, too). Instead, our service improved principally because eliminating tips makes it easier to provide good service.

That should make you scratch your head. Just about every restaurant in America uses tips. Everyone knows that tips improve performance, right?

Improving Performance: Tips for Waiters

© Flickr user zoetnet

The author continues:

I can hear your objection now: How could servers be motivated to do a good job without tips?

This is a common question, but it is also a silly question. Servers are motivated to do a good job in the same ways that everyone else is. Servers want to keep their jobs; servers want to get a raise; servers want to be successful and see themselves as professionals and take pride in their work. In any workplace, everyone is required to perform well, and tips have nothing to do with it. The next time you see your doctor, ask her if she wouldn’t do better-quality work if she made minimum wage, with the rest of her income from her patients’ tips. I suspect the answer will be a version of “no.”

If economists know anything about leaving tips, it’s that they know they don’t know very much. At the popular economics blog Marginal Revolution, Tyler Cowen writes:

1. Two studies show little relationship between quality of waiter service and size of tip.

2. Hotel bellboys can double the size of their tips, on average, by showing guests how the TV and air conditioning work.

7. Drawing a smiley face on the check increases a waitress’s tips by 18 percent but decreases a waiter’s tips by 9 percent.

All of this conversation about tips brings up perhaps the most important and yet most unknown phenomena in the entire world of business. Cash incentives do not improve performance. If you want people to work harder, you can’t just give them more money. Nor can you promise them more money. How hard we work is really about how much we care and how well we are supported.

If your goal is to improve performance, focus on building an environment where individuals can improve their skills, have true ownership over their work, and enjoy the freedom to tinker. Watch this video on improving performance and employee motivation. Or read the most important article ever written on the topic.

But when you’re at a restaurant, don’t forget to leave a tip. Even though they don’t produce the results we want, servers depends on tips to survive. As in most businesses, until management is ready to change everything else will stay the same.

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