A New Normal for Tipless Service?

In this series, professionals predict the ideas and trends that will shape 2016. Read the posts here, then write your own (use #BigIdeas2016 in your piece).

We’re fortunate to do business in an age when ideas are shared more rapidly and freely than ever before. Everyone—from company management to the employee to the customer—is able to participate. When someone proposes a “big idea”, it often ends with an “agree-to-disagree” exchange.  But even in that case, we challenge, reshape, and refine everything that we know about our industry, and in this case I am focusing on food service (with an emphasis on service, which I’ll get to in a minute). And let’s face it; sometimes it’s just plain fun to play devil’s advocate.

Recently the Obama administration’s National Labor Relations Board (NLRB) announced it would eliminate the tipped wage exemption from the Federal Minimum Wage rules.  Hence, employers in the service industry will be facing significant increases in wage rates for service workers, such as wait staff. In response, one of our nation’s leading restaurateurs, Danny Meyer, has had his own big idea, announcing his intentions to raise the pay of his restaurant employees to eliminate tips altogether, and to raise prices to reflect the increased costs. His notion is that customers will be unharmed by the price increase, as they will be saving 15 to 20% in tips.

While Mr. Meyer’s approach appears, on many levels, to be a fair and rational response to the shift in Federal legislation, it brings to the surface one important question that is unique to the service industries. Does the notion of customer service include empowering the customer to influence the level and nature of the service they receive? While many fine dining establishments, like the ones owned and operated by Mr. Meyer, can assure customers receive the highest levels of service, does the customer’s notion of service include a means to express their satisfaction?

Because we’re in the food service industry, which comprises both preparing and serving food, I would challenge that eliminating a customer’s ability to formally acknowledge their satisfaction (or dissatisfaction) with a meal would decrease their perceived level of service. Remember that this is a world where we’re asked to rate everything from online purchases to doctor’s appointments. We’re feedback- obsessed. And let’s be honest about what motivates a server to retain a polite smile during an exchange with a particularly difficult customer: tips. 

But we’re faced with another reality, and that is the increasing cost of labor. Globally, in the U.S., and even in some individual states we face a patchwork of laws and regulations dictating compensation. So while I challenge Meyer’s approach from a service perspective, it certainly does help him react quickly to increasing labor costs because he is consistently raising his rates of pay across job categories.

 So, my big idea is stimulated by Mr. Meyer’s ingenuity – with a little twist. It sits between the traditional restaurant experience and a world without tipping, and it’s a concept that is used in many other industry sectors: variable pay. Variable pay is a rate of compensation that adjusts for an employee’s performance, and in today’s service environment is controlled solely by the customer – in the form of tipping. But I envision a world in which the customer and the employer together determine the amount of a paycheck.

How would it work? After dining, a customer would be asked to rate their level of service on a scale, and that scale would correspond to a pay range (starting at the federally mandated minimum and escalating on a scale affordable for the employers). A restaurant staff that is scoring highly would be compensated at the high end of the pay scale, and of course lower scores would net lower compensation. My big idea allows customers to retain some of the conventional feedback experience, while incentivizing staff to deliver the best possible service AND giving employers the ability to be nimble in an increasingly complex regulatory environment.

Is this idea a perfect solution? No. It has more hair than my head (not saying much). Is it fully formed and ready for implementation? Definitely not. But will it spark a debate? I certainly hope so. Please let me know what you think in the comments section, and I look forward to your feedback.