Profit Sharing Tips

Three different size of jars with coins - Financial Concept

Think about the last time you went for dinner at a restaurant. At the end of your meal, you paid for the food and, probably, you added a little extra in the form of a gratuity for the server. This ‘little extra’, the tip, was supposed to reward the person who served you well. If they did not provide good service to you, perhaps the tip was a bit smaller, based on your determination of the level of service and what you could afford.

While this is an accepted practice, the concept of rewarding only one person for your full dining experience seems to be missing the mark from a performance pay design perspective. The server is not the only person involved in making sure that you have a good meal. There is usually a large group of people behind the server, ensuring that your food is prepared, the plates are clean, and the ambiance is welcoming. Why then should only one person receive an extra reward, if the service is based on the collective efforts of the restaurant staff?

A recent article explores the changing concepts of tipping in the Canadian food service industry. In an industry that usually pays low hourly or minimum wages, there is a movement to shift from the single reward receiver to group reward recognition based on the principles of profit sharing.

Click here to read the article.

As noted in the article, rather than having individual servers receiving tips, the Earls chain has implemented a percentage surcharge on the final bill. This ‘hospitality’ fee of 16% is then shared between all of the restaurant’s employees and helps to equalize the monetary incentives for everyone.

When considering group pay choices, a simple sharing of the rewards may be the answer to the need for increased performance and increased pay.

Discussion Questions:

  1. Would you tip differently if you knew that the amount of gratuity was shared between all of the employees in a restaurant?
  2. How would you design a group performance pay plan for a restaurant?
  3. What impact would a group profit sharing plan in a restaurant have on an individual server’s performance?