To Insure Promptitude

Today we are exploring the world of tipping and seeing whether a link can be drawn between the underlying rationale for tipping and the improvement of an organisation’s control environment.

Given that tipping is most prevalent in the United States – join McLeod Governance as we walk the halls of the American dining experience.

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Each year American diners hand over some $42 billion in tips at the nation’s full-service restaurants, which employ 2.6 million waiters, most of whom rely on tips for the bulk of their incomes.

While anxieties surrounding tipping abound — Is 15 percent enough? 20? — studies show that Americans overwhelmingly prefer this discretionary system to a set service charge, which is common in Europe and many other parts of the world.

Tipping, its defenders say, improves service by rewarding good waiters and punishing bad ones. But that’s not what is necessarily seen when you look out on a dining floor. It is argued that working for tips encourages selfishness rather than teamwork. Moreover, good service is not always rewarded with a big tip, nor bad service with a poor one.

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Tipping was imported from Europe, and when it arrived in America, it met with impassioned and organized opposition.

While the precise origin of tipping is uncertain, it is commonly traced to Tudor England, according to “Tipping,” Kerry Segrave’s history of the custom.

By the 17th century, it was expected that overnight guests to private homes would provide sums of money, known as vails, to the host’s servants. Soon after, customers began tipping in London coffeehouses and other commercial establishments.

One frequented by Samuel Johnson had a bowl printed with the words “To Insure Promptitude,” and some speculate that “tip” is an acronym for this phrase.

Tipping began as an aristocratic practice, a sprinkle of change for social inferiors, and it quickly spread among the upper classes of Europe.

After the Civil War, wealthy Americans began traveling to Europe in significant numbers, and they brought the tip home with them to demonstrate their worldliness.

But the United States, unlike Europe, had no aristocratic tradition, and as tipping spread — like “evil insects and weeds,” The New York Times claimed in 1897 — many thought it was antithetical to American democratic ideals.

Opposition to tipping was not limited to the media.

In 1904, the Anti-Tipping Society of America sprang up in Georgia, and its 100,000 members signed pledges not to tip anyone for a year.

Leagues of traveling salesmen opposed the tip, as did most labor unions. In 1909, Washington became the first of six states to pass an anti-tipping law. But tipping persisted. The new laws rarely were enforced, and when they were, they did not hold up in court. By 1926, every anti-tipping law had been repealed.

Meanwhile, Europe was rethinking its devotion to the custom.

The 1943 Catering Wages Act in Britain established a minimum wage for service employees that helped decrease their reliance on tips. And in 1955, France passed a law requiring its restaurants to add a service charge (“service compris”) to each bill, a practice that has become the norm for most of the continent. By then, the anti-tipping movement had all but vanished in the United States.

Economists have struggled to explain tipping.

Why tip at all, since the bill is presented at the end of a meal and can’t retroactively improve service?

And certainly there’s no reason to tip at a restaurant you will never revisit.

The single most important factor in determining the amount of a tip is the size of the bill.

Diners generally tip the same percentage no matter the quality of the service and no matter the setting. They do so, Lynn says, largely because it’s expected and diners fear social disapproval.

“It is embarrassing to have another person wait on you,” the psychologist Ernest Dichter told a magazine reporter in 1960. “The need to pay, psychologically, for the guilt involved in the unequal relationship is so strong that very few are able to ignore it.”

Ego needs also play a part, especially when it comes to overtipping, according to the Israeli social psychologist Boas Shamir.

These psychological factors also go a long way in explaining the steady rise of the average tip in the United States from 10 percent in the early 20th century to 18.9 percent today, with little regional variation.

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If it were possible to invent a tipping like mechanism within an organisation for deeds that minimized risk and / or improved the internal control environment would it work?

If it was to be the same as a tip it could only be paid retrospectively and would be commensurate to the event over which you have authority.

Guess what – the tipping mechanism already exists. It is called a bonus.

Has the existence of a bonus improved the overall risk profile of an organisation?

With the events of the underperformance and overpayment of many senior executives during the Global Financial Crisis there is ample evidence to suggest that – just as the Anti-Tipping Society of America envisaged – the concept of tipping rewards (paying bonuses) rewards poor effort more than it encourages good effort.

(Post based in part on Why Tip? By Paul Watcher. New York Times Magazine October 12, 2008)

 

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