Why Servers Can’t be Paid Based on Performance

With the increasing movement toward raising minimum wages, including for tipped service industry employees, people often ask, “Why can’t servers be paid based on performance?”

There are several answers to that. First, I think server performance is often subjective. While anyone selling POS or back office analytical software will tell you that you can clearly measure server performance from a financial angle, there is more to it than that.

Servers may build repeat business by providing warm, hospitable service. They may leave guests so happy they tell their friends to come in, even if their check average is a little lower. It would be nearly impossible to come up with a standard system for performance based pay that takes all the aspects of being a great server into account.

On top of that, by basing actual base compensation on objective sales standards, you tend to push your servers to become more aggressive sales people, which can cause a negative experience for your guests. Servers should be motivated to upsell, but their first priority should always be creating a positive guest experience. Basing compensation on sales numbers alone, rather than overall performance, shifts the focus from service and hospitality to just sales.

Second, from a financial standpoint, it would be very difficult to make a meaningful difference in a server’s income without severe changes in restaurant budgets. For instance, in Chicago, tipped minimum wage is currently $6.10.  Servers often work part time hours, around 30 hours a week. Even a $1 an hour raise would only be $30 extra each week, before taxes.  On the restaurant side, however, a $1 raise for every server is a 16% increase in labor cost for that employee.

The morale boost and added motivation of a about $20 take home each week is unlikely to mean enough to a server who takes home much more than that in tips to justify a 16% cost increase for the restaurant.

The positive side of these drawbacks, however, is that servers already are compensated based on performance.  Regardless of the moral, ethical and political debate about whether we have a duty to compensate our employees rather than leaving it up to customers, tips provide performance based pay for our employees. I would even argue that they do it more effectively, fairly, and accurately than any restaurant-designed system could ever hope to.

Yes, every server gets stiffed every once in a while. But in the long run, tips are a function of two things. The percentage a guest chooses to leave, and the actual bill. Both of those are directly affected by the server’s performance.

The way people (at least in America) tip actually serves to reward all aspects of server performance. Most people base their tips on some sort of base percentage. Assuming that nothing goes wrong, and that service is adequate, they plan to leave 15-20% depending on their personal decisions and what part of the country they are in. A higher check (better sales from a server) will increase the total tip.

Here’s where tipping actually exceeds restaurant compensation in appropriately compensating employees though. If a server has an amazing personality, makes great recommendations, and makes the guest feel truly welcomed and well taken care of, most people reward that with a higher percentage.

Finally, this is not to say that servers cannot be motivated or incentivized to perform better. In fact, running promotions, contests, or incentives is an amazing way to motivate the staff. Whether they are based on selling a particular item, overall sales (per hour or per cover) over a specified period of time, or guest feedback, contests can be fun. They can also motivate every employee to build stronger habits, which will carry over even past the competition. The good news is that running an isolated contest for a particular prize (a drink, a meal, a gift certificate, or even cash) can be more cost effective and more motivating than a relatively small raise in only your top employees’ wages.

A $50 cash prize can motivate every employee to boost their sales for a month (and practice verbiage and techniques that will hopefully become second nature and last beyond that month). A one-time payout of $50 is a nice gesture to an employee, and seems more significant than a small raise (even though in the long run the raise will probably net the employee far more than $50. The benefits can also be seen across more employees, since everyone is competing for that top prize.



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