The Modern restaurant at the Modern Museum of Art in NYC

The first night Patti and I were in Friedrichshafen, Germany last fall I noticed there was no place on the credit card slip to give a tip. When I asked the waiter about this, in broken English he said something like “no tip on receipt.” So we left him a tip in Euros on the table. Little did we know then that Germany was pretty much a “no tip” country.

We proceeded to give tips even though none of the credit card machines let us. While we thought it was strange, our past behavior was not going to deprive these hard-working people of recognition. By the end of the trip we discovered that the whole region had adopted a “no tip” philosophy. Some time ago restaurants had raised prices so as to reward front-of-the-house and back of the house workers equally.

No Tipping Comes to America. While there are many restaurants around the country that have no tipping (This is called “hospitality included or H.I.”) the push for it spreading more universally happened last December. Danny Meyer, a New York City restaurateur and the Chief Executive Officer of the Union Square Hospitality Group (USHG), introduced it at The Modern restaurant in New York City’s Museum of Modern Art. It received lots of publicity and so far the results are very good.

Danny Meyer

Why did Meyer want to try this? In a very interesting podcast called “The No-Tipping Point” on Freakonomics, Meyer essentially noted four reasons to stop tipping. First, the wage gap between front-of-the house servers and back-of-the-house food preparers was getting too wide. For example, at The Modern it was not uncommon that servers made four times what food preparers made ($100,000 vs. $25,000.) This divide made it very difficult to build a cohesive team and social classes emerged. (In case you are wondering why they don’t share tips among people in these two groups, in New York there legal restrictions against it.)

The second reason was because in Meyer’s view the correlation between tipping and fair compensation was out of whack. As Meyer said, “I also think it’s really important to understand that while it’s wonderful that if you order a $100 bottle of wine and you’re a 20-percent tipper, the waiter’s going to make $20 for pulling the same cork as the guy at the next table who only bought a $40 bottle of wine and his server gets $8 for that. What about the cook in the kitchen that makes the exact same dollars whether we served 300 people tonight or 200 people tonight? Whether he shaved white truffles over your pasta or parmigiano over your pasta? There’s just something that’s not right.”

A third reason is that tipping is often discriminatory. As one of his managers said, “Attractive waitresses get better tips than less-attractive waitresses. Slender women get better tips than heavier women. Both groups, blacks and whites, will tip a white server more than a black server. And that’s even controlling for perceptions of service quality. It’s discriminatory.”

Finally, the economic model of tipping makes it difficult to recruit and hire food chefs and preparers. As soon as you hire a food prep person and they see the wage discrepancy, the outgoing people move out of the kitchen and into server positions. Meyer said that when he learned they had more culinary grads working in the dining room than in the kitchen, he knew he had to do something to change the industry.

How does a “hospitality included” model work? At the Modern they raised all their menu prices roughly 20 percent and gave wage increases to their food prep people and starting chefs. For the servers they raised the hourly wage from $5.00 to $9.00, and created a “revenue-share program” that allocates a percentage of revenue to a pool that is somehow split between the front-end people.

The primary advantage to the front-end people now is that they are no longer dependent on the generosity of strangers for their livelihood and they can actually take some weekends off to be with family and not fear the loss of income.

What have the results been? Of course Meyer and The Modern received a tremendous amount of publicity for their move, so the results may take a year to see what the true impact is. However, in the few months since this happened, restaurant traffic actually increased and the restaurant has had record sales months adjusting for the increase. And the average check size adjusting for the increase is unchanged.

And, perhaps most importantly, the impact on the team has been all positive. There were no walk-outs by servers, as some had predicted. Kitchen job applications went-up 270 percent compared to being down 50 percent in the previous seven months. The server applicant pool has grown at an incredible rate, too, up as much as 215 percent in the third month following the change.

It will be interesting to see if this practice begins to spread around the country as details about Meyer’s pay structure emerge. He has announced that they will be making the same changes at their Maialino restaurant.

What do you think about this change?