Gratuity Socialism

By | October 26th, 2017

William Donohue, Publisher Emeritus, Club & Resort Business

An automatic gratuity is nothing other than a forced entitlement that makes sure the revenue is there to support the staff. The true costs are masked and called something else.

It’s easy to see that the recession is over. I can’t go anywhere without seeing “help wanted” signs in every store window—especially foodservice outlets, and even more so with fast food. Almost every club in the country has to compete with every retailer in town for what are now scarce employees.
Actually, employees are not scarce. It’s just that we are either not willing to pay enough to be competitive, or unemployment benefits are high enough that taking a paying job has marginal value.

While still trying to minimize fixed costs for front-of-house workers, a new and, in my mind, insidious trend is evolving. Club food-and-beverage operations are putting in automatic gratuities, usually 18-20%. This makes a certain amount of sense when you are sitting in a boardroom discussing F&B profitability (or more frequently, the lack thereof). This practice gives the appearance of keeping fixed wages as low as possible, yet still being competitive in the workplace, because the gratuity makes up the difference.

The notion of having the wait and bus staff work for very low fixed wages and make up the difference with tips is historic; it’s been part of the foodservice social contract for over a century. And it worked—as long as the gratuity was a result of effort on the part of the wait staff. The better the service, the bigger the tip.

But an automatic gratuity is nothing other than a forced entitlement that makes sure the revenue is there to support the staff. The true costs are masked and called something else. In this environment, there is no difference between excellent or superb service and mediocre or poor, indifferent service. Over time, the old axiom applies that “the bad always drives out the good.” Good servers leave for better-paying jobs that are reflective of their drive and professionalism, as evidenced by their gratuity income. The club begins to have a staff that is indifferent or slow—and, because there is no downside to the server, truly mediocre at best.

So what is my solution? The easiest answer is to make gratuities voluntary—a reward for service that goes to where it is deserved. We could also raise the wages that we offer to be more competitive with local competition (we are paying it anyway, but just calling it something else). The subtext is that there is a reluctance to raise menu prices to better cover costs. This is hard to do emotionally, so we fall into these fictions of how to cover costs.

The price is heavy, but largely hidden. The cost is bad service, where members go elsewhere because their expectations are not met by the club.

You get what you pay for.

3 Responses to Gratuity Socialism

  1. Dan Sherman says:

    The gratuity inclusion practices of private clubs are not new. Not by a long shot. They are a good way to provide fair compensation since clubs usually don’t handle cash. Our staffs cannot cheat the IRS by claiming only part of their tips. Moreover, the idea that the process engenders bad service is inaccurate. These generalizations are not supportable without a little more data. The “socialism” terminology is loosely used and a pejorative better left to politicos. I’ll put my staff up against anyones, automatic gratuity and all.

    • Marcus King, PGA, CCM, CCE says:

      As Mr. Donohue angles, there is a disincentive (for many human food servers) to take tables in an automatic service charge environment, and a significant incentive to take tables in a voluntary gratuity environment, just like a retail restaurant. For the former, it’s just more work to take more tables with no benefit commensurate with the additional work, and for the latter, taking more tables means a nicer vacation, a better car, or an upgrade in medical insurance. For clubs to hit some sort of magic benchmark in “labor as a percentage of revenue” and thus leading to being less unprofitable, and assuming that food and supply costs are well-managed, clubs either have to raise menu prices or shift the labor burden to the member, both of which are as palatable as a hair in the punch bowl. To attract the best food servers and bartenders in their prime, using the tried-and-true restaurant model should still deliver the best results: better member dining experience, a more professional wait staff, more control for the diner, and decreased a la carte dining unprofitability.

      How about ditching the food minimum and automatic gratuity in favor of a monthly fixed service charge for all members, or maybe rip off the Band Aid and raise the dues by the same amount? I know, I know, if other clubs in your market don’t follow suit you’re going to look like the outlier club, but a lot of smart people have been thinking about this dilemma for a long time and we still haven’t reached a solution that works well in the club business aggregate.

      Like Mr. Donohue says, “you get what you pay for.”

  2. Rudy Lanza, CCM, CCE, CAM says:

    This article is nonsense and auto gratuities are not archaic. We start our server staff at $8.10 an hour (minimum wage) plus auto gratuity of 20%. I will put my staffs professionalism, courtesy and service against any high end restaurant. Members of Clubs pay a premium for that service in joining fee and dues. Many of our members have the options to leave a larger gratuity which is done often which displays the above mentioned. As a publisher which printed the above article more research should have been obtained before writing an article which undermines the vision, mission and core values of the Club business. Sorry Mr. Donohue a very dumb and subjective article of little value.

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