Here are a few reasons why tip pooling is just plain bad for business:

1. Tip pooling removes the incentive for excellence. If an employee doesn’t get to reap what he sows, he inevitably won’t sow quite as much. My Uncle used to tell his waitresses that “A glass of water and a smile is a dollar in your pocket.” Tip pooling means a glass of water and a smile is part of a dollar in your pocket and most of it everyone else’s… “Don’t muzzle the ox that treads out the grain.” Servers working at a “less than” level are bad for business.
2. Tip pooling allows poor performance to go unchecked. A tip is a commentary on the performance of the server. If she is slacking off, the tip (or lack therof) is a wake-up call. As a business owner, the customer’s experience is vital to success – if my customer isn’t happy with the goods or services they’ve received, I want it to change–and quick. And the incentive should be “Do better, and your tips will improve,” and not “Here, take some of sally-hard-worker’s-tips to make you feel better. Is your self-esteem alright?”
3. Tip pooling causes frustration between employees. It’s the 80/20 rule all over again; 80% will be carried by the 20% that are really busting their rears. The thinking ‘well, if we just all do well, we’ll all get good tips from the pool’ just doesn’t work in practice (just ask Russia if you don’t believe me). What incentive does this create for the 20%? “Less than.” If you’re working hard, but others are reaping the majority of the benefit but still won’t shoulder the load, why work at 100% when 85% will do? This, too, is bad for business.
4. Tip pooling creates the tempation for dishonesty. If I’ve just busted my tail serving a party of 15, and they recognized that extra effort and rewarded me with a hefty $100 tip, who wouldn’t be at least tempted to only report part of it? ‘That’s stealing from your co-workers!’ one might object – Hold on! Since when were my customers tipping them? Which brings me to my next point.
5. Tip pooling is rude to the customer. It robs me of saying thank you how I want to say it, and to whom I want to say it. If I come in to an establishment for a fine meal and am served very well, and if I then choose to give my server a tip, then how the heck is it anyone else’s business? My tip doesn’t factor in to the employer’s operating costs, it isn’t part of his income – I already paid my bill. It’s a tip. This is my hard-earned money that I’m choosing to give to my hard-working server; who invited him to the transaction? This is a tip – it’s not part of the bill. I don’t want my money going to someone else in the building who didn’t help me with anything – this server did well, this server gets my tip. Which leads to my next point…
6. Tip pooling results in lower overall tips. If I’m about to hand my server a well-earned tip and someone else jumps in the middle and says ‘whoa there, pal – give us some of that,’ I’m going to put most of it back in my pocket and walk out with a bad taste in my mouth (no matter how good the steak was.) And if I come back, I certainly will be less likely to tip my server the full amount I think she deserves-since I know it won’t go to her anyway.
7. Tip pooling encourages macro-thinking when success is in the micro. It’s kind of like Margaret Thatcher’s maxim that “there is no such thing as society.” She’s right – there are only individuals. You want to help ‘society’ as a whole, you must help one individual. A business will be successful when one server helps one customer well, then repeats that. If the server thinks along the lines of ‘averages,’ or leveraging his performance with one customer against the performance of all servers with all their customers, the end result is working a little “less hard” for that particular, individual customer. Thinking “volume” in a customer-service oriented industry (such as non-fast-food restaurants) is deadly. Macro-scale success is dependant on micro-scale success with one, individual customer. (Ayn Rand is excellent on this topic.)

If a server wants to share his tips with others – fine, by all means, let him. But that’s his decision. Just like tipping – or being a customer at all – is mine. Just don’t get in the way.

In summary:

• Dissatisfied servers eventually become less-than-hard-working servers (who eventually become someone else’s servers).
• Dissatisfied servers create dissatisfied customers (who eventually become someone else’s customers).
• Employers without employees, or customers, eventually become someone else’s employees.

For Further Reading:

• Frederic Bastiat, The Law
• Henry Hazlitt, Economics in One Lesson
• Henry Grady Weaver, The Mainspring of Human Progress
• Ayn Rand, Atlas Shrugged (for the economic principles – read with discernment)