More Incentives in New Places: The Service Industry

When you think of the “service industry” in America you probably think of the millions of waiters, bartenders, valets and porters earning a living primarily from tips.  Outside of sales staff, personal service providers hold the distinction of having the most incentive focused compensation plan of any labor category out there.  A waiter at a moderately priced restaurant can still end up earning 75%+ of their overall compensation from tips.  That’s a pretty steep weighting on incentive pay, much more than we would expect to see on most sales plans.  However, as a culture we’ve learned to accept that these individuals work for tips and as a result the incentive pay ends up being a fairly low risk proposition. 

Still, I’m a little curious as to why this industry has held on so tightly to this pay mix.  Is it just a matter of tradition?  Or is it a belief that service levels would suffer if their dependence on tips were to lessen?  I have a feeling that most restaurant managers believe strongly in a consumer based incentive.  Treat the customer right and you get paid more.  Do your job quickly and accurately; and get immediate feedback from your customer in the form of a higher tip.  It’s pay for performance in its purest form: an economist’s dream.

So if it’s so effective, why don’t all personal service providers use this type of compensation plan? Think of the possibilities.

Personal Trainers – PTs (as they refer to themselves in the industry) generally get paid per hour of service.  The rates vary usually based on the clientele.  I’m sure some would argue that they do receive a de facto incentive pay because most PTs build their own client base and maintain that themselves.  It stands to reason that if they aren’t very good they’ll lose clients.  But what if you could take it a step further and pay them based on results instead of usage?  It could be something measurable such as weight loss or waist size reduction.  If you aren’t really looking to lose weight, maybe it’s a measure of your cholesterol levels or oxygen absorption ratio (If that exists).  Or maybe you just want to pay an incentive to your PT for getting you to the gym in the first place.  A great PT would take a personal interest in your health and monitor more than just your squatting technique.  If you skip a day they should be calling or coming by to snatch your Oreos and pull you off the couch.  The possibilities are endless.

Doctors – Physicians of all disciplines are constantly balancing the social and technical aspects of job; and many struggle mightily.  The perfect doctor would be someone who was first in their class in medical school and also reads Jodi Picoult.  The technical ability is what we respect most about doctors and most of us believe that’s what we’re paying for when we visit.  However, it’s the personal touch (or lack thereof) that determines whether or not we’re happy with the outcome.  Doctors who have mastered both aspects should get paid more., while doctors who fall short in either aspect should be encouraged to improve.  On the technical front, the incentive to perform is there in the form of possible litigation.  If that doesn’t motivate a physician to study the latest techniques then nothing will.  On the soft (or patient care) side, incentives could be a solution.  I would love to simply have a tip line on my exit bill (similar to my restaurant check).  That would give me the avenue for providing immediate and meaningful feedback to the doctor who just serviced my needs.  I think we often forget that doctors and nurses are service providers; many of them lose sight of that as well.

Mechanics – Auto service technicians, the doctors to our vehicles.  Is there an industry with a broader range of performance amongst providers?  I’ve seen good and bad technicians.  I’ve seen honest and dishonest.  They run the gamut.  Everybody I know says the same thing: if you find a good mechanic, one who knows their stuff and won’t scam you… hold onto them forever.  That’s really a sad statement when you think about it, sad but true.  So how great would it be to have incentives built into every job?  What if you could hold back fees if the car took an extra day or ten to have the carburetor rebuilt?  Too often right now we feel powerless.  It would be nice to have some assurance that the mechanic has a real incentive to follow through on their promises.     

Airlines – Taxi drivers get tips.  Why don’t pilots?  I know there’s a full team involved in delivering a plane full of passengers from one place to another. I know there are weather and mechanical problems and terrorist threats.  But still, aren’t airlines supposed to be a service industry?  They’re not delivery companies, they transport humans and they should try to make that experience as pleasurable as possible.  I’d be in favor of allocating a portion of my fare to a tip pool that gets held back until I’ve arrived satisfied.