The tipping tipping-point

The argument around tips is lost. As many within it already do, it is time for the industry to recognise – regardless of the irrelevant reality of what waiting staff actually earn – that the system must be changed. The key for those companies embroiled in this issue is how they successfully wean themselves off the expensive habit without damaging their own or the industry’s reputation further. For the industry must tread with care in calling for a delay in mooted new laws. Was I the only person that thought it was a little crass for some sector companies, under the auspices of the BHA, to call for a delay because of the recession? Probably not. Such a move risks compounding the damage already inflicted by the public’s perception that through some loophole restaurant groups are somehow managing to pay front-line staff less than the minimum wage. Aside from the moral issue (that tips ARE tips and should go directly to waiting staff), the main problem with this whole debate has been the industry’s inability to explain away its position and the reality of the system. The industry has singularly failed to communicate the fact that no staff earn below the minimum level, and that indeed most who are part of a central tips pool that is used to top up minimum wage, earn significantly above it. Beyond the mechanics of the system though, what has been particularly unedifying is the revelation that some bar and restaurant groups, many backed by private equity – an industry that has a PR job of its own to do – have been getting their customers in part to pay their staff for them. There are valid arguments around a delay in killing the existing system given the dramatic impact on restaurant businesses that such new laws could have, especially in the midst of this tough trading era. The most obvious unintended consequence is a wave of job losses across the sector. But communicating this in the midst of a recession (when surely it is more important than ever for tips to go directly to low-paid workers?) will not be easy. There are some important lessons to be learnt. One is that the snap ‘killer’ judgements that the media and the public will make based on simple perceptions cannot be underestimated. Such is the power of the media that reputation management, or PR – protecting the image of a company and a brand – has never been more important. A boardroom exercise that all companies must consider is how every decision will play in the media. In the case of the tipping issue, when arguing for delays – or if anyone is still trying to defend the current system – senior executives must consider if they want their mugshot, salary and total package published in the Daily Mail alongside one of their waiting staff, accompanied by a typically poisonous editorial. The restaurant industry has grown beyond all recognition in recent years to become a major employer and contributor to society. With that comes greater scrutiny and reputation management is now a required core competency. More fundamentally, that companies have built their models based on labour costs that are artificially low – and this IS the reality – is a problem of the industry’s making, and one that it will have to solve. It does not constitute an adequate defence of the current system. It will not be easy, and it is unfortunate that many companies (Carluccio’s, D&D London, Gaucho, Gondola, Paramount, Tragus) face a spike in labour costs at a time when margins are already under pressure, and groups are engaged in an intensifying battle for share of spend. Against initial government estimates of about £70m, such a move is likely to cost many times that – possibly up to £370m. But the industry must consider how likely the government is to back down on this issue. Campaigning for a delay in giving low-paid workers money that is theirs does not sound like a vote winner. As one senior industry figure, who asked not to be named, puts it: “This almost provides a legitimate mandate for the unionisation of the industry. It is defending the indefensible.”