A meta‐analytic review of tipping compensation practices: An agency theory perspective

Abstract

AbstractTipping represents a form of compensation valued at over $50 billion a year in the United States alone. Tipping can be used as an incentive mechanism to reduce a principal–agent problem. An agency problem occurs when the interests of a principal and agent are misaligned, and it is challenging for the principal to monitor or control the activities of the agent. However, past research has been limited in the investigation of the extent to which tipping is effective at addressing this problem. Following an examination of 74 independent studies with 12,271 individuals, meta‐analytic results indicate that there is a small, positive relation between service quality and percentage of a bill tipped ( = .15 without outliers). Yet, in support of the idea behind tipping, relative weights analyses illustrate that service quality was a stronger predictor of percentage of the bill tipped than food quality, frequency of patronage, and dining party size. Evidence also suggests that racial minority servers tend to be tipped less than White servers (Cohen's d = .17), and women tend to be tipped more than men (Cohen's d = .15). Still, given the magnitude of the effect, one might question if tipping is an effective compensation practice to reduce the principal–agent problem. We discuss theoretical and practical implications for future research.