Percentage Potshots

[steepholm]

Over the years, I've had a few recurrent fights in situations where I wanted to use raw values rather than percentages, but was stared as as if I was crazy. Yes, I know that sounds boring, but please bear with me.

Situation 1: Tipping a waiter. As you know, the standard practice is that you tip the waiter a percentage of the bill - let's say 10%. But it's always seemed to me that this unfairly discriminates against waiters who work in cheap restaurants. They're basically doing the same job as the waiters in posh restaurants, but a) they're probably getting a lower basic wage anyway, so b) by tipping them a percentage of your lower bill you are diddling them twice over. Surely it would be fairer to decide what amount constitutes a reasonable tip, adjust it a bit depending on whether the service is good or bad, and leave them that. I used to argue this point quite regularly, but gave up after a while because I found that I couldn't convince anyone that it made sense.

Situation 2: Deciding how many student papers need to be double-marked for the purposes of moderation. Standard practice in my place of work was for many years to prescribe a percentage of the scripts submitted - let's say 15%. Thus, you would end up double-marking a lot more scripts on a course with a high number of students than on a course with only a few. Every year, I would argue that for sampling purposes (at least of this type) what matters is the sample size, not the percentage of the population represented by the sample. (If you're not clear why this makes sense, there's a handy discussion here.) Every year, my colleagues would wait for me to calm down, and then take no notice.

Okay, perhaps in the grand scale of things neither of these things matters so much. Who cares about waiters or students, after all? (Actually, they're often the same people.) But twice in the last 24 hours I have heard people defending the large bonuses paid to bankers using the same kind of specious argument. In short, it goes like this: "X makes his living investing large sums of other people's money. If he is successful and his deals earn the bank a profit of $5,000,000 then it's only fair that he should be rewarded with a percentage of that profit." Not, note, rewarded with a few thousand extra in his pay packet. Not even with a percentage of his basic salary, but a percentage of the profit he has "earned". In other words, it's the posh waiter argument all over again, but with a posh waiter who serves platefuls of diamonds and gold bullion rather than beef wellington with grilled asparagus.

Do the banker apologists actually believe what they're arguing, I wonder? It would take only a very basic understanding of maths and statistics (which is all I have, if that) to see that their argument is tendentious at best. And yet - I remember the incomprehension of my colleagues; I think of the disbelieving faces of my dining companions of yore. These weren't stupid people in the ordinary way. And after all, that is the way we tip waiters, in the Square Mile as elsewhere. So, maybe they really do think it's a good argument - because they desperately want it to be one, and because let's face it, on the evidence of the last couple of years they aren't much cop with numbers.

Comments

[diceytillerman.livejournal.com]

Because of being physically disabled, I often take taxis. Sometimes the distance is short -- shorter than most people would need a taxi for. I've decided a minimum amount of money that I feel is okay as a tip, and I never tip lower than that amount, even if that amount is 40% of the fare.

[steepholm.livejournal.com]

That minimum tip idea makes a lot of sense, especially if you're taking short trips. In general, though, I don't apply the same rule to taxis as to waiters because the fare really is (more or less) proportional to the amount of work done, and it seems reasonable to make the tip proportional too. Whereas a waiter bringing you foie gras isn't necessarily doing any more (or more skilful) work than one bringing you a burger and chips.

[diceytillerman.livejournal.com]

To some degree that's true, and yet, the taxis I take are often waiting on line at a taxi stand; so if I "take" one for my short ride, it sort of "uses up" that driver's long waiting time on that line for a smaller fare than the driver had hoped.

I've frequently gotten snarked at for that, by the driver. Which feels terrible.

[steepholm.livejournal.com]

That's a good point.

[heleninwales.livejournal.com]

With the waiters, I think it depends on whether you believe that expertise and experience should be rewarded or not. In one sense, a waiter at an inexpensive establishment is doing the same job as one at a posh place. On the other hand, the person serving complicated posh food needs to be more knowledgeable and have better communication skills in order to deal with the more demanding customers.

In practice (not that we eat out a lot and very rarely at anywhere that could remotely be described as "posh") I operate a system similar to diceytillerman, namely that there's a minimum tip below which I feel it's unreasonable to go, but I could also see that there would be a maximum tip I would be prepared to give, however expensive and complicated the food got.

Re the sampling of assignments, a straight percentage is not how it's done in several courses I've been involved with. Both the NVQ and OCN verifications systems require more moderation for new assessors and new courses compared to well-established courses with experienced assessors. There is also a formula for how many portfolios to sample, depending on group size. That means that you are sampling a higher percentage of students' work in very small classes, though obviously the number of portfolios examined with be smaller.

[steepholm.livejournal.com]

Where the waiter needs special skills (such as a knowledge of wine, for example, or those involved in the strange ritual of silver service), then I agree it's fair to reward that. However, in most cases I don't see that the skill needed to bring a plate of expensive food to the table is significantly greater than those needed to bring a burger. The food may be more complicated, but it's not as if the waiter cooked it.

The things I generally appreciate in a waiter (promptness, efficiency, friendliness) aren't, as far as I've been able to see from my fairly limited experience, correlated to the price of the meal or the poshness of the establishment. You may have a point in that customers in posh restaurants tend to be more obnoxious, though! So perhaps they deserve a bit extra for that.

[emmaco.livejournal.com]

I understand the flat fee/exams examples, but the bankers generally say they need a % of their profit as an incentive to work hard. So if you take that as the motivation, then a % system makes sense, as the more profit you make the higher your reward. Of course, I still think it's obscene to make that much money...

As an aside, I hate tipping. It makes me feel like the lady of the manor dispensing largesse. I just want everyone to be paid fairly, and not worry about extra money for some people (I mean, beginner chefs aren't paid huge wages, but they aren't tipped. Same with people serving in shops etc).

[steepholm.livejournal.com]

I understand the flat fee/exams examples, but the bankers generally say they need a % of their profit as an incentive to work hard. So if you take that as the motivation, then a % system makes sense, as the more profit you make the higher your reward.

I'm always surprised by the argument that bankers, unlike other people, cannot be expected to work hard for their salaries, especially when they get such very big ones. However, even if we accept that bankers are afflicted by a peculiar combination of venality and laziness, there are plenty of more sensible ways to organize a reward system. For example, you could set them targets, and pay them fixed cash rewards for beating them. Or you could reward them with a percentage of their basic wage.

Almost anything, in fact, would be more sensible than rewarding them with a percentage of the profit they have made. No one would suggest rewarding a particularly productive baker with extra loaves of bread, after all - and this is a similar idea: it just so happens that the medium bankers work in is money. Or, look at it this way. Imagine you have two bankers. One is in charge of a fund of £1 million, and by hard work and judicious investment (and maybe a smidgeon of luck) he increases its value by 20% - a profit of £200,000. The other is in charge of a fund of £30 million. Over the same period he manages to increase its value by a less-than-impressive 2%. Despite this, he has made a profit of £600,000 - and therefore will get three times the bonus paid to his more assiduous and skilful colleague.

I'm sure that the details of the incentive schemes actually used by banks are more complicated than that, but it makes the general point. Schemes based on a percentage of the profit offer a marginal incentive to hard work, but much more incentive to getting control over bigger and bigger amounts of money, because that's the easiest way to generate large profits and hence bonuses.

[emmaco.livejournal.com]

Perhaps the assumption in your example would be that the banker to who got to manage the £30 mil fund was better in the first place, so deserved the larger return for less work. Maybe the £1 mil person will get a better fund next time? Pretty dodgy assumptions though :)

The focus on mostly bankers* getting a % of profit as opposed to % of base salary for meeting a target (which seems to be more common in other businesses) must have something to do with the fact that they are only making money and nothing else in their work. But no, I can't really come up with a reason why this is so. But I suspect once a system is in place it takes a brave workplace to change the practice.

*in the book I'm reading, Sarah Caudwell's Thus was Adonis murdered, the office manager at the law firm gets 10% of the money earned by the lawyers. Very strange, as you would think this is a clear incentive for him to book appointments for every minute of the day, make the lawyers feel guilty for knocking off half an hour early and disssuade cheaper cases from being taken up. But this really is an exception I think!

[steepholm.livejournal.com]

Perhaps, when I turn out students with good degree results, they should reward me by increasing my IQ? ;-)

[papersky.livejournal.com]

I tip a rounded-up 15% with a minimum tip of $2.50. This is because of what you're saying, and because when this struck me, $2.50 seemed like the smallest amount of money it was actually worth having -- it was a pound at the time.

The only thing that makes sense with the bankers is that the bonus is an incentive not to embezzle.

[steepholm.livejournal.com]

The only thing that makes sense with the bankers is that the bonus is an incentive not to embezzle.

Perhaps they should rename it Danegeld!

[veronica-milvus.livejournal.com]

I suppose people would say that the best front of house service happens in the most expensive restaurants, so you are tipping the best waiters more money than in Pizza Express, for example.

[steepholm.livejournal.com]

Perhaps people would say that, but it has not been my experience.