I used to be very uncomfortable with this power over people's pay; who was I to determine how much money someone was worthy of? But it's not about that. It's about rewarding good service and having a good incentive structure. It's about making sure that the customer comes first.
In this day and age I imagine tipping is also good documentation for performance, should someone need to be fired. Otherwise, the owner might find himself on the wrong end of a bogus discrimination law suit.