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In Aus/NZ you don't tip, it's not generally part of the culture.
In the US/Canada you seem to tip for almost everything, but it's meant to be for a good job. However I've also found some workers have the tips factored into their pay - ie if you don't tip them, they're getting less than minimum wage.
Therefore, should you still tip in these countries when the service is appalling?
but [tipping] is meant to be for a good job
Yes, in theory, but in practice it's standard to (almost) always leave a tip. Even if the service is merely "bad", then you generally leave a tip on the low end of the scale. If it really is appalling (ie, they got your order completely wrong, or were excessively slow for no good reason), then you leave a very low tip (ie, 5%), or leave the 1-cent tip if you want to send a pointed message. I think I've only ever done that once or twice (and I eat at restaurants a lot).
It's not legal to pay staff less than the minimum wage excluding tips, so that's not really the issue. However, minimum wage (in the United States) is paltry ($7.25/hr) compared to other countries like Canada ($10+) and Australia ($16). And then, service staff are often paid on the low end of the scale, despite the relatively difficult nature of the work.
So it's a sign of respect to tip generously as a policy; and there is a stigma attached to being too cheap, for which poor tipping is presumed evidence.
There are different ideologies when it comes to tipping. As a former waiter in the US myself, I tend to tip very generously. This is how I do it. YMMV.
I calculate a 15% tip, based on the price of the meal (before any discounts are applied).
If the service was very good/friendly, I increase, up to 25%. I only ever exceed 25% in very rare/exceptional circumstances (if I've built an especially unique relationship with the waiter, or asked them to go well above the call of duty for some reason).
If the service was poor, I decrease, usually not below 10%.
Some other thoughts on conveying dissatisfaction with wait service:
You can leave no tip at all, or better, a $.01 tip. No tip at all can be misconstrued for forgetting to tip--or tipping on a credit card (many waiters won't see their credit card tips until the end of the shift, and then in a lump sum, so they won't know that you didn't tip--they may assume you just tipped on your card). I only ever consider not tipping at all (or the $.01 tip) in extremely rare cases, where I believe the waiter deserves to be fired for their poor service. Not tipping is the same as saying I believe their service was worthless--I am paying their wage (or refusing to).
When leaving no tip at all, be aware, as others have pointed out, that wait staff get paid very little. You are paying their wages with your tips! This is why I only consider not topping for "fireable" offenses.
It is possible to convey dissatisfaction to your waiter, while still tipping. The standard way is to leave your normal tip, plus a penny. Of course for this to work, you must tip a round dollar amount, and not just the change left from your bill.
i.e. if your bill was $18.17, leaving a tip of $1.84 ($1.83 change from $20 + $.01) won't work. You'd want to leave either a $1 or $2 tip, plus $.01.
You can always complain to a manager. Most restaurant managers will listen to a complaint, and address the concern with their wait staff. They may even pay for part or all of your meal if they feel your complaint is justified!
Many US restaurants chains also have toll-free numbers posted near the entrance, or on the menu, which you call to make a complaint, if you're more comfortable with this approach. You're less likely to get a free meal this way, but your waiter may also be more likely to be reprimanded, as the complaint goes to a district or regional manager, not the local manager, who is more likely to be a friend of the waiter, and less likely to be harsh, when the situation calls for it.
Some restaurants have "comment cards" on the tables, or near the entrance. You can leave feedback this way, either by giving the card to your waiter (maybe not a good idea if you're giving him a critical review!) or the manager. Some offer postage-paid options, so you can drop them in a mail box. Others have a sealed drop-box somewhere in the restaurant, where you can drop your comments, like a donation to charity.
lifehacker has a post (How Much to Tip for Good and Bad Service, According to an Ex-Waitress) about this that is quite relevant.
If you receive truly awful (or rude) service, don't leave without providing a tip. Believe me, a $1 tip will be noticed much more than no tip since many people forget to return to the table and your server may think you just forgot. However, before you leave a lower tip, try to take into consideration the staffing and patron level in the restaurant, and keep in mind your server may just be having a bad day. Leaving a pleasant note of encouragement or a decent tip may be enough to turn their day around.
I've also found some workers have the tips factored into their pay - ie if you don't tip them, they're getting less than minimum wage.
IANAL, nor in the USA, but I've heard that employers are legally allowed to use tips to make up the minimum wage of the job, but if the tips don't cover it, the employer has to legally pay. Which implies that if everyone is sticking to the law, then no-one will get below minimum wage if you don't tip.
Various Caveats: (a) low minimum wage in USA (b) societial norms (c) employers that break the law.
