Or put anther way, will across-the-board pay increases improve worker productivity? We may be about to find out.
Dan Price of GRAVITY Payments met with his Seattle staff April 13th. Over the next three years, he said, the firm’s minimum salary would become $70,000. He would personally take a pay cut down to $70,000.
“My jaw just dropped,” Phillip Akhavan, 29, currently paid $43,000 working on the company’s merchant relations team, said in an interview with The New York Times. “This is going to make a difference to everyone around me.”
This astounding news was greeted with cheers and “high fives” by the employees and the national media. On all three major network newscasts that night GRAVITY’s new pay scale was the “kicker,” the feel-good last story. Price was hailed as an innovative and imaginative boss, a hero.
The move is consistent with the shift toward dramatic increases in the minimum wage that is playing out in various major cities around the country.
Mr. Price’s plan is in line with long-held union philosophy – income inequality. He recently heard the direct effects on Mr. Price felt his employees might be have the same struggle showing and decided to do something to fix it. This seems to follow the ideal of modern labor organizations and those who propose to “redistribute the wealth.”
Or was it a strategically staged event to boost political perspectives? Such things do happen i the real world.
Digging A Bit Deeper
Before going any further, let me state I made attempts to reach someone – anyone – at GRAVITY for answers to some questions. As of July 27, 2015, there has been no response. I don’t feel rejected; other online outlets have not received call-backs, either. The Christian Post also reached out to Price at Gravity Payments for comment Tuesday but he was unavailable.
Interestingly, an online poll being conducted by sodahead.com finds only 19% of its respondents saying Price is a “cool boss” for making the change.
The network newscasts each had video of the announcement and featured “exclusive” interviews with Mr. Price so it seems the story was “placed” with careful precision on the media most likely to give it positive and supportive coverage July 27, 2015.
Later information revealed the raises were not universal. At the time of the announcement, the average salary at Gravity stood at $48,000; the new minimum wage is expected to fatten the paychecks of about 70 employees (or, about 58% of the work force) and ultimately double the salaries of about 30 of that group, according to company spokesman Ryan Pirkle.
To pay for the increased staff wages, Price will cut his almost $1 million annual salary to $70,000. About 77 percent of the firm’s $2.2 million expected profits this year will be added to the funding pool expected to total about $2.64 million. Doing simple math, the average raise would be around $22,000. Last year, according to the Idaho Statesman, the company projected completing $6 million in transactions and end 2014 with about $15 million in revenue.
That only some of the company profits would be plowed back into the salary pool rebuts some comments heard April 15th that the firm’s ability to expand was being gutted. If all the income were to be used to pay the staff, it was wondered where would the money come from to support R&D, advertising and promotion, and capital outlays. My own calculations show GRAVITY Payments is likely to still have about half a million to finance these activities.
Why Was Price Doing This?
Perhaps it is an attempt to convince a skeptical public that our country’s staggering economy is beginning to reverse its recent course. Mr. Price, who started his company in 2004 when he was just 19, told interviewers he got the thought after reading a study on happiness that claimed that emotional well-being rises with incomes up to an amount of $75,000 annually.
The 2010 study, “High Income Improves Evaluation Of Life But Not Emotional Well-Being,” was a study by Daniel Kahneman and Angus Deaton of Princeton University continues, “Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.”
Or was his motivation one more aligned with long-time union philosophy – income inequality. He recently heard the direct effects of this concern while hiking with a friend who complained that she can’t make ends meet with rising rent prices. Mr. Price felt his employees might be having the same struggle and decided to do something to fix it. This seems to follow the motto of modern labor organizations and those who propose to “redistribute the wealth.”
An explanation from Mr. Price told the New York Times said the disparity between his market rate compensation and that of his workers is “absurd.” The average chief executive earns nearly 300 times that of the average worker in America. And this disparity is one of the largest gaps in the world, and well higher than the 20-to-1 ratio gap recommended by Gilded Age magnates like J. Pierpont Morgan and the 20th century management visionary Peter Drucker, according to the Times.
“The market rate for me as a CEO compared to a regular person is ridiculous.” Price, who drives a 12-year-old Audi, told the Times. He said his main extravagances are snowboarding and picking up the bar bill.
“As much as I’m a capitalist, there is nothing in the market that is making me do it,” he said, referring to paying his staff the annual $70,000 minimum wage.
The $930,000 salary cut won’t bother Price’s life style a great deal. He saved a lot of the money earned since starting Gravity in 2004. He has no plans to sell his 12-year-old Audi with an odometer reading of more than 140,000 miles. His $70,000 won’t stop him from picking up the bar tab for his friends once a month, he said. It’s not clear if those “friends” include his employees.
He says, “There will be sacrifices.” But this refers to the operations of the company. He’s confident productivity will remain the same, though there is the nagging concern about how will innovation and creativity by workers be rewarded in an environment where pay equality appears to be a new normal. Unanswered is the question: “Will all future raises be universal? If not, how would the disparity be explained?”
A final thought from Mr. Price on the impact of this change on his own circumstances: “Once the profit is back to the $2.2 million level, my pay will go back. So that’s good motivation.”
Will It Work?
There seems to be some skepticism, after the first blush of excitement wears off.
Sandi Krakowski, a writer who offers marketing analysis on Facebook said on Twitter: “His mind-set will hurt everyone in the end. He’s young. He has a good intent, but wrong method.”
An associate professor of strategic management at the School of Business and Economics at North Carolina A&T State University, Patrick R. Rogers, refutes the Kahneman and Deaton study when he wrote in an email: “…Mr. Price probably thinks happy workers are productive workers. However, there’s just no evidence that this is true. So he’ll improve happiness, only in the short term, and will not improve productivity. Which doesn’t bode well for his long-term viability as a firm.”
Perhaps the most strident was Rush Limbaugh, who said it was “pure, unadulterated socialism, which has never worked.… That’s why I hope this company is a case study in M.B.A. programs on how socialism does not work, because it’s going to fail.”
Do you work in a situation where there is great differential between management and staff? Have you ever been in a situation where there have been “across-the-board” pay increase? Do you think Dan Price is a genuinely “cool boss” or is this an attempt to drive home a social agenda? Where do you think GRAVITY Payments will be in 18 months?