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posted by janrinok on Tuesday August 04 2015, @02:12PM   Printer-friendly
from the unintended-consequences dept.

Earlier this year, Seattle-based Gravity Payments CEO Dan Price announced he was setting the minimum wage for his workers at $70k. About 70 of the company's 120 employees would be receiving the raises over a 3 year period and Price cut his salary from $1m to $70k to make the change happen. His reasoning: He read an article that more money for people who make less than $70k leads to increased happiness.

His plan may have backfired:

What few outsiders realised, however, was how much turmoil all the hoopla was causing at the company itself. To begin with, Gravity was simply unprepared for the onslaught of emails, Facebook posts and phone calls. The attention was thrilling, but it was also exhausting and distracting. And with so many eyes focused on the firm, some hoping to witness failure, the pressure has been intense.

More troubling, a few customers, dismayed by what they viewed as a political statement, withdrew their business. Others, anticipating a fee increase - despite repeated assurances to the contrary - also left. While dozens of new clients, inspired by Price's announcement, were signing up, those accounts will not start paying off for at least another year. To handle the flood, he has had to hire a dozen additional employees - now at a significantly higher cost - and is struggling to figure out whether more are needed without knowing for certain how long the bonanza will last.

Two of Price's most valued employees quit, spurred in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises. Some friends and associates in Seattle's close-knit entrepreneurial network were also piqued that Price's action made them look stingy in front of their own employees.

To make matters worse, Price's brother and company co-founder Lucas filed a lawsuit less than 2 weeks after the raise increase announcement, accusing his brother of violating his rights as a minority shareholder.


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  • (Score: 0) by Anonymous Coward on Tuesday August 04 2015, @04:02PM

    by Anonymous Coward on Tuesday August 04 2015, @04:02PM (#217959)

    ...and the business fails due to bad business practice...

    A company must produce more than it consumes to be viable. Income must exceed outgo. A raise in outgo must be coupled with a raise in income (in either the short or long term). This is a classic business example where outgo was raised without raising income. The owner is trying to take the hit personally (renting out his place, taking no profits, etc.; his brother is right to sue, I would), but it does appear that, in the long term, income will be raised by these actions. As a byproduct, there is likely to be no business in the future, putting all of the "happy, $70K/year" employees out of a job.

  • (Score: 2) by tibman on Tuesday August 04 2015, @05:59PM

    by tibman (134) Subscriber Badge on Tuesday August 04 2015, @05:59PM (#218001)

    Don't forget the part where the CEO cut his own pay from $1million to $70k. That's enough savings for 14 employees at $70k.

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  • (Score: 3, Informative) by Anonymous Coward on Tuesday August 04 2015, @07:01PM

    by Anonymous Coward on Tuesday August 04 2015, @07:01PM (#218034)

    If you bothered to read as much as you wrote, you will find that they have an order of magnitude more business. The only business related problems the company currently has as a consequence is trying to keep up with demand. That is a problem every capitalist should be jealous of.