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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.
(Score: 5, Insightful) by Anonymous Coward on Tuesday August 04 2015, @02:43PM
Only in america can an attempt at being benevolent and good can be met with such ridiculous hostility.
And the brother, what a piece of shit
(Score: 0, Flamebait) by Anonymous Coward on Tuesday August 04 2015, @02:51PM
And the brother, what a piece of shit
Yeah what a POS for trusting his brother not to piss away his money. What a LOOOOOSER!
(Score: 0) by Anonymous Coward on Tuesday August 04 2015, @04:05PM
Yeah what a POS for trusting his brother not to piss away his money. What a LOOOOOSER!
Yes, the poor, starving brother is now suffering because of this. What? He's not poor, starving and suffering and is in fact quite well off? He probably is a greedy POS.
(Score: 0) by Anonymous Coward on Tuesday August 04 2015, @04:54PM
"hey loan me 100 bucks"
"sure here you go"
"I spent the money on blow and a hooker"
"can I have my money back?"
"No you greed fuck you have a million dollars"
(Score: 0) by Anonymous Coward on Tuesday August 04 2015, @05:34PM
More like hey I spent that $100 trying to retain our employee workforce reducing employee churn, increasing productivity, and raising the company profile. In terms of marking it was a huge success, though there were some unexpected downsides in doing something new and risky, but as a start up investor you stated you were willing to take risks for the possibility of a 10x return. Differentiation and growth is the name of the game. Now site down.
(Score: 0) by Anonymous Coward on Tuesday August 04 2015, @06:12PM
And in the process I cost us our 3 top customers. But maybe these other 10 might pay off in 6 months to a year. So in the mean time can you give us a loan to float for 6 months?
In business terms he turned a 'sure win' into a 'maybe'. With about maybe an even on prospects in return on investment due to higher costs and more churn from turnover of employees who do not feel properly compensated. With the risk of taking down the whole business.
There is no 10x growth here. That is hockey stick talk. It never really happens in 99.999% of the businesses out there. Most businesses are built on gradual growth over the long term. Anyone telling you otherwise is selling you something. Usually for their benefit. Short term bumps like this would make other investors turn tail and run. Also making your shares in the business worth less.
This is pretty much 101 on how to turn a million dollar business into a bankrupt one.
He also has had 6 months to prove out his theory. In that six months he cost them a good chunk of the business. Plus put the CEO into a position where he is now dealing with renters and other monetary issues instead of running the business.
Dont get me wrong. It is quiet the gamble. But you want them to succeed because it is 'better' somehow. But it is not a 'better' built on solid financial strength. But a "lets bet the business and everyone's job here" gamble. If I was a major investor I would be suing as well. Wouldnt expect much as the CEO has pissed away the money.
(Score: 4, Informative) by skullz on Tuesday August 04 2015, @07:05PM
It looks like the brother is suing because he says the CEO paid himself a lot of money but didn't pass out high enough dividends and the complaint was signed a month before the wage increase. It doesn't look like the lawsuit and minimum wage issues are related.
Where did you get lost business and renters?
(Score: 0) by Anonymous Coward on Tuesday August 04 2015, @07:39PM
The lawsuit may be the cause of the CEO reducing his salary and paying it out to workers instead. A subtle FU to the brother who filed perhaps
(Score: 0) by Anonymous Coward on Tuesday August 04 2015, @04:57PM
We don't know what the story is between those two guys. Maybe the CEO cheated his brother out of half the company, felt some guilt about it, so decided to restore his moral balance by giving away money to his employees.
"I'm not the bad guy here" - some movie
(Score: 5, Interesting) by Nobuddy on Tuesday August 04 2015, @06:43PM
Did you even bother to read the summary, or was your knee jerking too hard for that?
All of the raises came from his own salary. Not the company, not profits, his own salary. The move lost him a few accounts from the stupid and politically motivated, but increased the company's sales tenfold.
As a result of implimenting a change at no cost to the company whatsoever, the company is growing in leaps and bounds. In response, the minority shareholder sues for... what? Making too much money without prior notice? Unprecedented growth?
The article is written as a hit piece, screaming the minor inconveniences while whispering the MASSIVE gains.
(Score: 2) by Grishnakh on Wednesday August 05 2015, @12:35AM
Leaps and bounds? TFS says that the new accounts won't start paying off for a year (I guess the nature of the business is that it takes a while for a new customer to become profitable?). So as long as he can keep the place afloat for a little while, everything will be great, but the problem is that this is risky and a period of instability.
(Score: 3, Insightful) by fadrian on Tuesday August 04 2015, @03:07PM
Which is why the only effective way to change the market is to use regulations.
That is all.
(Score: 4, Insightful) by GungnirSniper on Tuesday August 04 2015, @04:14PM
Which regulations would those be? Set worker pay levels government-style?
This bombed because he brought up the pay of the bottom people without giving everyone else a similar raise. Someone who's worked to get to the level they're at is always going to be resentful of someone handed the same money despite not providing the same value. As others have noted, doing this slowly without the fanfare would have had similar benefits without the negatives. CEOs are not supposed to make rash decisions.
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(Score: 2, Insightful) by Anonymous Coward on Tuesday August 04 2015, @05:22PM
Because I ain't rich enough if you aren't dirty poor.
(Score: 1) by hedleyroos on Tuesday August 04 2015, @08:40PM
1. False dichotomy.
2. Some people are naturally competitive. Not everyone is like you.
(Score: 0) by Anonymous Coward on Tuesday August 04 2015, @09:10PM
It is not about being rich or poor. It is about relative market value. The "poor" can have houses made out of gold bricks as long as those of higher market value make more in proportion to the difference in market value.
(Score: 0) by Anonymous Coward on Wednesday August 05 2015, @05:18PM
Like the GP said, pure greed and schadenfreude.
(Score: 3, Interesting) by tibman on Tuesday August 04 2015, @05:46PM
I never understood that pay part. Someone else getting a raise doesn't cheapen your pay. Maybe they didn't even earn theirs and it was a mistake on a form. Either way, good for them. It still doesn't change how much you make. The only way this could make sense is that them getting a raise means that you do not. But i do not think that is the case. Some employees simply aren't worth any more money then they are getting paid. Give them inflation bumps and that is it until their abilities and knowledge grow more.
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(Score: 1, Insightful) by Anonymous Coward on Tuesday August 04 2015, @06:49PM
> Someone else getting a raise doesn't cheapen your pay.
Conservatives lurve themselves the hierarchy.¹ One of the most popular ways for conservatives to measure their position in the hierarchy is with dollars. It isn't just the spending value of the dollars, it is the status indicated by the dollars. So, to a person who values their position in the hierarchy, this move does cheapen them. Even if they can't articulate it this way, their gut tells them that if the janitor is making nearly the same amount of money that they are, then they've been demoted to the status of janitor.
ยน Look at the people defending this attitude towards the company's minimum wage hike - Gugnir and Bradley13, both posters with a history of heavily conservative positions.
(Score: 2) by GungnirSniper on Tuesday August 04 2015, @07:54PM
Management types do tend to be more conservative, for whatever reason.
You're right that staff do consider compensation when comparing themselves to others, especially since that's how management looks at them. Each employee is a cost, and have to bring according value for that cost, or they won't be there long.
I had a situation where some second line engineers found out one of the senior customer service reps was making more than they were, and they were rightfully pissed. That rep came in years earlier when we had different starting salaries, thanks to knowing our then-director from working together at a different company. Wouldn't you be upset too if you found out someone with an A+ and maybe Network+ is getting paid the same as you and your CCIE? Wouldn't a doctor be upset if they found out the nurses made the same? I don't think this is a political point so much as a human nature point.
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(Score: 0) by Anonymous Coward on Tuesday August 04 2015, @08:40PM
> I don't think this is a political point so much as a human nature point.
We are all limited by our experiences. It seems like a human nature point to you because that is your nature. You will find it very difficult to understand that not everyone perceives the world the way you do.
(Score: 2) by Phoenix666 on Tuesday August 04 2015, @07:31PM
Humans are monkeys, on a basic level. We crave hierarchy to know where we stand. That's why so many want to be on the winning side of a zero-sum game. There are of course other philosophies and people who escape the primate calculus through them, but most people remain in that limbic fog. Why else would sports and war remain so popular?
Washington DC delenda est.
(Score: 2) by githaron on Tuesday August 04 2015, @08:59PM
What is hard to understand? If you spent years cultivating your skills and have a lot of responsibilities in order to make your current wage and the new low-skill guy with significantly less responsibilities comes in and immediately starts making the same or almost the same as you, you aren't going to be frustrated? It implies your additional skill and responsibility level are of little value to your company. Without some non-monetary motivator, it discourages people from taking on new responsibilities and building new skills.
If the new "minimum wage" became the norm across the industry, you can bet that the high-skill laborers are going to demand higher wages.
(Score: 3, Interesting) by tibman on Wednesday August 05 2015, @02:40PM
No, i wouldn't be frustrated. I would train the new guy up. If he wasn't fit for the job then i'd request for him to be fired. I don't use pay to compare myself to others. Pay is something i experience outside of work. While at work i use job performance to compare myself to others. I am probably a-typical though. I use to be in the army and you knew someone's pay just by looking at their collar (now center mass). Pay is no secret. Pay also does not equal responsibility or ability. Plenty of experts at the bottom and worthless idiots at the top. When your life depends on the person next to you, you will prefer someone who actually knows what they are doing over someone who is getting paid the most. If you care for your excellent co-workers instead of seeing them as competition then i am certain you will arrive at something similar.
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(Score: 1) by nitehawk214 on Tuesday August 04 2015, @09:28PM
It does if the company has a fixed poll of dollars for raises. I was flat-out told by two former bosses at two companies that they would love to give me a higher raise, but they wanted to give at least x dollars to the entire time, and corporate only gave y thousand dollars for raises for the entire team. (Don't recall what x was, but my raise ended up being pretty terrible.)
I told him "No problem, boss. If I am unhappy with my pay, I will let you know. With a 2 weeks notice." I followed right the hell through with that about a year later. At a huge giant evil company it does you no good to tell them early that you are looking to leave, and it gives them the excuse to fire you or make your job an even more unreasonable hell than it already is.
At 100 employees I don't know if Gravity Payments is into the "huge evil company" and the articles do a nice job of dancing around whether or not raises were from a fixed pool, but it is kind of a necessity for a small company. There are only so many dollars to go around. Why stick around if you know you won't be getting a decent raise ever again?
"Don't you ever miss the days when you used to be nostalgic?" -Loiosh
(Score: 1) by nitehawk214 on Tuesday August 04 2015, @09:28PM
That is "fixed pool"
The funny thing is I originally typoed it as "fixed pull", then manage to correct it wrong.
"Don't you ever miss the days when you used to be nostalgic?" -Loiosh
(Score: 0) by Anonymous Coward on Tuesday August 04 2015, @10:13PM
> Why stick around if you know you won't be getting a decent raise ever again?
You seem to be commingling two independent concepts:
(1) The ability to find a higher paying job somewhere else
(2) The company's compensation policies
With respect to (1) - people have been leaving their job for greener pastures since the invention of employment, the fact that someone can find a better paying job just means they were previously underpaid, nothing more.
With respect to (2) - compensation is rarely so linear - would you leave if the CEO got a $10M bonus? Regardless of specifics, the only real limit on total employee compensation is revenue. If this high minimum policy produces a disproportionately large increase in revenue, would that still make you feel justified in quitting?