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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: 2) by Thexalon on Tuesday August 04 2015, @04:13PM
There are incentives other than money. For example, he could have his people competing for first dibs on conference rooms, bigger or nicer offices, parking spaces, first in line at the lunch buffet, bonus vacation time, or even simply title and prestige. That sort of competition happens all the time in civil service systems where wages basically are entirely determined by seniority and department.
But I think the point that he missed was that if you set the minimum at $70K, that isn't also the maximum. If he really wanted to do this, and he might have reasonably done so, he'd have done better to bump the people who were at $70K before the raises to $100K or so.
What I find particularly interesting is the customers who jumped ship because they didn't want to do business with a company that would make this kind of move. If the rates didn't change (and they didn't), and the service didn't change (and it didn't), why the heck did the customers care about internal salary decisions?
"Think of how stupid the average person is. Then realize half of 'em are stupider than that." - George Carlin
(Score: 2) by skullz on Tuesday August 04 2015, @04:34PM
Interestingly enough it looked like they were able to talk most of their customers into signing back up again. As one guy said, let Price run his business, I'll run mine. The pizza guy passed his monthly savings by using Gravity onto his employees so he won out by building loyalty at no real cost to his business.
Then you get the folks who get upset over cocktails who worry that they will look stingy...
(Score: 0) by Anonymous Coward on Tuesday August 04 2015, @06:22PM
I can understand believing rates would raise, and therefore they want to look now rather than when the higher rates hit. I mean, they announced rates wouldn't go up because of this, but absent any legal constraint, it's hard to take such words at face value.
(Score: 2) by githaron on Tuesday August 04 2015, @09:30PM
The companies might of canceled their contracts because they believed the cost of changeover now would be smaller than the cost of changeover later when/if something changed for the worse. Also predictability has value. When someone/something someone depends on becomes unpredictable, they tend to get worried.