CEO Hikes Minimum Wage To $70K, Capitalist Tragicomedy Ensues

Tyler Durden's picture

Meet 31-year-old Dan Price.

Dan is the CEO of Seattle-based credit card payments processing firm Gravity Payments, and three months ago, he did a funny thing. 

After talking with a friend who confessed to having difficulties making student loan payments and rent each month on an annual salary of $40,000, Dan decided to set a $70,000 per year pay floor at Gravity.

Dan was not, The New York Times says, looking to insert himself into "the current political clamor over low wages or the growing gap between rich and poor." All he wanted to do was improve the lives of the 120 or so people who worked for him and after reviewing some literature on the subject, he decided that $70,000 was the level at which workers start to experience "an enormous difference in [their] emotional well-being."

Predictably, the initial response to the new policy was quite positive. Here’s The Times:

Talk show hosts lined up to interview Mr. Price. Job seekers by the thousands sent in résumés. He was called a "thought leader." Harvard business professors flew out to conduct a case study. Third graders wrote him thank-you notes. Single women wanted to date him.

 


But even as Dan adjusted to life as a rebel hero and basked in his newfound popularity among third graders and single women, he quickly learned that whether he liked it or not, he had waded waist deep into the minimum wage debate and he would soon discover a few very hard lessons about the unintended consequences of hiking the pay floor. 

First, some employees felt it wasn’t fair to indiscriminately give everyone a raise. That is, some felt Gravity should at least pay lip service to the notion that there's a connection between higher pay and performance and because the new pay plan didn't seem to acknowledge that link, the company lost some workers.

Two of Mr. 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 Mr. Price’s action made them look stingy in front of their own employees.

 

Maisey McMaster was also one of the believers. Now 26, she joined the company five years ago and worked her way up to financial manager, putting in long hours that left little time for her husband and extended family. "There’s a special culture," where people "work hard and play hard," she said. "I love everyone there."

 

She helped calculate whether the firm could afford to gradually raise everyone’s salary to $70,000 over a three-year period, and was initially swept up in the excitement. But the more she thought about it, the more the details gnawed at her.

 

"He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump," she said. To her, a fairer proposal would have been to give smaller increases with the opportunity to earn a future raise with more experience.

 

A couple of days after the announcement, she decided to talk to Mr. Price.

 


 

"He treated me as if I was being selfish and only thinking about myself," she said. "That really hurt me. I was talking about not only me, but about everyone in my position."

 

Already approaching burnout from the relentless pace, she decided to quit.

Next, Gravity began to lose some of its long-standing customers and while the across-the-board pay raise won the company more than enough new business to make up the difference, the new accounts won’t be immediately accretive and in the meantime, Gravity has had to hire more people to service the new accounts and thanks to the new salary floor, all of those new employees will eventually have to be paid $70,000.

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 Mr. Price’s announcement, were signing up, those accounts will not start paying off for at least another year. To handle the flood, he has already 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.

Dan’s benevolence is also costing him friends in the business community where some say Gravity’s new pay floor will embolden minimum wage workers in their quest for higher pay. 

Brian Canlis, a co-owner of his family-named restaurant, is also a client. He said he was fond of Mr. Price, but was more discomfited by his actions. 

 

Mr. Canlis is already worried about how to deal with Seattle’s new minimum wage, which rose to $11 an hour in April and is scheduled to reach $15 an hour for small businesses within five years.

 

The pay raise at Gravity, Mr. Canlis told Mr. Price, "makes it harder for the rest of us."

Finally, Dan is now being sued by his older brother and as it turns out, Maisey McMaster had not included a "provision for legal fees in case my brother sues us" line item in the new budget, which means that ultimately, Gravity may have a hard time staying in business.

Less than two weeks after the announcement, Mr. Price’s older brother and Gravity co-founder, Lucas Price, citing longstanding differences, filed a lawsuit that potentially threatened the company’s very existence. With legal bills quickly mounting and most of his own paycheck and last year’s $2.2 million in profits plowed into the salary increases, Dan Price said, "We don’t have a margin of error to pay those legal fees."

 

Lucas Price owns about 30 percent of their company, although he has not actively been involved in day-to-day operations for several years. There had been tensions between the two long before the new pay plan, and Lucas is demanding that Dan buy him out for an unspecified amount, plus damages.

*  *  *

To be sure, there are number of lessons here and indeed, the Gravity story touches on several topics we've discussed at length over the last several months.

There's no question that surviving in America is becoming more difficult by the year for an alarmingly large subset of the population and part of the problem is anemic wage growth for 83% of the workforce. In fact, just last week the Department of Labor said the employment cost index notched a meager 0.2% increase in Q2 - that's the smallest quarterly gain since record keeping began in 1982. 


Despite claims that this miserable data point was anomalous, this ECI print clearly suggests that for all the publicity around the minimum wage debate, and despite (or maybe even because of) the growing pressure on employers to raise the pay floor, wage growth is virtually non existent. Thus, across-the-board pay raises seem to be suffering from the QE paradox that's now playing out in Sweden - that is, the more you do it, the less effective it is and at a certain point, it even begins to undermine itself.  

Meanwhile, easy access to credit has led to an explosion of student loan debt and yet that debt has created a preponderence of degreed job seekers. In other words, college degrees are now so common as to reduce their value for prospective employers which has had the unfortunate effect of transforming many college educated, would-be professionals into waiters and bartenders. 


Needless to say, paying off $35,000 in student debt is tough when you're relying on tips to make ends meet and it's made all the more difficult by the fact that rents are soaring. With lenders still stinging from the collapse of the housing bubble, underwriting standards are still relatively tight (for homes anyway) which means, to quote WSJ, households are being squeezed "between rents they can't afford and homes they can't qualify for."

Meanwhile, the gap between the rich and the poor is widening materially on the back of Fed policy that, while ostensibly designed to rescue Main Street via the elusive "wealth effect", serves only to further enrich the wealthy by inflating the value of the assets most likely to be concentrated in the hands of those who were already rich in the first place. 

Whether Dan Price realized it or not, his move to raise the pay floor at Gravity was destined to be seen as an emphatic reaction to each of these economic realities. But as we saw last week with WalMart, addressing the rise of class segregation and the disappearance of the American Middle Class by resorting to across-the-board pay raises comes with a long list of unintended consquences and as Tony Hsieh learned when he attempted to transition Zappos to a "bossless" corporate culture, predicting how employees will respond to what seem like unequivocally worker-friendly policies is quite difficult. 

So while we wish Gravity the best of luck with the new pay structure, we fear that if anything, Dan Price's experience will serve as a cautionary tale to employers who may now think twice before embarking on one man crusades to address the nation's social and economic maladies and ultimately, if the company's very existence continues to be threatened by the fallout from the wage hike, Gravity's employees may soon find that the new pay floor is, like everything else in the world, subject to the law of... well, gravity. 

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Gold N Glocks's picture

Someone send this dumb SOB a copy of Atlas Shrugged.

Publicus's picture

The Age of Man is coming to an end. Robots are the next step in the evolutionary ladder.

El Oregonian's picture

It still amazes me how man can still stumble over his own God-given brain...

headhunt's picture

Some are too small to stumble over

Keyser's picture

Ahh, Seattle, a socialist's wet dream playground...  And here we have an abject lesson in why everyone is not equal in corporate hierarchy... You can't renumerate the plebs at the same rate as the hunter - killers... Something this "CEO" is learning the hard way... Som nam na... 

 

New_Meat's picture

"You can't renumerate the plebs..."

Of course you can, you just start counting down as you renumerate.

- Ned

New England Patriot's picture

One man's price floor is another man's ceiling.

Pure Evil's picture

Another issue with raising salaries like that is their lifestyles will soon catch up and then they'll be bitchin that they can't pay their monthly BMW note, or pay for cable, or the cell phone.

For the ones that have no financial sense all that money will now be frittered away and they'll be back in the same boat as before but with even more debt they can't pay off.

Sorta like lottery winners that spend it all in the first couple of years, but now with higher salaries they can incur more debt.

insanelysane's picture

Hiring agent:  The job here pay's $13.50/hr and requires you to do light general maintenance duties.

Job seeker:  Well at my last job I was making $70k/yr to do the same duties.

Hiring agent:  Why did you leave that job?

Job seeker:  They went out of business.

rccalhoun's picture

the road to disaster was paved with good intentions

LetThemEatRand's picture

Not many good business people on this site, but we already knew that.

This guy spent a very modest sum for a shit ton of free advertising, and generated a shit ton of good will among the large majority of people who read the story (exemping Rand followers, who are only happy anyway when employers are eating their employee's children and making the employees watch).   If he had blown a million bucks on a superbowl ad, no one would think much of it.   This guy is a marketing genius.

Pure Evil's picture

And, all this from the dude that would eat Ayn Rand's pussy.

SafelyGraze's picture

the long hair.

the beard.

who does that ceo think he is, anyway?

jeez.

https://www.biblegateway.com/passage/?search=Matthew+20

 

Son of Loki's picture

He's a hippie...very wealthy hippie...way beyond the Yuppie stage.

Creepy A. Cracker's picture

Let him pay his people $70K minimum.  Obviously his industry is ripe for competition.  New companies will come in with reasonable wages (lower) and perform the credit card service for less, taking his business.  Eventually he will compete or go under.  Free markets work.

free shit plz's picture
free shit plz (not verified) markmotive Aug 3, 2015 12:45 AM

http://www.zerohedge.com/news/2015-08-02/ceo-hikes-minimum-wage-70k-capi...

Just thought this comment, and the upvotes it garners, deserves more love. How many more accounts you got there billyboy?

fuu's picture

I just wanted to point out that this guy took his personal compensation package down in order to do this. He isn't spending this from any other part of the budget beyond his own salary. I fail to see how he is shirking in his CEO duties except not being a dick who makes 322:1 of his employees salaries. 

 

I also find it interesting that the comments here are pretty much the same as the ones on HN the other day when this showed up. It's funny that two completely different echo chambers can resound with the same outrage.

Socratic Dog's picture

Got to agree.  Look, you fucking clowns, this was NOT the government doing this.  It was a guy who (thought he) owns his own business.  He can do what he fucking likes, and if he can't he should be able to.  He cut his own check to do this.  What is your fucking problem?  We need more guys like this.  If his being a hippy bothers you, then you are a moron and should be watching CNN, not browsing the Hedge.

As for " Fed policy that... serves only to further enrich the wealthy by inflating the value of the assets most likely to be concentrated in the hands of those who were already rich in the first place."  Now there is some truth.  Sort of.  Gold, bitchez!!  The only asset usually a prerogative of the wealthy that is affordable to non-0.01%'ers like you and me.  Sometimes I think it's an IQ test where those smart enough to see the opportunity  will actually have a chance of surviving the coming population cuts.  Or perhaps self-select themselves for early termination as being non-MSM believers.  Take your pick.

Debt-Is-Not-Money's picture

The only ones that ultimately benefit from a higher minimum wage is the governments that levy income taxes, the very same governments that caused the problem by illegally authorizing the Fed Reserve System with it's fiat debt-money and it's Planned Inflation - decrease in purchasing power of the counterfeit currency which hurts the poor, retired and marginally educated.

Flatchestynerdette's picture

@Son Of Loki - well its a good thing he's a hippie b/c I just read that he had to rent out his house and he's now living in his garage sitting on plastic bins trying to figure out how to keep the $70k per employee going as he's not taking a paycheck himself its gotten that bad.

Marketing gimmick or not, he should've checked w/his business partner who does own 30% of the company as the company is now losing money so there is a case to be made the business partner should push for sale of the company, get his 30% of the selling price, whatever that may be based on current revenues and contracts for the coming year that might now be worth less. A judge might see it that way b/c the CEO didn't consult w/his partner. Doesn't matter that they haven't talked to each other in a few years. That's the CEO's fault for not holding annual mtgs and filing corp papers w/minutes. Even an LLC has to do that at least w/the accountant who's doing the annual tax returns! The accountant asks - what's going on with the partner? Oh, I don't and haven't talked to him in years. He doesn't care about the company at all. Reallly?!? What is this guy doing w/retained earnings? He should be sending 30% of them to his partner especially if they aren't talking so a case can't be made there's residual value the majority partner never paid the minority one. This guy has no business sense but wait - he's in Seattle so Microsoft will scoop him up as their next messiah.

Refuse-Resist's picture

In modern America, Jesus works for the Userers.  He works for the money changers.  Or he could even be considered a money changer himself.

WINNING FUCK YEAH!

Gazooks's picture

'the long hair.

the beard.

who does that ceo think he is, anyway?'

..and just who do you think you are?
New_Meat's picture

LTER:

"This guy is a marketing genius."

And a thief (of his brother/partner's third) and a soon-to-be unemployed marketing genius.  On the other hand, now that he's been in the CEO club, some stupid board will hire him to apply his unique brand of genius to their company.

I'm still with the under.

- Ned

LetThemEatRand's picture

Why is he a thief?  If he had spent the same amount in advertising that had resulted in little to no actual result, would he be a thief?  The way I read the story, the jury is still out on whether his investment will pay off.   He certainly got exponentially more bang for the buck in terms of publicity than any standard advertising I know about.   Do you know how many CEO's of small companies bankrupt the company by paying themselves too much and blowing it on hookers and blow?  That's theft.  And the fact that the brother filed a lawsuit doesn't mean he will win, or that he should win.   I get that you want him to fail because of your ideology.

exi1ed0ne's picture

I can't believe I'm up voting LTER, but there it is.  Who cares what some west cost idiot does with his company?  That fucking hipster mangina may be right, wrong or in between.  It's his company, so fuck off if you don't like what he is doing.  Ford did the same thing, albeit not so dramatically.  It worked out pretty good for him.  Sometimes I wonder if ZH is really filled with anti-populists rather than freedom loving people.

Billy the Poet's picture

Tell us how much better your business is doing now that you pay all your employees $70K/ year. That is the rate at which workers are happy. Not paying at least that amount would make you a Walmart shopping Republican.

tmosley's picture

You can tell LTER has never been in a business partnership. What he did there (radically increasing expenditure without consulting the partner) is a cardinal sin. It doesn't matter if it was for advertising or employee pay.

Imagine you come home one day to find your wife has decided to buy a new house, without telling you. SURPRISE!

LetThemEatRand's picture

I'd say it is you who have never been in a business partnership.  This guy is the CEO.  His brother is a minority shareholder.    According to the article, the lawsuit is over "longstanding differences."  He's probably claiming that his brother isn't funneling enough of the dough directly to him as a beneficial owner, instead of reinvesting it in the business (ironically, the reason most businesses fail).   I'd say the lawsuit is quite premature and based on this article, the CEO's marketing idea was working just fine until he got hit with a big lawsuit by his asshole brother which is eating up corporate earnings.  Ironic that you would take the side of the lawyers, the Plaintiff in a lawsuit, and the guy who wants more short-term compensation as opposed to growing a business long-term on this one.

tmosley's picture

I hope you come home tomorrow to find your wife has spent all your money, then you come on here to complain. Please, mighty Thor, make it happen.

LetThemEatRand's picture

I thought you were a capitalist?  The brother who is paying the employees is the CEO.  The other brother is a minority shareholder.  They started the business together, but the brother who is suing took a lesser role after a restructuring quite a few years ago.  Meanwhile, the business has grown and the CEO has garnered massive (mostly positive except from Randtards) publicity with this $70K min wage stunt.   Does that make the CEO the spendthrift wife in your mind?  Seems to me that the brother suing is wanting more money sent to him for his passive investment, while the brother running the company makes headlines and is one of the biggest stories here on ZH today.

tmosley's picture

I'm sorry, Oh mighty hater of Rand, but it doesn't matter what you or I think. The fact is that the guy failed at his fiduciary duty as CEO to his shareholders (ie his brother) and as a result has lost his best talent, and is now getting sued for his actions.

I know you socialists just HATE to be called out for the consequences of your idiot causes, but that is exactly what is happening here, and no amount of furious handwaving on your part is going to have any effect on the matter.  The fact is that the best performers don't like being paid according to their "need" when they produce income according to their "ability". I know this is hard for you to understand, but that is a basic fact of human nature.  You can whine and cry all you want about wanting to change that, but it will never change.  Only those systems which take advantage of human nature can prosper in the real world.  This is why capitalism always wins, while communism always fails.

Socratic Dog's picture

Capitalism always wins, while communism always fails?  Please evaluate and discuss this statement in the light of present-day USSA.  Submit essay by tomorrow morning.

Mosely, that was truly a dumb thing to say.  Tone down your emotional intelligence, or something.

acetinker's picture

It doesn't seem to matter how many times we tell ya', you continue to be a fkn idiot.  You wanna pay the kid who makes the coffee and fetches the mail $70K?  Be my guest.  Just don't act surprised when the ones who actually carry your stupid ass get pissed because they got almost no raise at all.

If this fkn genius with the outstanding marketing plan had a brain, he'd have based his generosity on his lowest paid prole, and adjusted everyone else upward from there, proportionally.

Then again, stupid is as stupid does, eh?

LetThemEatRand's picture

You could probably send him a resume and tell him you'd be happy to give him your advice.  But it sounds like he has a lot of resumes to sort through, and he has problems dealing with all of the new business from his successful publicity stunt, so it may take him a while to get back to you.

acetinker's picture

You have previously said that you are a self-employed business owner, if I recall.

Never mind your childish bullshit-  DO YOU PAY (or wish to pay) THE KID WHO MAKES YOUR COFFEE AND FETCHES YOUR MAIL $70K, or not.

OF COURSE he has a lot of resume's to sort through, you stupid fuck!

There's only one cure for your kind of stupid.  Can you guess what it is?

Billy the Poet's picture

I asked him that hours ago and he never replied. Also note that the Gravity CEO cut his own salary to equal that of the employees. I'm sure that LTER has done so as well. He pays himself the same as the copy boy.

Socratic Dog's picture

I paid myself the same as the copy boy when I had my own company.  That's one of the sacrifices you have to make when you don't want to take on outside funding (which usually means the tribe).  It paid off, now I reap the benefits.

Billy the Poet's picture

I also started my business without outside funding and yes, one pays oneself very little while getting things up and running. But the issue here is whether a system in which all employees in an established company receive the same compensation regardless of position or performance is viable in the long term.

ebear's picture

"Just don't act surprised when the ones who actually carry your stupid ass get pissed because they got almost no raise at all."

Furthermore:

Try this in a public company and see how pissed they get when the value of their stock options falls to ZERO.

This guy broke the link between effort and reward.

How stupid is that?

Raging Debate's picture

LTER - His brother got cheated out of x percent of profit. As others here have said, the employees could have been incentivized, bonuses etc. Then his employees, Dan AND his brother would have been happy. Little less net margin over a couple years but far more top line and subsequent profits for both men.

The other point is that of tenure. What if I had worked up over a few years to $70k from $40k? I would feel like my CEO was:

a) an iditot
b) completely disrespectful of my time.

It would have little to do with envy. I do agree many CEO's loot there companies. That is a government failure to enforce the rules as we have two sets of laws for rich and poor at this time.

Your arguments along with a couple others here attempts to portray experienced (and mostly honest) business people on ZH as cheap, ruthless human beings. I can tell who doesn't really get or care that government sanctions theft, ignores the concept of justice and thinks stealing a partners margins are A-Ok. Raging liberals.

Our country is filled with them including our government AND the Republicans. They are just far less noisy about it.

TheReplacement's picture

He put the company in jeopardy so that he might feel better about himself.  Maybe he got some advertising but he lost good talent, good paying customers, the goodwill of fellow travelers (and his brother), and now the point of the enterprise (profit) is pretty much gone.

If he fails, who's gonna pay the bills that the janitor and receptions owe? 

But it felt good for a while and now he's famous.  Yay.

ThirteenthFloor's picture

I knew a CEO of an eCommerce company, that picked up a bunch of employees below their market salaries in 2008 crash, then the CEO became a playboy blowing company profits on women, booze and blow. Key employs left eventually, and competition kept innovating while he was in on world playboy tool.

The company shriveled up, and down to 12 people, barely surviving, in a strip mall office.

LTER your point is right on this one.

daveO's picture

Marketing genius? Too bad he's not as smart as he thinks he is. 

Proverbs 16:18.

Pride goeth before destruction, and an haughty spirit before a fall.


LetThemEatRand's picture

How you've woven religion into this discussion (much less the idea that Jesus would be against paying the workers more, and the investor brother less in the short-term at least) is beyond me.  Bravo.

Sturm und Drang's picture

Jesus would likely be all for more pay, so long as it translated into more going to the "poor, hungry and sick". Oh wait...

Billy the Poet's picture

We knew you've never read Atlas Shrugged and now we see that you've never read the Bible either. Bravo, indeed.

 

Matthew 25

"Then the one who had received the one talent came and said, ‘Sir, I knew that you were a hard man, harvesting where you did not sow, and gathering where you did not scatter seed, 25 so I was afraid, and I went and hid your talent in the ground. See, you have what is yours.’ 26 But his master answered, ‘Evil and lazy slave! So you knew that I harvest where I didn’t sow and gather where I didn’t scatter? 27 Then you should have deposited my money with the bankers, and on my return I would have received my money back with interest! 28 Therefore take the talent from him and give it to the one who has ten. 29 For the one who has will be given more, and he will have more than enough. But the one who does not have, even what he has will be taken from him. 30 And throw that worthless slave into the outer darkness, where there will be weeping and gnashing of teeth."