Gravity Payments: $70k for All—For or Against?
While the subject of employee compensation, satisfaction and retention is still fresh in our minds, let's talk about the whole Gravity Payments situation that's got everyone all abuzz...
In case you haven't heard about it yet, I'll offer a brief overview:
Dan Price, CEO of Seattle-based credit card processing company Gravity Payments, made a big change this past April. He decided to cut his roughly $1 million salary to $70,000, and use the remainder of his salary to raise each of his 120 employees' salaries to $70,000 (minimum). Why, you ask? He blames the pay gap between a CEO salary and that of the average employee. Price had heard friends and employees discuss the troubles of living on a $40,000 salary: paying back college loans, dealing with rent increases, car troubles, starting a family, and so on. Price said, "That just eats at me inside." Upon his announcement, the crowd went wild, as did the media.
Initially, there was overwhelming support and happiness surrounding the pay raise. Granted, there are still some very happy campers whose salaries nearly doubled, but a change this great does not come without consequences. Let's explore the upsides and the downsides of "equal pay for all."
Upside: The announcement drew worldwide attention. Talk show hosts lined up for interviews, thousands of job seekers sent in resumes, even business professors from Harvard flew to Seattle to conduct a case study. They called him a "thought leader."
Downside: Some of Gravity Payments' clients withdrew their business in anticipation of a fee increase and out of fear of a socialist/communist agenda.
Upside: Dozens of new clients signed on, but will not start paying off for another year or so.
Downside: Two of Gravity Payments' most valued veteran employees quit, expressing that it was unfair to double the pay of new hires and give little or no raise to those employees that had been with the company for a long time. These staff members believed that the new system benefited the less ambitious while penalizing those who contributed more.
Upside: A difference has been made in the lives of many of his employees, who now feel financially secure and able to do things they hadn't dreamed of before and who remain very loyal to the company and to Price.
Downside: Fellow business owners in the area feel a bit snubbed by Price, with one saying, "We can't afford to do that. For most businesses, employees are the biggest expense and they need to manage those costs in order to survive."
After some research, Nobel Prize-winning Psychologist Daniel Kahneman found that "emotional wellbeing"—the emotional quality of an individual's everyday experience, the frequency and intensity of experiences of joy, stress, sadness, anger and affection that make one's life pleasant or unpleasant—rises with income. That point is at about $75,000 a year, and generally any higher than that does not report any further increase in emotional well-being. I think we can all agree that Kahneman's findings are accurate, right?
The one thing that stands out to me is that not all employees deliver equally, so why pay an employee who does the absolute minimum, oftentimes less, the same amount of money as your highest performing employees who put their all into the job every day? Call me crazy, but it just doesn't seem fair.
Perhaps Price could have sat his most valued employees down to brainstorm better, more effective ways to spend the $930,000 left from his salary, (after cutting it down to $70,000/year) to benefit the company and its individuals in a way that is more feasible and with little consequence.
So what do you think? Do you find Price's idea exciting or disconcerting?