Economics Jobs

CEO Raises Company’s Minimum Wage to $70K; Now His Business is Collapsing

A few months back Dan Price, the CEO of Gravity Payments, a credit-card-payment processing company, announced he was raising his company’s minimum salary to $70K a year! The announcement was met with rave reviews from his employees, liberals and the media. “Everyone start[ed] screaming and cheering and just going crazy,” Price told the website Business Insider back in April. Sadly, in the few short months since he made his big announcement, the real world has reared its ugly head.

While everyone was busy cheering Price back in April, naysaying conservatives had some major qualms. While we don’t begrudge a business owner the right to make his own policies regarding employee compensation, the simple truth is that decisions like the one Price made hardly every work out the way people intend. It’s not that we conservatives are pessimistic, it’s that we understand profit motives and how basic economics works. If Mr. Price would have asked us about his plan to raise his company’s minimum wage we could have told him that it would have some negative, unintended consequences. Actually, what ended up happening is exactly what we would have told him might happen…

In the months since his announcement, his employees have revolted, with several quitting and the general morale of his office collapsing.

 

From Business Insider:

 The New York Times reports that two of Gravity Payments’ “most valued” members have left the company, “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.”

Maisey McMaster — once a big supporter of the plan — is one of the employees that quit. McMaster, 26, joined the company five years ago, eventually working her way up to financial manager. She put in long hours that “left little time for her husband and extended family,” The Times says, but she loved the “special culture” of the place.

Gravity Payments CEO Dan Price2But while she was initially on board, helping to calculate whether the company could afford to raise salaries so drastically (the plan is a minimum of $70,000 over the course of three years), McMaster later began to have doubts.

“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 told The Times. A fairer plan, she told the paper, would give newer employees smaller increases, along with the chance to earn a more substantial raise with more experience.

Gravity’s web developer, Grant Moran, 29, had similar concerns. While his own salary saw a bump — to $50,000, up from $41,000, in the first stage of the raise — he worried the new policy didn’t reward work ethic. “Now the people who were just clocking in and out were making the same as me,” he tells The Times. “It shackles high performers to less motivated team members.”

He also didn’t like that his salary was now so public, thanks to the media attention, and he worried that if he got used to the salary boost, he might never leave to pursue his ultimate goal of moving to a digital company. Like McMaster, Moran opted to leave.

But according to the Times, even employees who are “exhilarated by the raises” have new concerns, worrying that maybe their performances don’t merit the money.

 

Price told the New York Times about how the problems are affecting his business.

“I’m working as hard as I ever worked to make it work. I’m renting out my house right now to try and make ends meet myself.” After hearing the complaints from his former employees and how conservatives were reacting to the pay hike, Price responded that they might actually be right. “There’s no perfect way to do this and no way to handle complex workplace issues that doesn’t have any downsides or trade-offs,” he remarked.

Mr. Price may be well intentioned, wanting to minimize income disparity in his company, but he’s going about it entirely the wrong way. Instead of arbitrarily raising everyone’s salary (and, as his employees point out, giving much larger raises to his unskilled workers than to his professional employees), he should have simply offered everyone at the company the opportunity to make real gains with promotions and wage increases. While we all would appreciate being given a raise for no reason whatsoever – the inequalities inherent in giving raises to everyone regardless of differences in their work ethic or what they bring to the company is in and of itself unfair. In fact, I would argue that the unfairness in giving unearned raises is even greater than whatever inequality may lie in our nations income disparity.

Mr. Price has simply traded on fact of life that he believes to be unfair for something that needs not exist and is actually and truly unfair.

The views expressed in this opinion article are solely those of their author and are not necessarily either shared or endorsed by EagleRising.com


About the author

Onan Coca

Onan is the Editor-in-Chief at Liberty Alliance media group. He's also the managing editor at Eaglerising.com, Constitution.com and the managing partner at iPatriot.com. You can read more of his writing at Eagle Rising.
Onan is a graduate of Liberty University (2003) and earned his M.Ed. at Western Governors University in 2012. Onan lives in Atlanta with his wife and their three wonderful children.

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