CEO Raises Minimum Wage to $70,000; Company Now Almost Underwater

[Mavric]

Three months ago, Mr. Price, 31, announced he was setting a new minimum salary of $70,000 at his Seattle credit card processing firm,Gravity Payments, and slashing his own million-dollar pay package to do it. He wasn’t thinking about the current political clamor over low wages or the growing gap between rich and poor, he said. He was just thinking of the 120 people who worked for him and, let’s be honest, a bit of free publicity. The idea struck him when a friend shared her worries about paying both her rent and student loans on a $40,000 salary. He realized a lot of his own employees earned that or less.

 

Yet almost overnight, a decision by one small-business man in the northwestern corner of the country became a swashbuckling blow against income inequality.

 

...

 

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 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.

 

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.

 

Then potentially the worst blow of all: 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.”

New York Times

[Moiraine]

Maybe he should have just stuck with "I'm decreasing my pay so I can increase employee pay" and left it at that. If I was one of his employees getting paid $65,000-$80,000 when this happened I would be annoyed too.

 

I also think he's lying about not thinking of the "political clamor over low wages." If he wasn't thinking of that, why announce it to anyone? I can't see any other reason for announcing it.

[JJ Husker]

Classic case of some employees worrying more about other people than themselves. Why worry about other people's pay, the only paycheck that affects you is yours. I can't see why the people making 65-80k should be upset........but I'm sure they are because that is exactly how some of my employees would react.

[Moiraine]

Classic case of some employees worrying more about other people than themselves. Why worry about other people's pay, the only paycheck that affects you is yours. I can't see why the people making 65-80k should be upset........but I'm sure they are because that is exactly how some of my employees would react.

 

This is very socialist thinking of you

 

 

Let's say I've worked at a place for 10 years and I started out at $50,000 and I'm now earning $70,000. I would feel like I've earned that salary through hard work. But now suddenly brand new employees are making $70,000 without having done any work for it. I agree with lots of socialist ideas but this is not one of them.

[ZRod]

Classic case of some employees worrying more about other people than themselves. Why worry about other people's pay, the only paycheck that affects you is yours. I can't see why the people making 65-80k should be upset........but I'm sure they are because that is exactly how some of my employees would react.

You really can't see it? That they likely have a degree, or an advanced degree, have put in more time with the company, or have more experience in the field. You don't see why someone would be mad when they are compensated the same or close to the same as someone who has none of those things?

[True2tRA]

 

Classic case of some employees worrying more about other people than themselves. Why worry about other people's pay, the only paycheck that affects you is yours. I can't see why the people making 65-80k should be upset........but I'm sure they are because that is exactly how some of my employees would react.

You really can't see it? That they likely have a degree, or an advanced degree, have put in more time with the company, or have more experience in the field. You don't see why someone would be mad when they are compensated the same or close to the same as someone who has none of those things?

 

I see both sides of it. Yes the higher educated more experienced worker deserves more, but if you're making enough and living a happy life, why is it that you need more? Why should you get mad when somebody who isn't living quite the nice, easygoing life you live, gets a bump in pay to make their lives more comfortable?

 

It's never enough for people. Greed is the killer of this country, it's economy and it's people. This never ending desire for more, more, more.......why isn't enough ever enough?

 

 

Funny side story, at least to me anyway. I used to work with a few women and man could they talk. Gossiping about everybody's business but their own. One of them used to complain about people making more money than her all the time. We had a company policy of not discussing each others earnings with each other to avoid these types of confrontations. Well, her complete disregard of the policy and constantly trying to get out of me what I made (which she attempted in a friendly manner instead of which I really knew was just ammunition to add to her arsenal of being pissed off at the world) I finally broke down and made up a huge B.S. number that was a lot more than I was actually making.

 

She lost it! She flew off the handle right there. Told the other ladies and before I knew it I had 8 clucking hens going off about how much more than them I made. I'm laughing and playing along enjoying how, what shouldn't be their business to begin with, was pissing all over their days. I was 25 or so at the time, so I enjoyed these things even more than I do now. Well it ends up getting around to my supervisor and he's trying not to laugh as he knows I'm completely full of crap, but in the end I get a nice little meeting. Basically they were in the wrong for constantly discussing my wages, but my supervisor didn't feel I needed to prod them with stories.

 

I thought it was funny.......oh well..

[Moiraine]

 

 

Classic case of some employees worrying more about other people than themselves. Why worry about other people's pay, the only paycheck that affects you is yours. I can't see why the people making 65-80k should be upset........but I'm sure they are because that is exactly how some of my employees would react.

You really can't see it? That they likely have a degree, or an advanced degree, have put in more time with the company, or have more experience in the field. You don't see why someone would be mad when they are compensated the same or close to the same as someone who has none of those things?

 

I see both sides of it. Yes the higher educated more experienced worker deserves more, but if you're making enough and living a happy life, why is it that you need more? Why should you get mad when somebody who isn't living quite the nice, easygoing life you live, gets a bump in pay to make their lives more comfortable?

 

It's never enough for people. Greed is the killer of this country, it's economy and it's people. This never ending desire for more, more, more.......why isn't enough ever enough?

 

 

Funny side story, at least to me anyway. I used to work with a few women and man could they talk. Gossiping about everybody's business but their own. One of them used to complain about people making more money than her all the time. We had a company policy of not discussing each others earnings with each other to avoid these types of confrontations. Well, her complete disregard of the policy and constantly trying to get out of me what I made (which she attempted in a friendly manner instead of which I really knew was just ammunition to add to her arsenal of being pissed off at the world) I finally broke down and made up a huge B.S. number that was a lot more than I was actually making.

 

She lost it! She flew off the handle right there. Told the other ladies and before I knew it I had 8 clucking hens going off about how much more than them I made. I'm laughing and playing along enjoying how, what shouldn't be their business to begin with, was pissing all over their days. I was 25 or so at the time, so I enjoyed these things even more than I do now. Well it ends up getting around to my supervisor and he's trying not to laugh as he knows I'm completely full of crap, but in the end I get a nice little meeting. Basically they were in the wrong for constantly discussing my wages, but my supervisor didn't feel I needed to prod them with stories.

 

I thought it was funny.......oh well..

 

 

I can't see myself ever discussing my salary with my fellow employees. That being said this wouldn't be quite as funny if you were always paid less based on which sex chromosomes you were born with.

[True2tRA]

 

 

 

Classic case of some employees worrying more about other people than themselves. Why worry about other people's pay, the only paycheck that affects you is yours. I can't see why the people making 65-80k should be upset........but I'm sure they are because that is exactly how some of my employees would react.

You really can't see it? That they likely have a degree, or an advanced degree, have put in more time with the company, or have more experience in the field. You don't see why someone would be mad when they are compensated the same or close to the same as someone who has none of those things?

 

I see both sides of it. Yes the higher educated more experienced worker deserves more, but if you're making enough and living a happy life, why is it that you need more? Why should you get mad when somebody who isn't living quite the nice, easygoing life you live, gets a bump in pay to make their lives more comfortable?

 

It's never enough for people. Greed is the killer of this country, it's economy and it's people. This never ending desire for more, more, more.......why isn't enough ever enough?

 

 

Funny side story, at least to me anyway. I used to work with a few women and man could they talk. Gossiping about everybody's business but their own. One of them used to complain about people making more money than her all the time. We had a company policy of not discussing each others earnings with each other to avoid these types of confrontations. Well, her complete disregard of the policy and constantly trying to get out of me what I made (which she attempted in a friendly manner instead of which I really knew was just ammunition to add to her arsenal of being pissed off at the world) I finally broke down and made up a huge B.S. number that was a lot more than I was actually making.

 

She lost it! She flew off the handle right there. Told the other ladies and before I knew it I had 8 clucking hens going off about how much more than them I made. I'm laughing and playing along enjoying how, what shouldn't be their business to begin with, was pissing all over their days. I was 25 or so at the time, so I enjoyed these things even more than I do now. Well it ends up getting around to my supervisor and he's trying not to laugh as he knows I'm completely full of crap, but in the end I get a nice little meeting. Basically they were in the wrong for constantly discussing my wages, but my supervisor didn't feel I needed to prod them with stories.

 

I thought it was funny.......oh well..

 

 

I can't see myself ever discussing my salary with my fellow employees. That being said this wouldn't be quite as funny if you were always paid less based on which sex chromosomes you were born with.

 

Edit: woodshed material.

[JJ Husker]

 

Classic case of some employees worrying more about other people than themselves. Why worry about other people's pay, the only paycheck that affects you is yours. I can't see why the people making 65-80k should be upset........but I'm sure they are because that is exactly how some of my employees would react.

 

This is very socialist thinking of you

 

 

Let's say I've worked at a place for 10 years and I started out at $50,000 and I'm now earning $70,000. I would feel like I've earned that salary through hard work. But now suddenly brand new employees are making $70,000 without having done any work for it. I agree with lots of socialist ideas but this is not one of them.

 

Classic case of some employees worrying more about other people than themselves. Why worry about other people's pay, the only paycheck that affects you is yours. I can't see why the people making 65-80k should be upset........but I'm sure they are because that is exactly how some of my employees would react.

You really can't see it? That they likely have a degree, or an advanced degree, have put in more time with the company, or have more experience in the field. You don't see why someone would be mad when they are compensated the same or close to the same as someone who has none of those things?

I can see it and understand it but I also know that if a person let's these things bother them, they will never be happy. If you look for it, you will always find some perceived injustice. It might not be realistic but it sure would be a lot simpler and more productive to simply consider if you like your job and are getting paid enough to keep showing up. In the end, what Bob or Alice are getting paid has zero bearing on your happiness......unless you let it make you unhappy.

[ColoNoCoHusker]

This is a Financial Services (Payment Card Industry) company. It's pretty easy to figure out what somebody else is making in the company and what value they bring. Even so, that isn't why the company is tanking.

 

I think the big issue is the CEO did this to bring attention to his company and possibly in an attempt to separate Gravity Payments from all the other small Processors that have popped up over the last decade or so. It back-fired not because of employee reaction, but because the market/partners/customers freaked out about how the cost was going to pass down to them. There are a lot of segments where this approach could go over well, but the Payment Card sector is definitely not one of them. If nothing else, the CEO should be ousted for not knowing the market sector and pulling this kind of stunt.

 

That said, I'm a big fan of pay leveling and think it's neccessary. It's too bad the CEO didn't do this with less fanfare; I think it really could have worked out the other way without the press focus...

[BigRedBuster]

So, let me get this straight. A business owner raises all of his employees to a minimum of $70,000 and slashes his own pay to do it. And, it's a bad thing he publicized it? Really?

If I were to do that I would definitely publicize it simply because I would hope I would get the best of the best of the employees applying. That is what an employer hopes would happen if they do this. The only way this works is if you have the absolute best and happiest employees in the industry and that translates to better customer service and products to the customers and they realize that.

 

The fact remains though that is a bigger factor. Each industry has a theoretical limit as to what salaries can be and still be profitable. Now, if the owners and managers are taking huge amounts of money and not paying anyone else then screw them. I hope they get crappy employees. But, if someone goes out and purposely tries to over pay above the industry norm, then they must have a business plan that accounts for that. If they don't, then they will go broke and out of business.

[ColoNoCoHusker]

So, let me get this straight. A business owner raises all of his employees to a minimum of $70,000 and slashes his own pay to do it. And, it's a bad thing he publicized it? Really?

 

If I were to do that I would definitely publicize it simply because I would hope I would get the best of the best of the employees applying. That is what an employer hopes would happen if they do this. The only way this works is if you have the absolute best and happiest employees in the industry and that translates to better customer service and products to the customers and they realize that.

 

The fact remains though that is a bigger factor. Each industry has a theoretical limit as to what salaries can be and still be profitable. Now, if the owners and managers are taking huge amounts of money and not paying anyone else then screw them. I hope they get crappy employees. But, if someone goes out and purposely tries to over pay above the industry norm, then they must have a business plan that accounts for that. If they don't, then they will go broke and out of business.

 

I think this would be true in a lot of market segments but definitely not in this part of the Payment Card Industry. The guy started a "discounter" processing company. The company serves the lower-tier of the market where customers only care about price. The Payment Card Industry is a very tight-knit "community" from an experienced employee perspective. If you are trying to attract the best employees in the industry, don't do a press release. Make the change, give it 3 months and word-of-mouth will let it spread. Between audits & conferences alone that would be more than enough time for it to trickle through. The press release is geared towards attracting publicity/attention (customers), not employees. The customer base for these lower-tier processors are very skiddish and the press is never friendly to these companies. If nothing else, it makes them a target for a security breach. I would expect a CEO/founder to know his market better and act accordingly, imo...

 

EDIT: My point is the CEO was not concerned about happy employees; he was driven by ego/greed and tried to veil it under being a "magnanimous leader" which bit him in th arse... Had the CEO been driven to make his employees happy and act accordingly, he would have handled it differently and it would have turned out in his company's favor...

[BigRedBuster]

OK...so, he increased the minimum wage (for what ever reason) to way above what the industry or surrounding environment does and he's an ass for doing it. So what if he did it to attract customers or just for publicity? So what? The employees are getting a big pay raise. Enjoy it.

 

My personal opinion is that his mistake is thinking he can play in the discount/low price market and pay his employees way more than anyone else. I would assume labor costs are a major part of the expense of this business.

 

The only way that works is if he reduces his won pay dollar for dollar for what he is paying his employees. That might work as a small company. But, let's say this is extremely successful. He can only reduce his pay down to zero (theoretically). After that, all that labor costs has to be made up somewhere.

[ColoNoCoHusker]

Don't get me wrong, I fully support pay-levlling and executives taking pay cuts and over-paying employees. That's not what happened here, though, despite the CEO trying to spin it that direction.

 

I would imagine, even with the $70k salary floor, labor cost for that company is around 3 or 4 on the list. IT, security/compliance, licensing/charges, infrastructure, etc. are all probably higher. If the company was poaching knowledge workers from within the Payment Card Industry, a $70k floor would be a pay cut or lateral move for many/most knowledge positions in Seattle.

 

The problem with the publicity is it's a market that places a high value on obscurity. It would be like Haliburton Security putting out a press release about how they have the best trained mercenaries, as evidenced by the high percentage of rounds fired resulting in someone's death. It might be true but anyone in that industry should know the backlash would far outweigh any market gains by such a posture. Also, that marketing would not generate new clients; it would make existing clients feel the need to distance themselves...

 

I think the company was looking to get acquired or get external investment. There were issues with compensation structure as it relates to this. The CEO decided to right the wrong of overpaying himself and underpaying his employees. Rather than just fix it, he chose to spin it as being magnanimous and feed his ego. For someone that worked in that field for 11 years, it's inexcusable that he didn't expect this backlash from handling in the press.

 

As far as the employees, some probably got a bump, most probably did not. All will be looking for new income due to the CEO's arrogance.

[BigRedBuster]

Admittedly, I know nothing about this specific industry. For whatever reason, the minimum wage increase to $70,000 didn't work.