It’s Not Easy: The Challenge of Paying Employees a $70,000 Minimum Salary
by Gael O'Brien
It isn’t often that a CEO takes on the problem in his own company of income inequality, reducing his salary and establishing a minimum wage of $70,000 over the next three years for employees.
In the nearly four months since Gravity Payments CEO Dan Price announced his plan, the ensuing maelstrom offers insights into resistance, the need for new work paradigms and how leaders give voice to convictions.
Price’s bold initiative was triggered by reading a Princeton study which found that emotional wellbeing rises with income until one makes around $75,000 a year after which income doesn’t really impact happiness. He kept working with the math until he could afford to raise those salaries that were below $70,000.
This commitment to employees was cheered internally but has critics: those employees resenting workers with less skills having their pay significantly elevated, as well as those feeling pressure because they hadn’t earned the increase; and from some customers fearing price increases (which didn’t happen) as well as other CEOs who felt Price was making them look bad. Change often triggers resistance. People feel ill-served, overwhelmed or uncomfortable not knowing yet how to navigate without the old rules.
However, while fear of the unknown drives resistance and anxiety, for an entrepreneur like Price, the unknown is the home of possibility. He has leapt in with both feet, believing he is doing the right thing for employees and that clients will benefit from teams who are better able to provide for their families. It is too soon for him to know whether his leap will help Gravity flourish or add fuel to a national conversation on income inequity that is otherwise short on ideas and going nowhere.
Nonetheless, Price is on the radar as a CEO with the courage of his convictions trying to improve business starting with his own company.
The polarities of income disparity increasingly divide the United States. For example, in 2014, the average S&P company CEO made 373 times the average salary of a non-supervisory employee; the average CEO pay package was $22.6 million (one third of which was in cash), compared to the average family income of $51,939 (2013).
While some companies focus on putting employees first so they’ll positively impact customers Price has raised that bar to dramatically new heights and by going after income inequality, he challenges a traditional way of doing business. One Gravity client’s initial reaction to the company’s new minimum wage was to worry: “What’s their (employees’) incentive to hustle if you pay them so much?”
Price’s actions take on the traditional business model of amassing money as the pinnacle driver of work. He is firmly in the camp of those who believe a sense of purpose helps business flourish.
In a recent Forbes interview, he stressed the importance of values in a culture supported by offering employees a livable wage. While Gravity’s salaries had been competitive, he said, jobs in a variety of support roles paid around $40,000, difficult to live on given Seattle’s increasing unaffordability. “Every team member at Gravity is all about serving others and making sacrifices to help our clients” said Price. “ ….If I’m paying my team below the Princeton study’s ‘magic number of happiness’ there is a huge gap where they could be happier, and in turn make their job an extension of their values rather than a place they go to make ends meet.”
Gravity’s culture will need to encompass its new realities: that some employees saw their salaries double without feeling (or others’ feeling) they earned it, while seasoned employees with higher salaries and perhaps more accomplishments this year received only small increases. Gravity may be poised to demonstrate what working as a team for something bigger than one’s own interests looks like. To do so the spirit behind relationships and service will dictate the degree to which Price’s leap into the unknown will pay off for clients and the company.
Ultimately, everything connects or doesn’t because of the quality of leadership and how obstacles are addressed. While the company is rapidly gaining more clients, challenges lie ahead including a lawsuit filed by one of Price’s brothers asking Price to buy out his minority share.
Will possibility be created out of the unknown? Price is seeking to create a new paradigm. It will be funded by reducing his million dollar salary to $70,000 and company profits; he is fueling it by the conviction business can make a difference. In the Forbes interview, he said: “My decision to raise the minimum wage was a commitment to take care of my team, who work really hard and take incredible care of our clients.”
“It’s our moral imperative as leaders,” he continued, “to do the best we can for everybody around us. If we do that, I think as a society and as business leaders, we’ll get farther faster.”
Photo by Ronald Woan via Flickr.
Gael O’Brien, a Business Ethics Magazine columnist, is a consultant, executive coach, and presenter focused on building leadership, trust, and reputation. She publishes the The Week in Ethics and is The Ethics Coach columnist for Entrepreneur Magazine.