Why This Company is Dealing with Backlash After Announcing 70k Minimum Wage

August 6, 2015

Three months ago, Gravity Payments CEO Dan Price made a bold announcement: all 120 employees at his Seattle-based company would make at least $70,000 a year. The move garnered worldwide publicity and briefly made Price a populist hero.

Three months later, things aren’t so rosy. Some of Price’s best employees quit. Some of his biggest clients left. And, worst of all, Gravity Payments co-founder Lucas Price (Dan Price’s brother) filed a lawsuit weeks after the announcement, demanding a substantial buyout.

And while the lawsuit isn’t directly related to the $70,000 a year minimum wage, the cost associated with it means that if Gravity Payments loses, it could potentially not have the financial bandwidth to pay the judgment.

While the story is interesting on its own, here’s the question it raises for business leaders: is this a case of a good idea executed poorly...or just a bad idea, period? The evidence suggests the former, with Gravity Payments making five mistakes in the execution of their plan.

Specifically, those mistakes are:

1. Not considering all implications when revealing individual employees' salaries

A person’s salary is a private matter between them and their company. It often isn’t even a good idea to tell your friends how much you make, let alone the people you work with.

When Price bumped up all his employees to $70,000, they all knew how much each other made. And that built resentment.

The publicity also came with a second negative: several of Gravity Payment’s biggest clients took their business elsewhere after they saw the announcement. The reason was they feared Gravity Payment’s prices would increase, despite assurances to the contrary.

So, not only can public salaries sometimes build angst among your employees, it can cause them with your customers, as well.

2. People shouldn’t all be paid the same

No company in the world pays all of it’s workers the same, and for good reason. There are people in any organization who are worth more to the company than others, and they should be compensated accordingly.

Again, when Price raised salaries, almost everyone was brought to the same level, because almost all the workers were paid less than $70,000. At Gravity Payments, some people became resentful because they felt they should make more than others - some even quit in protest.

A perfect example is Grant Moran, a 29-year-old Gravity Payments employee who actually got his salary increased by $9,000 almost immediately after Price’s decree. Still, it annoyed him that other employees also got raises he felt they didn’t deserve.

“I had a lot of mixed emotions,” Morgan told the New York Times. “Now the people who were just clocking in and out were making the same as me.”

3. $70,000 a year should be seen as a floor, not a ceiling

This goes to the last point, but here is another flaw with Price’s plan: yes, it’s great to give everyone at your company $70,000 a year. But, if you have someone already making $68,000 a year, and another making $35,000 a year, it isn’t necessarily fair to all-of-a-sudden pay them both the same.

Instead, Price should have set the $70,000 as a floor, not as a de facto ceiling. In that same scenario, the $68,000-a-year employee should make maybe $85,000 a year, not just $70,000. If his company couldn’t afford to do that, well, perhaps he could select a more reasonable floor.

4. Your business should lead by example, not by argument

It’s great to make political statements through the actions of your company. Ben + Jerry’s, for example, pushes climate initiatives while selling ice cream. Countless other companies either take stands on hard issues or support charities supporting a thousand different causes.

What’s not so good is when you use your actions as a way to guilt people into thinking the way you think, which the New York Times reported Price did. Specifically, they reported one specific example where Price accused another business owner of “measuring his self-worth solely in terms of money” at a cocktail party, which led to a heated argument.

Gandhi put it best when he said, “be the change you want to see in the world.” In other words, set an example, as opposed to pushing your opinion on others. That’s particularly true with a policy like this, which some companies just might not be able to afford.

5. Finally, salaries should be determined by strategy, not by politics

Here’s the biggest reason Price’s move is causing issues: your compensation plan has to be strategic. After all, people care a lot about how much they're paid, and paying people the right amount can have drastic implications on your bottom line and your ability to recruit and retain your workforce.

Price’s move, by his own argument, wasn’t strategic, it was political. According to his own public statements, he wanted to pay people more and cut his own salary because he believed $70,000 was what a person needs to be happy.

It’s a good argument, sure, but not a business-minded one. By taking a more strategic approach, he could have accomplished the same goal and not alienated some of his workers and his clients in the process.

A case for a $70,000 a year minimum wage

As LinkedIn’s own data shows, people leave jobs for higher-paying jobs. Therefore, if you paid everyone at your company at least $70,000 a year, even at low-end positions, the data suggests you could attract some great people.

You could justify the extra costs by showing that those great people provide a much larger ROI than a standard worker, and potentially have to hire fewer of them. As famed German industrialist Robert Bosch once said, “I don’t pay good wages because I have a lot of money; I have a lot of money because I pay good wages.”

That wasn’t necessarily what happened in the case of Gravity Payments. But it doesn’t mean the idea was bad. It just means the execution could have used a little tweaking.

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*Image from Gravity Payments