On Friday the New York Times published a fascinating story following up on Dan Price, founder of Gravity Payments. Price made headlines months ago when he announced that the new starting salary at his firm would be $70,000 per year, and he was cutting his own salary to help pay for the change. Predictably, the results have been mixed. The initial announcement led to a wave of adoring publicity:
[A]lmost overnight, a decision by one small-business man in the northwestern corner of the country became a swashbuckling blow against income inequality. The move drew attention from around the world — including from some outspoken skeptics and conservatives like Rush Limbaugh, who smelled a socialist agenda — but most were enthusiastic. Talk show hosts lined up to interview Mr. Price. Job seekers by the thousands sent in résumés. He was called a “thought leader.” Harvard business professors flew out to conduct a case study. Third graders wrote him thank-you notes. Single women wanted to date him.
But amidst the accolades, trouble was brewing.
What few outsiders realized, however, was how much turmoil all the hoopla was causing at the company itself. To begin with, Gravity was simply unprepared for the onslaught of emails, Facebook posts and phone calls. The attention was thrilling, but it was also exhausting and distracting. And with so many eyes focused on the firm, some hoping to witness failure, the pressure has been intense.
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.
To make matters worse, Price soon found himself at the receiving end of a lawsuit filed by his older brother (and company co-founder). With the company bleeding money to pay for the pay raises, it now finds itself having difficulty paying legal fees.
Not even the greatest of idealists can repeal human nature. Yes, people want more money. And, yes, a blaze of publicity tends to be good for business. At the same time, however, equality can often feel unfair. Just ask former Gravity employee Maisey McMaster:
Now 26, she joined the company five years ago and worked her way up to financial manager, putting in long hours that left little time for her husband and extended family. “There’s a special culture,” where people “work hard and play hard,” she said. “I love everyone there.”
She helped calculate whether the firm could afford to gradually raise everyone’s salary to $70,000 over a three-year period, and was initially swept up in the excitement. But the more she thought about it, the more the details gnawed at her.
“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 said. To her, a fairer proposal would have been to give smaller increases with the opportunity to earn a future raise with more experience.
A couple of days after the announcement, she decided to talk to Mr. Price.
“He treated me as if I was being selfish and only thinking about myself,” she said. “That really hurt me. I was talking about not only me, but about everyone in my position.”
Already approaching burnout from the relentless pace, she decided to quit.
McMaster was not the only person to quit. Gravity also lost its web developer, who was upset that “people who were just clocking in and out were making the same as me.”
The jury is certainly still out on Gravity. It has more customers, but it also more salary expense and a host of legal problems. Over the long run, however, the free market doesn’t care much for ideology or even for ideals – only for results. It will be fascinating to check in on Mr. Price this time next year — and the year after that. Perhaps he’s found a way to pay well above market wages and still make a profit. Perhaps his wages will allow him to hire the best employees and make up in quality what he’ll likely lack in quantity. Or perhaps the cost pressures of high wages for entry level jobs will mean that he won’t be able to pay as much for the top talent he’ll need. Or maybe he’ll find that he can’t run his business without pricing himself out of the market. Only time will tell, of course, but I must confess that I admire a man who’s willing to live his principles. I wish him well.