The media is still buzzing after the CEO of Gravity Payments, Dan Price, announced that he was cutting his own salary to ensure that none of his employees make less than $70,000 per year. It’s a magnanimous move, and the employees, many of whom saw their salaries double instantly, are justifiably happy.
For some background, Gravity Payments is a Seattle-based payment processing firm. In young tech companies like Gravity Payments, employees tend to make less money (compared to a more well-established company like Google) but have more potential for growth. This (the lower pay bit) was true of Gravity until about a week ago, when Price announced that he was raising the minimum salary for every Gravity employee to $70,000. The video footage of Price breaking the news is worth the watch. Price is an undeniably charming figure, and we like to see happy people!
According to Price, the $70,000 number came to him from the well-known 2010 study that found $75,000 to be the salary around which health, happiness and comfort tend to top out. Further inspiration to change the way he paid his employees, however, came when he was hiking with a friend who mentioned that she was having trouble paying her rent. This, Price says, got him to looking at the Gravity books and trying to figure out how he can up employee pay so that no employee should need to stress over money.
Though Price’s narrative is admirable, this probably doesn’t tell the whole story. We’ve dug up some really interesting reviews of Gravity Payments on Glassdoor (Glassdoor is a job search platform that allows employees to review their own companies). The most interesting, “Ignored and Underpaid” from January of this year, was penned by an anonymous Gravity employee. The review is pretty scathing, and mostly focuses on two cons about working for Gravity Payments: low pay and non-transparent managers. It seems like a pretty typical anonymous gripe session, except that it doesn’t get completely ignored. Price himself responds to it with nearly 1000 words explaining his point of view. He ends his response with these words:
“I am going to do everything I can to improve this without jeopardizing everyone’s jobs by hurting the company’s financial stability. I have found in my own life that the more I give and sacrifice, the more I get back. […]I need to do a better job trying to work for the team as well, and will absolutely do so. -Dan”
With this response, it’s clear Price recognized problems not just for the world or for his hiking buddies, but also in his own company. With this bold (expensive) move, he’s attempted to fix two problems: the low pay and the disparity between employees and managers.
But there will be challenges for Price and Gravity Payments going forward. Here are some thoughts:
- Gravity Payments’ human resources systems are going to have to be efficient and diligent to weed out potentials who are poor culture fits, or who may be interested in occupying a $70,000 position but not performing at that level.
- Price may be able to bankroll a good portion of his employees’ raises by cutting his own pay; however, as the company grows this will become harder and harder. Gravity Payments currently only has ~120 employees. If his company grew to ten times the size, upper management salaries might need to be capped, which may be met with significant resistance from existing staff and/or lead to hiring challenges.
- How will they handle recognition and rewards for performance? Will employee salaries continue to grow as they gain skills and seniority? Will there be a less-pronounced curve after the $70,000 start? It’s possible that more senior employees could look for work elsewhere if they are making only a pittance more than new hires. (Imagine how you might feel if you were the manager with the hard-won $75k salary who now has the file clerk making only $5k/year less than she does!)
- Many of these issues could be solved by having a strong workplace culture, with aligned values. The Glassdoor reviews that we read revealed that Gravity may be a good place to work, but it is far from perfect. Price will have to harness his charisma (significant) and organizing power to promoting and growing a corporate culture where everyone is aligned in valuing the same. This would, hopefully, encourage transparency and happier emploeyes.
- There’s no going back now! If shoveling money at Gravity Payments employees doesn’t work to make them happy, taking it away is a recipe for disaster.
Challenges aside, there will be some definite benefits to the big pay raises:
- As the disgruntled employee in the Glassdoor review mentioned, there seemed to be a rift between employees and management. Major raises for the more junior staff could help foster a culture where everyone believes that they’re in it together.
- Employees making enough money to not have typical financial worries are more likely to maintain good health, seek out self-improvement opportunities and contribute to their communities
Only Rush Limbaugh would disagree that paying employees a living wage is a bad thing in itself. However, for many businesses, $70,000 per-employee payroll is way out of the realm of possibility.
The good news? There are many less-expensive and arguably better ways to deal with a lot of the problems that Price seems to have been facing, if we look past his hiking anecdotes. We’ll cover that in a future post.
Developing a company culture based on core values, inculcating management with those values, and then hiring staff accordingly, can ensure that your workforce is happy to come to work and motivated by more than just money. And study after study suggests that money is a good motivator but not the best motivator.
You should also consider training your leaders to help foster employee engagement, career alignment, a sense of purpose, and a connection between personal values and company core values in their teams. Teams that feel like they’re working together for a common goal rather than to take home individual paycheques, are more likely to be focused on achieving company objectives.
Finally, many of the issues the anonymous Glassdoor reviewer brought up issues related to communications from management and transparency. Making transparency a core value – and following through on that – can do a lot to level the playing field and bridge the gap between employee and management.
In the end, Dan Price comes off as noble person with a good cause. Perhaps he is a new breed of millennial CEO. It makes a great and moving story, and we hope that it spurs more conversations about CEO compensation and minimum compensation. The $70,000 minimum – to which he cut his own pay – works symbolically in a way that the $1 salaries of celeb tech executives like Mark Zuckerberg, Steve Jobs and the Google head honchos, since it puts him explicitly on the same level as his employees. However, we stress, this is just a beginning: those pioneering entrepreneurs wishing to follow suit need to look not just at employee compensation but also the culture in which employees work.
For the employees of Gravity Payments, of course, their new salaries are much more than a symbol. They represent the freedom from much of the financial worry that seems to evaporate past the $70,000/year mark. In the words of Price, he wanted to get his employees to the point “where money wasn’t really causing them any tangible life problems to speak of.” There are definitely going to be some cool benefits and tough challenges as a result of this. In the next few years, it will be interesting to watch how the Gravity Payments experiment works out – and if others follow suit.
