What Dan Price Should Have Done Before Increasing Everybody's Salary to $70K
A Note From The Editor
Think your company has what it takes to make our Top Company Cultures list? Apply now.Apply now »
Dan Price, CEO of Gravity Payments, dug himself into a deep hole by raising the floor on his company’s salary level to $70,000 this past April. That means employees just starting out now make the same as employees who’ve worked for him for years.
The founder of the Seattle-based credit card processing firm decided to make a brash statement against income inequality after pondering the struggles of a friend trying to make ends meet on $40,000, according to a recent New York Times article.
Some, including business experts and economists like Tim Kane, applauded his radical actions at first. But now, with a lawsuit and a handful of employee relations issues, opinions are shifting more toward critical.
Here are some ways Gravity Payments’s radical CEO should have approached this situation:
1. He should have discussed the plan internally first.
Price's brother, the company’s co-founder, filed a lawsuit against him. The legal costs threaten Gravity Payments’ very existence, and even Price is now struggling to make ends meet with his new $70,000 annual income, the recent New York Times article reports.
First and foremost, Price should have proposed the idea to his brother. He is the co-founder and should have had a say. He should have discussed the idea with his employees, too -- not just his hiking buddy.
When Price announced to his employees the new minimum wage, the room fell silent -- then eventually broke into cheers, Business Insider reports. It was a surprise for everyone. But, in giving more than a quarter of employees’ salaries a boost, Price figured he couldn’t go wrong.
After all, only 43 percent of employees are actually happy with the salary they make, CareerBuilder’s 2014 survey estimates.
He did go wrong, though, and it’s costing him big. Two of his best employees quit, unhappy about the fact that a newbie can make the same amount as they do after helping him build the company.
He should have let employees give him one-on-one feedback and considered his decision based on that. Overall, he should have approached it democratically, soliciting votes from all whom the decision would affect.
2. He should have consulted his customers before going to the press.
When customers leave, that should raise a red flag for business owners that something’s definitely wrong. And that’s exactly what happened to Gravity Payments. Viewing Price’s decision as a political statement, some customers withdrew their business. Others left, anticipating a fee increase.
If Price had talked to these companies, he could have given them a chance to weigh in and prepare before the press went wild.
Before making a bold move that will undoubtedly attract media attention, inform key stakeholders. A company’s customers should be treated as investors. That means they should know what’s happening, when, and be given the chance to discuss an idea before company leaders steamroll the decision over them.
3. He should have clearly outlined how he arrived at that figure.
Price based the figure on a 2010 Princeton study he read, and an epiphany while on a hike with his friend who was struggling to pay her bills on an annual income of $40,000.
In the Princeton study, researchers determined the happiness tipping point to be roughly $75,000. The study concluded those who make less would be prone to emotional pain and job dissatisfaction. That, paired with his friend’s financial stress, was all Price needed to fuel his epiphany.
Price should have had a more solid foundation upon which he reached his decision on that figure. An old study that doesn’t necessarily apply to every situation and a friend’s experience aren’t enough.
Patrick R. Rogers, an associate economics professor at North Carolina A&T State University, predicted Price’s failure in attempting to improve business productivity through employee happiness taking these measures, according to the New York Times article published in April.
With a little more research, Price would have found money is just one factor influencing employee engagement and happiness. Others like recognition, peer relationships and a sense of belonging run much deeper.
4. He should have sought financial council to ensure a sustainable plan.
Price made a bold move without consulting financial experts first, which is a terrible mistake in itself. His decision and how he would carry out his plan were based on his feelings. To cover the extra costs, his only plan was to cut his own million-dollar salary.
Before making any big financial decision like this, consult with an expert to work out a sustainable plan. Every business decision comes with risk, and that risk affects the stability of the company and the employees who work there.
5. He should have focused on what income inequality is really about.
Income equality is really about different races and genders being paid the same for the same job done. Instead, Price choose to handle the income inequality issue by throwing money at everyone, regardless of what they do, how hard they work or how much they’ve given the company throughout the years. He missed the mark a little.
Here’s are some very real income inequality issues:
In 2013, full-time, year-round working women were paid only 78 percent of what men who work the same schedule earn, according to a 2015 report called The Simple Truth About The Gender Pay Gap by AAUW. The report also found Hispanic women only make 54 percent of what white males earn. Black women only make 10 percent more than that.
If Price really wanted to make a statement, he should have focused on leveling salaries based on role and experience, ensuring everyone who does the same type of work is paid the same, regardless of race, gender or age.
His heart was in the right place, but there’s a better way to be a part of the solution to income inequality.