A few months ago, I did a Viewpoint on the decision by Dan Price, the founder of Gravity Payments, to pay everyone in his company at least $70,000. You might remember that he did it because he read how some extra money for some people makes a big difference. Therefore, he decided to cut his $1 million salary to $70,000 and make that amount the minimum wage for the company.
At the time, I predicted that it would make it hard for him to attract other managers since people with executive experience can make much more than $70,000. Since then we have found that his decision created some other problems.
Two of his most valued employees quit because they thought it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises at all. One of them actually helped Dan Price calculate how to raise everyone’s salary to $70,000. But over time she saw how unfair that was given that she was putting in long hours that left little time for her husband and extended family. When she went to talk to Price she said, “He treated me as if I was being selfish and only thinking about myself.”
His payment decision also generated lots of publicity and some new business. Price has to hire new people to handle that unexpected reaction and won’t see the return on that investment for some time.
Less than two weeks after the announcement, Price’s older brother and Gravity co-founder filed a lawsuit that now threatens the company’s existence. With the legal bills piling up and Price’s paycheck being used for salary increases, he says, “We don’t have a margin of error to pay those legal fees.”
Establishing a minimum wage of $70,000 in the company might have seemed like a good idea, but now Dan Price and Gravity Payments are struggling to deal with the consequences of his decision.