$70,000 Minimum Wage Fails!

Did you read the story in April about Dan Price, the CEO of Gravity Payments, a credit card processing company, who decided to implement a $70,000 a year minimum wage for his company?  Over a period of three years, salaries will be increased to where the lowest paid employee will earn at least $70,000.  To help fund this increase, the CEO reduced his own salary from $1 million dollars a year to the soon to be company minimum wage of $70,000.  A very noble gesture.

But now, just three short months later, there’s trouble in the People’s Republic of Gravity Payments.  The increase has caused considerable turmoil in the company.  The lowest paid employees are going to see their salaries more than double.  Meanwhile, the higher paid (and more valuable to the company) employees are only seeing small increases if any.   Because of this disparity, two of the companies key employees have already left with more to follow.  They have a problem with raising the salaries of those that punch in, do the minimum, then punch out, up to the same level of those that work the hardest.

This is why Maisey McMaster, the companies Financial Manager decided to leave.  She was working up to 80 hours a week to help build the business.  She missed time with family and friends to make the company a success.  The reward for her hard work was a small raise.  It bothered her to know that those that contribute the bare minimum to the company’s success were getting large raises and would soon be making near the same salary as she was making.  When she complained about the disparity, she was called “selfish”.

Another key employee, Gravity’s web developer Grant Moran, also left the company for similar concerns.

Other fallout from the decision:

Gravity Payment’s more conservative clients are leaving because they do not want to support what looks like a socialist business experiment.

Other clients are leaving because they fear the cost of these higher salaries will be passed on to them.

Some clients are concerned that service will suffer as the quality personnel quit the company, leaving it to be run by the “just punch the clockers”.

The company has actually had to hire twelve more people (at the new higher salary) to handle the thousands of phone calls, emails and letters the publicity has caused, further increasing the companies overhead.

Many of the local businessmen aren’t too happy with Dan Price.  His actions are making them look cheap and Scrooge-like.  Because of their lower profit margins, many cannot increase salaries.  Some are already having trouble complying with Seattle’s new minimum wage law, currently at $11.00 an hour, going to $15.00 an hour.

In addition, the CEO is being sued by his brother who owns 30 percent of the company. The big profits the company was making are now being eaten up by the new high salaries leaving little for lawyer fees.

It’s not all negative.  On the plus side, Gravity is signing up some new clients who believe what he is doing with salaries is the right thing to do.  Unfortunately, the way credit card processing works, profits form the new clients will not appear for 12 to 18 months.

You have to admire the CEO’s gesture, however misguided it is, to improve the livelihood of his employees.  But this is exactly what many predicted would happen when you reward people for just showing up instead of for their performance.  Sounds a lot like government employment.

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