In a way, I have to admit, I have some sympathy for Dan Price and his quixotic quest to battle “income inequality” by instituting a minimum salary of $70,000 for all employees of his company. Not for the cause itself, which is merely the latest trend in left-wing economic illiteracy, but I too once ran a business in which I thought I could do amazing things by paying people way more than their experience levels or qualifications would earn them anywhere else.
It didn’t work for two reasons. First, a business can’t survive when employees can’t generate enough value to give you a big enough return on what you pay them. And if they can’t do that because you paid them too much, that’s not on them. It’s on you. Second, people don’t appreciate what they haven’t really earned. You think they’re going to be grateful and loyal to you because you were so good to them. It doesn’t work that way.
So as soon as I heard some months back that Price was going to wage his own one-man war against “income inequality” by paying everyone at Gravity Payments a minimum of $70,000 - and would even cut his own pay to help the company swing it - it wasn’t hard to see this coming:
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.Then potentially the worst blow of all: Less than two weeks after the announcement, Mr. Price’s older brother and Gravity co-founder, Lucas Price, citing longstanding differences, filed a lawsuit that potentially threatened the company’s very existence. With legal bills quickly mounting and most of his own paycheck and last year’s $2.2 million in profits plowed into the salary increases, Dan Price said, “We don’t have a margin of error to pay those legal fees.”
It wasn’t just good, experienced employees who had a problem with the plan. So did at least one employee who was a recipient of a huge raise:
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