CEO Who Raised Pay To 70K Couldn’t Defy Gravity

Original Article:

  • Author: Mark J. Perry and Michael Saltsman

  • Publication Date: August 2015

  • Newspaper: Investor's Business Daily

  • Topics: Minimum Wage

He was hailed as the country’s best boss. Dan Price, the 31-year-old founder of Seattle-based Gravity Payments, received flattering news coverage this year after he announced his company would raise its minimum wage to $70,000 per year.

Three months later, the party’s over, and Price is fighting an economic hangover better known as the law of unintended consequences.

The New York Times reported this past weekend on the fallout from Price’s announcement. On the plus side for the company, dozens of progressive-minded businesses became clients following the big announcement of the $70,000 minimum wage.

But to accommodate this new business — which won’t boost the company’s bottom line for a year or more — Price had to hire 12 employees at the newly inflated wage rate.

The salary divide between less-experienced employees and more-veteran staff is where the story gets interesting. The Times reported that two of the company’s best employees quit after Price’s raise heard round the world, chafed by a policy that would “double the pay of some new hires” while leaving the paychecks of more-senior employees mostly untouched.

The company’s former financial manager explained it this way: “(Price) gave raises to the people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump.”

Similarly, a former Web developer for Gravity Payments was upset at a pay policy that “shackles high performers to less-motivated team members.”

This negative response from more experienced employees to a dramatic pay hike isn’t limited to Gravity Payments and the tech sector. In the same city that Price’s company calls home, a recently enacted minimum wage increase to $15 an hour has some veteran restaurant employees seeing red.

In an interview with Seattle alt weekly the Stranger, one fast-food staffer who spent years working her way up the ladder described it this way: “I want everyone to be paid a living wage, but that wage should not be expected, but earned. Deserving it should be more than just showing up.”

Another line cook confessed his frustration with the policy: “Man, I just spent all this time climbing through the ranks to get to $15 an hour, and now some random person is going to come in and make the same wage at a far-less stressful, demanding job.”

These experienced employees are not alone in feeling short-changed. The Employment Policies Institute commissioned Survey Monkey to poll 300 people nationwide who earn $12 to $15 an hour. (The margin of error was +/- 5.7%.) Respondents worked in a wide range of industries, including medical, manufacturing, education and construction.

Roughly 60% of the respondents had at least some college experience and two or more years on the job. In other words, employees in this wage range were likelier to have worked for it — they weren’t new to the job.

Forty-six percent of these employees opposed a law giving inexperienced new hires the same $12-$15 hourly wage that they’re earning.

Regardless of whether they favored the new pay policy, over 90% of them would expect their own wages to increase significantly as a result. (Nearly half would expect to be paid an additional $5 or more per hour.)

Who can blame them? A wage of $12-$15 an hour isn’t princely, but it represents the second or third step on the career ladder for employees who eventually want to be earning $30, $40 or $50 an hour, sometimes by using their experience to run their own business.

Setting an artificial minimum wage at this high a level won’t just wipe out opportunities for those at the bottom of the ladder whose skills aren’t yet worth $15 an hour. It will also diminish the hard work of those more experienced employees who have already started climbing the ladder.

Gravity Payments’ founder has no one but himself to blame for the fallout from his $70,000 experiment, and that’s as it should be. Other Seattle-based businesses coping with the consequences of the city’s coming $15-an-hour minimum wage have to blame the politicians who forced it on them.

The City Council will soon learn the hard way that you can require local businesses to pay $15 an hour — but you can’t require experienced employees to hide their contempt when their less-skilled counterparts are suddenly overpaid, thanks to government fiat.