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$70k Salaries Didn't 'Backfire'; Gravity Payments' Profits Have Doubled (inc.com)
AmiMoJo writes: In April, Dan Price, CEO of the credit card payment processor Gravity Payments, announced that he will eventually raise minimum pay for all employees to at least $70,000 a year. The move sparked not just a firestorm of media attention, but also a lawsuit from Price's brother and co-founder Lucas, claiming that the pay raise violated his rights as a minority shareholder. But six months later, the financial results are starting to come in: Price told Inc. Magazine that revenue is now growing at double the rate before the raises began and profits have also doubled since then. On top of that, while it lost a few customers in the kerfuffle, the company's customer retention rate rose from 91 to 95 percent, and only two employees quit. Two weeks after he made the initial announcement, the company was flooded with 4,500 resumes and new customer inquiries jumped from 30 a month to 2,000 a month.
They like working for you... Who'da thunk?
So when the revolution comes and the rich bastards are being lined up for the firing squad, Gravity's CEO will be the *last* against the wall. In fact, we might even retain him because we need that kind of thinking after, to rebuild.
If telephones are outlawed, then only outlaws will have telephones.
As soon as your 15 min of fame is over.... Let me know how it's going then.....
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
A great deal of this good news comes almost directly from the media coverage, not the fact of the the changes to pay structure. Still, it's an interesting case and I look forward to seeing how things are going in the 2 to 5 year range after the media coverage can be removed as a factor in the organization's performance.
Helping with organizational effectiveness is our job.
Not long a pizza chain local to the Minneapolis area raised their starting wage to $11/hour and they've seen tangible rewards from doing this.
Damn_registrars has no butt-hole. Damn_registrars has no use for a butt-hole.
This doesn't count because, as other Slashdot members have said, the news is a big contributor to this. Nontheless, I am very suprised no one's every run a study on this - paying employees more is cheaper in the long run because you save on training costs, you have higher morale, and you get much more quality for your money - one good worker at 80k per year can easily be worth 3 workers at 40k per year, and it also means less people to pay benefits for as well as a more tightly knit group with a smaller communication overhead.
This practice started with some assholes in suits who wanted to pad out their already bursting accounts at the expense of those they are responsible for; not because any study actually demonstrated long term cost savings by getting many cheap employees with low wages over better trained higher ones.
"Set a man a fire, he'll be warm for the rest of the night. Set a man afire, he'll be warm for the rest of his life."
This is what people who tout the "gig economy" and job hopping as the future don't get. There are some companies out there who will spend the time, hire the right people, and keep them for as long as possible by paying them and treating them fairly. They aren't sexy Web 2.0 startups, nor are they public companies for the most part, so you don't hear about them as much. Loyalty may be dead, but I think a lot of companies don't like the idea of churning through yet another batch of contractors/employees and would rather stay productive than retrain everyone constantly.
The flip side is that the company is now forced to be extremely careful about who they hire. Sure, it's the US and you can get rid of someone because you don't like their shirt color that day, but you invest more in each employee by paying them more. So, a model like this can't work in a massive corporation that will hire hundreds at a time, not looking too closely at their qualifications. This is a good thing though -- hiring discipline makes sure you only bring on people who are actually going to do a good job. You just have to be dilligent and prepared to get rid of the people who are clearly coasting before they cost you too much.
Personally, I'd like an environment like this. People are happier when their financial situation isn't dire and they can take care of their basic needs. Someone who isn't stressed about paying their mortgage or their other bills will be able to use those processor cycles taken up by worrying on the task at hand, which is probably what the owner had in mind. The truth is this, for every 10 crappy IT sweatshops, there are 1 or 2 decent employers who offer stable work. People who find situations like this tend to stay in them, which is good for productivity. I just wish we could get the sweatshop-to-stable ratio somewhere below 1.0 at least...
It also helps that Gravity Payments is a credit card processor -- talk about a guaranteed, never ending revenue stream from which to pay your employees.
While undoubtedly true, I'd rather companies use such things for PR than what you usually find them doing.
I don't think he did this in order to get the good PR, but even if he did, he made the world a slightly better place. Good for him.
Shachar
While that is undoubtably a factor, as TFA acknowledges, the point is that the previous reports of it being a disaster are wrong. Two people left, and they attracted a lot of new talent, and the company didn't tank. The predictions of dire woe never came true.
const int one = 65536; (Silvermoon, Texture.cs)
SJW, n: "Someone I don't like, and by the way I'm a fuckwit" - AC
It only works while he is the only one doing it and getting massive coverage. As soon as he's out of the spotlight, they're going to have to get back to competing with the rest, but now have to deal with (possibly) inflated staffing costs.
ORLY?
It's worked for the west coast burger chain In-N-Out for decades. (They're NEARLY the oldest burger drive-through-and-eat-in in existence.)
Their people are very happy, very productive, and generally give extremely good service. With no advertising besides an occasional location-ahead billboard they're constantly swamped with customers. When the rest of the burger chains were having a strike, they were business as their (excellent) usual.
They pay their line people almost half-again what the typical fast-food chain pays, plus medical, dental, and vision for both full and PART time workers. This continues up the ranks to store manager as well.
Simple, good, ingredients and fast, friendly, happy service has done it for them pretty much since burger chains existed, and the competition hasn't caught on YET.
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
It's pretty simple: It's his money, he can do what he likes with it; there's no governmental coercion involved, so good on him for doing it.
Now I am curious to see what would happen if every business in his town did the same thing. I'm also curious to know if he gave a similar bump in salary to those employees who were already making over $75k.
Also, yeah he was flooded with resumes: janitors, receptionists, payroll administrators... I'm pretty certain that few of them would have been for positions that normally paid way more than $75k.
Quo usque tandem abutere, Nimbus, patientia nostra?
It's funny how quickly peoples' faith in the rationality of economic actors evaporates as soon as those actors start doing things they disagree with.
Normally purchasers of goods and services are in aggregate considered infallible when it comes to setting what prices they pay and which vendors they prefer, but when they prefer a vendor who does't hew to the party's ideological line then those purchasers are obviously all media dupes who can't decide for themselves what vendor works best for them.
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As an employee, I can just as easily say that when I've worked at jobs at which I was compensated well, knew I could be rewarded even more, and certainly didn't want to lose the position no matter what, I worked my tail off and held myself to very high standards.
When I knew that I could easily get another job at the same level of compensation, and that no matter how hard I worked it was unlikely to be rewarded with more pay, I put more of my time and energy into other avenues, like improving my skill sets and networking outside the company, so that I could transition elsewhere—as well as into simple quality of life stuff, since I knew that work wasn't going to enhance my quality of life all that much.
So you're saying employees work less well = pay them less well.
I'm saying pay them more = they'll work more and better.
Chicken and egg. Which comes first? The rewards or the pay? You make one argument. I'll make another.
Why are employees not as great as they could be? I'll go out on a limb and say it's because you're not motivating them to be as great as they could be, either through great leadership (which is rare), a great environment (slightly more common), or great compensation.
And if you get great leadership, a great environment, *and* great compensation, I'm betting you'll somehow magically find that you have the best employees on the planet, who would do almost anything for the company—and do it at a very high level.
STOP . AMERICA . NOW
What's even funnier is, macroeconomics works the same way. See Mark Blyth: everyone who's done austerity has had their GDP collapse to where their debt percentage is higher than it was when they started. If you're a country, you can only spend your way to solvency by pumping money into the economy for people to do things with, and 'invest in swiss bank accounts and offshore tax havens' DO NOT COUNT for this.
People are idiots who want a very primitive sort of moral justice, but the world doesn't actually work that way. Often the world is unjust in people's favor.
The minimum wage in Australia is much higher... about $US15 per hour depending on which "accord" (industry) you are in. Having lived and worked in the US, Canada, and Australia, I can attest that minimum wage earners *work* about 4x harder than they do here. You see, hundreds of people line up for jobs that they then try to *keep*, since you earn about $US30k per year on them. (That is about the median US salary.) And the unemployment rate is comparable or lower, and the debt is less, in part because there is less need for social services. (Australia is one of the lower tax OECD countries.)
This situation arose by a law passed in the early 80s that made it illegal for unions to campaign for pay raises without showing an increase in productivity. Businesses, in turn, had to pass on some of the increased earning from productivity gains. All of a sudden, we have unions and businesses on the same page, with unions responsible for their own worker productivity, and the amount of hours-per-year lost from industrial action was an order of magnitude lower than any other OECD country.
Neoliberal economics gets a lot right, but there is a flaw in its theory surrounding labour law. People are not replaceable units, and workers are "sticky", in that they have families and other commitments. This is not true for some industries (like some types of internet work), but it is mostly true. This sets up a very big power differential between businesses and workers, and a type of "prisoners dilemma" where individual businesses act in a way that is helpful to themselves but detrimental to the aggregate.
Like all pain, suffering is a signal that something isn't right
Compare this:
My rational side just can't look past the "will it really work?"
with this:
You don't get a ton of resumes and customer inquiries when you're doing the same thing everyone else is doing.
There's no danger that everyone will do it because people just can't get over their conviction that "this can't possibly work." That conviction by the way doesn't stand up to rational scrutiny. It clearly *has* worked, at least in the short term. If it were to somehow become the norm it would be extremely difficult to attract workers without adhering to that norm.
Now the thing about any business strategy is that picking one that can work is a lot simpler than actually making that strategy work. You need to exploit the strategy's advantages (e.g. happy workers) and cover its disadvantages (e.g. higher unit labor costs). In this case the critical success factor is obvious: the CEO absolutely has to get unusually high productivity from his workers. If he doesn't, he's screwed.
I have seen the "expensive, but cream of the crop employees" strategy work really well, but you have to position yourself as the best of the best, from top to bottom. If you get anything less than outstanding performance at every level it won't work. Which is another reason this strategy will never become the norm. Where the leadership is weak, bottom-feeding becomes the only viable strategy.
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Not too long ago many were saying the common wisdom is the new salaries would ruin the company. Maybe we should all hold our horses and see how it works long term.
" I'm also curious to know if he gave a similar bump in salary to those employees who were already making over $75k."
Why? This is part of the problem, it shouldnt matter. $75,000 is more than enough money to live off of almost anywhere in the country. I HATE that people expect to be raised up equally every time we try to lift the floor up a few inches for those on the bottom. It shouldnt matter what your coworker makes as long as you have enough in your bowl.
Good-bye
My problem with these discussions is that people on both sides talk about "spending" as if all spending is fungible. In my experience it's not. Some things are smart to spend money on, other things are stupid to spend money on; and also it's very easy to spend money stupidly on things that are unquestionably necessary. It's one thing for everyone to agree that, say, defense is an important thing to spend money on; and yet another thing to assume that all defense spending is good.
I think it's quite possible for a country spend its way to solvency -- if it spent overwhelmingly wisely. It's also possible to economize your way to bankruptcy, if you cut overwhelmingly foolishly. Of course it's also possible to economize wisely or spend yourself into a crisis. I've seen every possible combination, both in the private sector and the public sector. Private enterprises can become uncompetitive when management is unwilling to spend the money it needs to compete.
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Because you like your job?
I like what I do, but sure as hell wouldn't put up with the more stressful parts of it if it didn't pay well - I can "like" what I do on my own time with 50% less bullshit involved, and 100% fewer empty suits at the top of the corporate food chain giving me mutually exclusive commands.
"We are an ethical, environmentally friendly company... Oh, but can you help us cheat on those pesky emissions tests?" - Said the CTO to a janitor never.
Because being a janitor can suck if you don't have the mentality for it
I can substitute in an awfully lot of low-skill-low-stress jobs for "janitor" if you prefer, I didn't mean that as a slam on janitors. And 've spent enough time in IT to know exactly how hard "generic bottom-tier office worker" busts their butt - They have Freecell open more often than Excel.
It sounds like it would be no great loss if you quit your job.
Nice ad hominem! Because anyone who would dare admit they work primarily to get a paycheck must suck at what they do, right?
Riiight...
Hey, do I have a deal for you - Come subcontract for me just because you love what you do, and I promise I'll pay you at least what the client's janitor makes. Because hey, he needs to put up with a tedious, repetitive job, while you "only" have contractually specified monetary penalties for missing a project target.
Yeah, didn't think so.
Why? This is part of the problem, it shouldnt matter. $75,000 is more than enough money to live off of almost anywhere in the country. I HATE that people expect to be raised up equally every time we try to lift the floor up a few inches for those on the bottom. It shouldnt matter what your coworker makes as long as you have enough in your bowl.
Where's my mod points when I need them? Totally agree! When someone has "scratched shit with the chickens" as my mom used to say and have lived thru what they are going thru, you tend to appreciate what the folks on the bottom of the totem pole face on a daily basis and are happy to see their lot in life improved by something such as this instead of snorting "Where's my fucking raise?". If I recall, even the higher earners got a 5K raise. Better than nothing, I say. You are already making enough money. Get over it.
You're messin' with my Zen Thing, man.....
Of course, the other part that needs to be acknowledged is that the business is profitable while paying that much. That is, the employees are producing enough value to cover their cost and turn a profit. It *IS* working right now. That indicates that while the 2nd or 3rd company doing it might not see the same sized boost, it wouldn't likely go under either.
Looking at Walmart's financials, they couldn't afford $75K, but they COULD manage at least a 20% boost all around. In other words, enough to get their employees off of food stamps.
The interesting part was the intense anger people with no connection with the company expressed. They actually took personal offense.
Right, because when you change one thing, everything else has to stay the same, otherwise things would get to complicated to discuss in a post like yours.
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First, per capita is not per worker. There are children, retirees, and even spouses that do not work.
Second, the US economy is closely tied to consumer spending, so giving a raise would boost the GDP. (Figuring out what the ratio of increased wages to increased GDP would be is left as an exercise for the student.)
The tiny increases in wage rates since the recession is an important factor in explaining why the GDP is expanding so slowly now.
Well in the US it's at least possible to assume a perfectly spherical consumer.
Literalism isn't a form of humor, it's you being irritating.
because people are using it as if it's proof of something we have unwavering faith is wrong: that large increases in the minimum wage are beneficial to employers and the economy.
FTFY.
You "know" it to be wrong? The one example we have of it being tried worked beautifully. This "know", is it like we "know" that the planets can only move in perfect circles? Is it like we "know" that Negros will go mad smoking marijuana and rape white women? Or is it like we "know" that leaded gasoline is safe?
I ask because it apparently isn't "know" in the sense of we did an experiment and these are the results.
I think the AC has it right, it's know" as in unwavering faith.
The reason for $70,000 and not $70 billion is because the Princeton study he based the decision on said that making more than $75,000 didn't make people happier on a daily basis but that making less than $75,000 increase how unhappy people were.
Thus by decreasing his own salary and increasing the minimum wage at his company (but not completely eliminating the pay scale) he figured he could increase overall productivity while also being ethically responsible. It seems to have paid off.
Obviously that would differ depending on the cost of living in a region. I assume that number he quoted is specifically calculated for Seattle.