Three months ago, a psychological study and a conversation with a friend inspired Dan Price, CEO of Gravity Payments, to more than double the salaries of some of his employees in the name of fixing income inequality.
Mr. Price attracted nationwide attention, some positive and some negative, when he made the decision in April to set a $70,000 minimum salary for all 120 employees at his Seattle credit card processing firm.
The seed was planted in Price’s head by a Princeton study that found that emotional well-being rises with income, but levels out at around $75,000. A conversation with a friend making $40,000 a year and struggling to make ends meet sealed the deal.
“Income inequality has been racing in the wrong direction,” Price told the New York Times. “I want to fight for the idea that if someone is intelligent, hard-working and does a good job, then they are entitled to live a middle-class lifestyle."
The announcement was met with initial enthusiasm from employees with salaries both above and below the new $70,000 minimum, and the raise allowed many to improve their living conditions.
But in the months since, some employees have begun to resent the decision.
“He gave raises to 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,” financial manager Maisey McMaster, who was one of two employees who left the company following the raise, told the Times.
Other employees noted discomfort at having their salary so publicly advertised and a feeling that they didn’t deserve the money. Price, who took a $930,000 pay cut from his previous salary of $1 million, admitted to struggling financially and being forced to rent out his home.
But, as the 30-year-old CEO told Time in April, the primary indicator of the experiment’s success is client satisfaction. Prior to the announcement, the firm had been adding 200 clients a month, and 350 clients signed up in June, the Times reports. (Though the new business won’t start paying off for 12 to 18 months.)
But the company has also fielded complaints from existing customers concerned that service would deteriorate or that their own employees would expect a similar wage increase.
When Price made the announcement, it was thought that “his actions could inspire other business leaders to provide better financial security to their employees in the future,” the Christian Science Monitor’s Alexander LaCasse reported.
But how realistically replicable is Gravity Payments’ business model?
Labor economist Alec Levenson said he doesn’t expect many other companies to follow suit, regardless of any moral arguments for doing so.
"It just doesn't make economic sense for really large companies that have a lot of people like that to give huge raises like this,” Mr. Levenson told CBS News. “It can tip them from being profitable to being unprofitable, which is why we're not going to see a huge stampede of companies doing this.”
Nick Hanauer, a Seattle venture capitalist, echoed Levenson’s opinion that a uniform minimum salary is not a realistic option for most companies. However, he said, Price’s bold move could have a significant impact as a political statement.
“These individual acts can create a new kind of perception of what’s possible and what’s righteous,” Mr. Hanauer told the New York Times, giving the recent example of higher minimum wage laws, a trend which he said nobody anticipated. “Who can tell what that last thing is that catalyzes big change?”