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May 11, 2015 • Issue 15:05:01

The Gravity Payments pay bump: Can it work for the long haul?

By Ken Musante
Eureka Payments LLC

Dan Price's pledge to raise the wages of all Gravity Payments employees to $70,000 is amazing. Truly amazing. I was shocked when I read the details of the pledge and proud I was part of an industry where this could take place. I thought about the "gravity" of the decision. The only word to describe his actions is magnanimous.

I do not know Dan Price, but I wish I did. I would like to better understand the dynamics of his company and how he is going to make this work for the long haul. I don't think I could manage the same. This article explains why.

The easiest part would be to cut my own salary. I'm not suggesting that is easy by any means, but in comparison to the other items, it's a linear task. Cut my own salary from $1 million to $70,000, check (note, that's not my current salary). If I did take such a drastic reduction in salary, however, I would expect I would need to alter my lifestyle and perhaps sell some assets along the way as well. But I understand how this could be done. The goal, of course, would be to earn back the salary cut through increased profits brought about by a newly invigorated staff.

A compelling rationale

The second task would be to convince the other company shareholder(s) it is a good idea to increase the pay of all staff to a minimum of $70,000. In most companies, this would be a non-starter, but either Price is an excellent persuader or his business partner is equally magnanimous, or both. Regardless, Price was able to convince his shareholder(s) this was the right thing to do. And as much as I admire the decision, I question whether the increase in pay is because these employees earned it or because Price is enormously generous.

From the Fortune magazine article I read, http://fortune.com/2015/04/14/minimum-wage-gravity-payments, Price is not increasing pay because, for example, he has the most efficient office staff in the world. He is increasing pay because he really appreciates his team members, and he wants them to be happy.

He attributed his action in part to the Nobel Prize winning research done by Angus Deaton and Daniel Kahneman. He said they found "what they called emotional well-being – defined as 'the emotional quality of an individual's everyday experience, the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one's life pleasant or unpleasant' — rises with income, but only to a point. And that point turns out to be about $75,000 a year."

What I gleaned from the article and on air interviews is not that the staff members are inherently more efficient, but that he genuinely wants to free them from everyday money stresses. He hopes that by doing so, they will remain impassioned and their work quality and efficiency will improve.

Multiple issues to address

A separate question, however, is what happens the next time the company needs an additional mail clerk? With a minimum salary of $70,000, the applicant pool would be enormous. Moreover, although we all hope to hire the right candidate for the job, what if I were to select a candidate who is not right for the mail clerk position?

We have all had employees who don't quite fit the job. When I think back to those situations and the employee was ultimately let go, it's rare when I think to myself, "I should have given that person one more month." Sometimes an individual may be in the wrong job. But if a person's salary is suddenly two or three times the norm for a given position, it will be even more difficult to part ways because the employee will not be able to replicate his or her current pay at another company.

I also wonder how I could explain my action to staff members who were making only slightly more than $70,000. For those making $72,000 per year, for example, why would they suddenly only be worth $2,000 more than a staff person who may not have the experience, corporate heritage or trust earned through their tenure? They may be OK when this is just announced, but are they assuming that upon annual review time, their salaries, too, will be brought in line so they are compensated an appropriate amount above the $70,000 amount? (Note: I realize that new staff may be treated differently.)

Worker job satisfaction, passion

I sometimes see people trapped in jobs they no longer have passion for. I have seen it most often with jobs that graduate salaries early in a person's tenure but then cap out at a modest, but stagnant, amount. I witnessed this first hand while working in a grocery store over summer breaks in my college days. Individuals could begin work with no additional or college training and advance up the pay scale quickly.

Unfortunately, both the pay and the skill set capped out, so there wasn't room for further advancement, but because these individuals were paid at a level that was considered attractive when they were just leaving high school, they were unwilling to leave the job, but did not have a passion for it. If they were to jump to another job or industry, they likely would have to accept a pay cut. I wonder how I would manage to keep everyone passionate about the work and not just maintain their job because they would have to accept a pay cut if they left – even if it's not the right job for them.

Price obviously cares a great deal about his team. I'm sure he cares about his clients and his business, too. His is a bold action. I hope he and Gravity Payments succeed and that he is able to convey how he was able to make it work. … It would make a great book. end of article

Ken Musante is President of Eureka Payments LLC. Contact him by phone at 707-476-0573 or by email at kenm@eurekapayments.com. For more information, visit www.eurekapayments.com.

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