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The Time The CEO Raised the Minimum Salary to 70K and Found Out This People Thing is Kind of Complex...

This post is about unintended consequences.  Also about salary compression when a CEO decided to raise the minimum salary to 70K in his company.  

What could go wrong? More from the New York Times: YPO-Dan-Price-Gravity-Payments

"Three months ago, Mr. Price, 31, announced he was setting a new minimum salary of $70,000 at his Seattle credit card processing firm, Gravity Payments, and slashing his own million-dollar pay package to do it. He wasn’t thinking about the current political clamor over low wages or the growing gap between rich and poor, he said. He was just thinking of the 120 people who worked for him and, let’s be honest, a bit of free publicity. The idea struck him when a friend shared her worries about paying both her rent and student loans on a $40,000 salary. He realized a lot of his own employees earned that or less."

You're a hero Price.  Trump would consider you a commie, but screw Trump.  You're a humanitarian.  All the people who matter will love you for this.

Wait. Maybe not all of the people... Consider:

"The New York Times reports that two of Gravity Payments' "most valued" members have left the company, "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."

Maisey McMaster — once a big supporter of the plan — is one of the employees that quit. McMaster, 26, joined the company five years ago, eventually working her way up to financial manager. She put in long hours that "left little time for her husband and extended family," The Times says, but she loved the "special culture" of the place.

But while she was initially on board, helping to calculate whether the company could afford to raise salaries so drastically (the plan is a minimum of $70,000 over the course of three years), McMaster later began to have doubts.

"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," she told The Times. A fairer plan, she told the paper, would give newer employees smaller increases, along with the chance to earn a more substantial raise with more experience."

Salary compression. Damn.  Forgot about that.  Is there an HR pro in the house?  Probably not.  Well, at least the people who got the raise love what happened.

Wait- them too?  Sigh:

"The new pay scale also helped push Grant Moran, 29, Gravity’s web developer, to leave. “I had a lot of mixed emotions,” he said. His own salary was bumped up to $50,000 from $41,000 (the first stage of the raise), but the policy was nevertheless disconcerting. “Now the people who were just clocking in and out were making the same as me,” he complained. “It shackles high performers to less motivated team members.”

Mr. Moran also fretted that the extra money could over time become too enticing to give up, keeping him from his primary goal of further developing his web skills and moving to a digital company.

And the attention was vexing. “I was kind of uncomfortable and didn’t like having my wage advertised so publicly and so blatantly,” he said, echoing a sentiment of several Gravity staff members. “It changed perspectives and expectations of you, whether it’s the amount you tip on a cup of coffee that day or family and friends now calling you for a loan.”

Oh...right. High performers don't like socialism, and lots of people don't like others knowing what they make.  Got it.

Go read the whole article.  The lesson?  Capitalism works - for a variety of reasons.  Start compressing the difference between the most important employees and the masses, and you're going to have lot of unintended consequences.

 

 

 

Comments

Eric

Hmmm... they didn't even have to disappear to some special retreat in the West... and most won't even recognize the reference. Who is John Galt, anyway?

Karen H

I think it was Robert Browning who wrote: "The best laid plans of mice and men go oft awry."

As a compensation professional, I was interested in follow up stories on this pay change. It was very obvious from the start that Mr. Price never consulted with a compensation professional before putting his plan into place. Hopefully he will find a good comp consultant to help him fix the mess he made. (Although it doesn't sound like he can afford one now.)


KD

Eric - "We Are"

Steve

"Is there an HR Pro in the house?"

Uh, no: HR Manager
http://gravitypayments.com/careers?p=job%2FoX8l1fwb

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