Whether you listen to NPR or watch Inside Edition you may have heard of Dan Price, CEO of Gravity Payments. If not you can read more about his recent decision in this article by David Burkus (Use Chrome not IE). Dan is famous for raising his company’s minimum wage to $70,000. He wanted to provide a happier lifestyle for his employees. What a noble thought with little foresight on the outcome. Wouldn’t we all love to get our first real job and take 70K to the bank, I know I would have. If I immediately made 70K as the new guy on the block with little experience and provided little marginal increase to the firm, what incentive would I have to better the firm and actually earn that wage? My first job paid much less and if I wanted to make more I had to prove that my marginal contribution was higher than the marginal cost. That is only the beginning; while Gravity nearly doubled their low skilled workers salary they did little to increase their high skilled workers wages. Now admit it, we are selfish, self-interest serving, and competitive. As a manager that works 60 hours per week dealing with high stress and high pressure you would expect to be compensated for it. Regardless of being happy with their wage prior to the decision, they now know that a much lower producing employee makes nearly what they do. Call me cynical but who wouldn’t get a chip on his shoulder? Do you really want to lower the wage incentives for your entire work force and cause resentment among your highest producing employees in an attempt to better the life for your lower producing employees? You aren’t actually robbing Peter to pay Paul, but Peter is pretty ticked anyway. Don’t get me wrong, I am all for paying more and especially earning more but there is probably a better way.
Gravity is not destined for failure and I agree that happy employees can make better employees, but let me share a personal experience. In a prior job of mine we recognized two “Black Friday’s” in one year. First was the traditional day after Thanksgiving and the second was a day with major layoffs. A new CEO had just started and he began by firing multiple employees as well as drastically reducing pay raises. You can imagine the variety of feelings that spread through the company. Other employees quit as a result and there was some uneasiness for a few months. Since then the company has had 17 quarters of income growth and plans to go public in the near future. The employees that produce the most marginal revenue are doing better without those that didn’t cover their marginal costs.