Yahoo Finance How raising the minimum wage to $70k helped one man’s company boom
When one CEO announced in 2015 that he would raise his company’s minimum annual salary of employees to US$70,000, it sparked an immense reaction from all corners of the world.
In order to reach this goal, Dan Price vowed to cut his own pay package of $1.1 million to $700,000 over the next three years, equivalent to a 90 per cent reduction. He also told employees that minimum salaries would jump to $50,000 immediately.
The announcement by the CEO of Seattle-based credit card processing company Gravity Payments, would go on to change the lives of his employees, who gave him a standing ovation after a moment of stunned silence.
One employee, 29-year-old Jose Garcia, who had $54,000 of student debt, told CBS News when he learned of the immediate pay rise: “Maybe I cried when I called my mom. I think it’s life changing for everybody in different ways.”
The unprecedented move almost immediately gained worldwide attention. According to Inc, Gravity received 4,500 resumes within the first week of the announcement.
But it also drew widespread condemnation, as Mr Price was labelled the “lunatic of all lunatics” by Fox Business presenter Stuart Varney.
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The late Rush Limbaugh, who ran the most popular conservative radio show in the US, called it “pure, unadulterated socialism” and said he hoped “this company is a case study in MBA programs on how socialism does not work, because it’s going to fail”.
But six years after making the most momentous decision of his career, Mr Price revealed on Twitter that Gravity’s revenue has tripled and its customer base doubled.
He said on Tuesday: “Six years ago today I raised my company’s min wage to $70k. Fox News called me a socialist whose employees would be on bread lines.
“Since then our revenue tripled, we’re a Harvard Business School case study and our employees had a 10x boom in homes bought. Always invest in people.”
The decision to raise wages in such an unprecedented way was sparked after Mr Price discovered one of his employees had been secretly working a second job at McDonald’s.
“It was clear I was an awful CEO who was failing his employees,” he said. “I have her a raise to quit that job. No one should have to work two jobs to make ends meet.”
Mr Price said he does not think those who criticised him cared about his company or employees, but rather were threatened by the disruption it caused to narratives that are used to justify exorbitant CEO pay.
“I did this as a private business owner. It affected no one but myself (I cut my salary from $1.1m to $70k) - the definition of private enterprise. But what I did was very threatening to them because it disrupts the narrative of ‘CEOs use be paid 1,000x more than their employees,” he wrote.
The risk Mr Price took to ensure his employees would be paid fairly has paid off immensely. When he started this initiative, Gravity was worth $3bn. Today, it is worth $10bn.
The company has grown from a 130-person office in Seattle to a second location in Boise, Idaho, and 76 per cent of employees are engaged at work, twice the national average, said the CEO. Gravity now employs around 200 people.
The number of staff who have had children grew tenfold since 2015 and 70 per cent of employees have paid down their debts. Turnover also halved during that time, added Mr Price.
His update on Gravity’s progress comes as a debate around minimum wage rages across the US, triggered by president Joe Biden’s plan to increase the minimum pay of federal employees to $15 per hour.
The current minimum wage in the US stands at $7.25 an hour, and has remained stagnant since 2009.
When the coronavirus pandemic hit, Gravity - like nearly every business in the world - felt the impact and lost 55 per cent of revenue “overnight”.
Despite this, Mr Price said employees were “so invested they volunteered to take temporary pay cuts to prevent any layoffs”.
“We weathered the storm, paid everyone back and are now giving out raises.”
He added: “People focus on the cost of paying employees well but not on its benefits. For us: Our happy employees drove record sales and we now have 20,000 small business clients.
“Our turnover is low and we spend $0 advertising openings since we get thousands of applicants.
“We’re doubling down on our mission to invest in employees. Our revenue (which comes from small business credit card processing) is still down slightly from pre-pandemic.
“But we’re handing out raises of 5-6 per cent and hiring to grow headcount by 10 per cent to make workloads easier.”
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