Massive Pay Raises Given by Seattle CEO Backfire

Massive Pay Raises Given by Seattle CEO Backfire

Massive Pay Raises Given by Seattle CEO Backfire

Tinkering with free market business principles has come back to haunt a young Seattle CEO, just as the city itself is also finding that raising the minimum wage to $15 per hour has consequences.

Enter Dan Price, 31, CEO of Gravity Payments, a credit card processing firm. In April, Price was lauded across America for cutting his $1 million salary and using it to boost the salaries of his 120 employees to a minimum of $70,000. Why did Price decide to take such a drastic risk in the running of his business? Why, he read a research article on happiness!

Dan Price suddenly became the CEO the nation actually loved. He drew the attention of talk show hosts, Harvard business professors, and single women. And, of course, job seekers. Everyone wanted to work for Gravity Payments.

Dan_Price
Dan Price in better times, just a few short months ago.

Now he’s renting out his house to make ends meet.

So what happened?

The unintended consequences of equal outcome happened.

On the business side, some of Gravity’s clients left, convinced they would be facing rate increases to their companies. New clients flooded into Gravity, forcing Price to hire a dozen more employees at the promised higher salary. Moreover, those new accounts won’t begin paying off for another year.

And then there were Gravity’s disgruntled employees.

Grant Moran, Gravity’s web designer, left after his salary was bumped from $41,000 to $50,000 in the first phase of raises. Sounds like a very decent raise, but Moran found that less-motivated people were doing mediocre work and earning the same salary. “Now the people who were just clocking in and out were making the same as me. It shackles high performers to less motivated team members.”

Financial manager Maisey McMaster also left. Originally enthused about Price’s vision, she eventually found that Price “. . .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.” When she approached Price with her concerns, he became indignant. “He treated me as if I was being selfish and only thinking about myself. That really hurt me. I was talking about not only me, but about everyone in my position.”

Dan-Price-Gravity

Even worse, Dan Price is being sued by his older brother Lucas, Gravity’s co-founder who owns about 30% of the company. Lucas Price filed a lawsuit two weeks after the pay hike announcement, accusing Dan of taking large amounts of money from the company while denying him his benefits of ownership. “Dan has taken millions of dollars out of the company for himself while denying me the benefits of the ownership of my shares, and otherwise favoring his own interests as the majority shareholder over my interests,” he wrote in an email to the New York Times.

Because Dan Price has shifted his short-term profits to increased salaries, he has little money to buy out his brother, much less pay his legal bills or improve his company. Should Gravity fold, there will be 120 employees who will be forced to find new employment, most likely at lower salary levels than they enjoyed under Dan Price. Some may have bought homes, or new cars, or maybe even gotten married and started families — all reliant upon the high salaries paid them through Dan Price’s misguided notions.

Nature has its laws that cannot be broken. The free market has its laws as well, and when they are artificially manipulated, it’s not just the dreamer CEO who is affected.

Written by

Kim is a pint-sized patriot who packs some big contradictions. She is a Baby Boomer who never became a hippie, an active Republican who first registered as a Democrat (okay, it was to help a sorority sister's father in his run for sheriff), and a devout Lutheran who practices yoga. Growing up in small-town Indiana, now living in the Kansas City metro, Kim is a conservative Midwestern gal whose heart is also in the Seattle area, where her eldest daughter, son-in-law, and grandson live. Kim is a working speech pathologist who left school system employment behind to subcontract to an agency, and has never looked back. She describes her conservatism as falling in the mold of Russell Kirk's Ten Conservative Principles. Don't know what they are? Google them!

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