Treat your employees fairly and they will be happy.
What a concept, huh? It seems that an idea like that would be on the opposite side of controversy. But for Dan Price, the founder and CEO of the Seattle based credit card company Gravity Payments, his willingness to stick up for his workers was met by both praise and concern from his peers in the business world.
Three years ago, Price made the decision to cut his high salary down considerably in order to raise the minimum wage for all of his employees to $70k per year. This decision changed his status overnight from "just another CEO in America" to the working man’s revolutionary. If he hasn’t given up his parking spot in the Gravity lot yet, he should have “Founder, CEO, and Gamechanger” written underneath his name.
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According to Price, the decision was born completely out of compassion. “I was on a hike with a close friend of mine,” he says, “I have deep admiration for her. She has served her country and now works two jobs. After some time hiking and conversing, she mentioned her rent was increasing by $200 per month and didn’t know how she was going to make ends meet. I felt terrible. I was angry at her employer and the overall situation. Here was someone who has given so much, and works so hard, but can barely afford the basic necessities of life. But I then realized she was making more than many of the people that work so passionately and make sacrifices for my company. She deserved a living wage. My team deserved a living wage. I wrestled with the idea for days. I tried rationalizing with myself. I couldn’t sleep. Finally, I knew I had no choice, I had a moral imperative to do this not only for my team I care about so much but also for our clients and business.”
From there, Price took it upon himself to completely change the playing field at Gravity and take on income inequality head on. In the three years since his decision, he believes the payoff has been monumental.
“Before we announced the $70k minimum wage,” he says, “we didn’t see many of our team members starting families. In any given year we may have had zero, one, or two at the most, new baby announcements. In the year following our $70k minimum wage, we had 13 team members announced they are expecting - 10 of them first-time parents. As a CEO, you could never find anything to be more proud than to see the people that work so passionately alongside me experiencing one of life’s greatest joys.”
But a 2015 New York Times profile on Price found that not everyone was happy with his call to action. In the aftermath, some of his top employees had decided to part ways with the company as they believed that the raises they were receiving were not fair in relation to their status within the company. On the other hand, some of Gravity’s clients had also chosen to part ways in fear of this radical change affecting their rates. Checking back in three years later, Price is as defiant in his crusade as ever. “Some of the most fulfilling moments I’ve had since making the $70k announcement,” he explains “have been challenging people to think differently about the purpose of business, encouraging and seeing other business leaders inspired to set a living wage at their companies.”
Dan Price is not the only one changing the game.
Megan Driscoll, founder, and CEO of the Boston-based recruiting firm PharmaLogics, also introduced a policy to raise the minimum wage at her company. This decision was influenced largely by Price’s keynote speech at the Inc. 5000 conference in 2015. She considered it a revelation. “I had never heard of him before,” says Driscoll, “I know he had gotten some press before he was on the cover of Ink magazine but I wasn’t aware of it.” As she listened, the points he was making began to set in and quickly rewired her brain. “The concept of a living wage to me was somewhat new,” says Driscoll and after hearing the speech, she knew she had to make a change in her company.
At the time her company paid their entry-level recruiters 38k as base pay with the opportunity to earn an additional 20k in commission. Not a bad salary by any means for someone fresh out of college, but Driscoll began to think about what limitations a low base pay could mean for her employees. “In order to rent: you need to show what your base pay is. In order to get a mortgage: you need to show what your base pay is,” she says, “Let’s say you want to take your parents out to dinner. You can't do that on any Saturday night. You’re going to have to wait until your bonus gets paid out.” So she asked herself, what if we bring their base pay up to 50K and still offered 20k in commission? She knew that it would be a big financial risk for her company, but that they would have to “be willing to lose it” to help her employees.
So, on her flight back home to Massachusetts, she scribbled down some ideas on a napkin and quickly implemented these changes. Since her decision, PharmaLogics has noticed a higher profit margin and retention rate of employees.“We were making better overall hires and our recruiters were producing more,” says Driscoll. “We chose to invest that money back into the business and what it did was return even greater.”
When thinking outside of the box goes wrong
Is a low minimum wage the only workplace concept that is out of date? At the California based company Tower Paddle Boards, Founder and CEO Stephen Aarstol had a feeling that he needed to rethink the whole idea of the normal 9 to 5 workday. So in 2015, he decided to shake things up by introducing a five-hour workday for his employees. It started out initially as a three month trial period but eventually became the lay of the land. The normal business hours just didn’t sit right with a relaxed image of Tower. “I felt we, as a company, weren't living true to our brand,” says Aarstol. And that was that the decision was made. “I had a team meeting and let everyone know that we were going to do a 3-month test starting on Monday, 8am-1pm straight through, no lunch. I'm giving you your life back, but the catch is you've got to be as productive as before or more so, or you will get fired.”
Although this schedule offered employees more freedom in their time outside of work, it turned out that this decision was not as resoundingly popular as Aarstol had hoped. In the two years after, he noticed some employees had joined the company out of interest in this policy while others had left. “We lost four people (of a nine-person staff) within a 90-day period,” says Aarstol, “One I fired, so that was on me, but he needed to go as he wasn't productive. And 3 very productive people quit. It seemed ridiculous to me that these people would quit, almost a little insulting, as they had a pretty great thing going.” In hindsight, he can understand that emphasizing productivity in a small window could have created harmful fissures within his team.
“A weird thing happened to the company culture when we're all walking out the door at 1 pm,” he explains, “we actually became a less cohesive unit. Working startup hours is like living in the trenches with each other and you form very strong bonds. But once work is just this thing you do in the morning to finance this much larger life you've now created for yourself, you become less attached to the people you are working with.” Needless to say, there were some hiccups that Aarstol had not planned for. But he went to work right away to get his company back on course. He held an emergency meeting with his co-workers and they decided to keep the five hour work hour day from June 1st to Sept 30th and the rest of the year would go back to normal hours. After all was said and done, how has this decision affected the way things are at Tower? “Right now, I've got probably the most highly productive team in the history of the company,” says Aarstol, “as far as company performance, after we rolled it out, we grew revenues by like 44% I think that year, with the same headcount.”
So, does a higher minimum age make sense?
We spoke with Tensie Whelan, a Clinical Professor of Business and Society and the Director, Center for Sustainable Business at NYU Stern School of Business, to see if she could provide some insights on whether or not a higher minimum wage should be considered by more CEOs across the country. She believes that there are some clear advantages and disadvantages to this decision. The benefits are that it helps to create a higher standard of living for employees while promoting a more positive corporate culture and attracting new business out of positive publicity. On the other hand, it may create a negative reaction from those who disagree with this policy and may cause “higher level employees to feel undervalued” and force them to leave out of frustration. On a larger scale, if a company does not “deliver on growth and margins,” they will not be able to keep paying out the high salaries that they have promised on a company-wide level.
So does Whelan think that most companies should raise their minimum wage like Price did at Gravity? “I think more companies should move to reduce the wage gap by increasing the salaries of people making below 70K in the company and reducing those of the C-Suite,” she says, “academic studies consistently point to no financial benefit to shareholders of paying the type of salaries CEOs currently command and there is clear societal value in paying people a decent wage.”
And what about the future? Does she see this as a trend that will catch on? “No, I do not see it catching on in the short term,” says Whelan. “However,” she explains, “there will be increasing distrust of corporations and questions about their license to operate if the CEO/average employee wage gap continues to be this large and rank and file works continue to be downsized or paid less than a living wage.”