Several months ago, thenewgreen shared an article about the CEO of Gravity Payments, after he decided to raise the salaries of all employees to at least $70,000 per year, and also reduce his salary from nearly a million dollars to $70,000.
The CEO, Dan Price, had read an article on happiness and decided that paying all employees at least $70,000 would promote happiness.
Which of the following scenarios best describes Gravity Payments today?
1. The change was a fantastic success. Gravity Payments won many new clients with the publicity of the policy change. Employees are loyal to the company, fiercely supportive of the salary policy and the CEO, and most of all, happy. Finances are good with business revenue and low executive salary more than covering the salary increases.
2. The change was somewhat successful. Gravity Payments enjoyed a publicity boost and some new clients. Profits are slightly down as the executive pay cut was not enough to cover the new minimum wage policy. Employees enthusiastically support the policy.
3. The change had negligible effect. Gravity Payments received a mixture of positive and negative publicity. Existing customers agreed to continue with Gravity Payments after receiving reassurance that their prices would not increase due to the salary policy. Employees are supportive of the salary policy.
4. The change was somewhat detrimental. Some veteran employees who did not see a raise due to the salary policy have grumbled about fairness. One customer left Gravity Payments in response to what they saw as a political statement. Most employees are supportive of the salary policy.
5. The change was disastrous. A few customers left Gravity Payments in response to what they saw as a political statement. Other customers left fearing price increases, despite reassurances to the contrary. Some of the company's most valuable long-term employees quit, citing unfairness of the salary policy. Previously lower-paid employees have also expressed discomfort and concern over their raises under the salary policy. The CEO has rented out his house to try and make ends meet. A large shareholder has sued Gravity Payments, potentially threatening the company's existence.
Guesses and reasoning welcome, but no spoilers, please. I will update this post with the answer and sources after a time.
It's 5. But your word choices are bad and misleading. The "large shareholder" is the CEO's brother and the lawsuit is based on more than just this decision. Even the parts of it that ARE related to the wage increase are mostly based on the guy's political views, he's essentially trying to punish his brother for doing this. I can sympathize with the employees to an extent but I think it's mostly a symptom of the system we've created around wages where everyone near the bottom is at each others throats while the rich hover above, ever increasing their wealth. What's more interesting is the role this decision has played in the on going debate in Seattle over wages and wealth equality. The cost of housing in and around the city is increasing so quickly that the extended period of time required to reach full implementation of the $15 minimum wage is going to make the change irrelevant.
Exactly. I've never known anything, much less something of this complexity, to be measured in the business world in just one fiscal quarter. Watch this for a year, if not several years and then we can begin analyzing the results. Much of the success or failures they'd report right now is likely a result of work that occurred in 2014.
It's been a year, and the story blossomed into a proper soap opera. Esquire published a profile on Dan Price, portraying him as a greedy, pushy, obsessed publicity hound, given to exaggeration and self-promotion. In other words, a born CEO. I don't think it's reasonable to conclude anything from the wage experiment, given the lawsuit, the circus of publicity surrounding the salary program, the allegations of spousal abuse, and the book deals. I don't know of any other CEOs that have followed Price's example, but if they do they can't count on getting presidential candidates to mention them, or media adoration that knows no limits.Watch this for a year
I trust that if the correct answer is #1, you fellas will urge restraint and say it is far too early to conclude that this is a viable model for other businesses to follow. And if the correct answer is #6, that employees rioted and murdered the CEO, you will say "let's give it some more time." It ain't over till it's over, and I agree that the long view gives better evidence. If you are unwilling to speculate on the current status because of the short time frame, would you consider making measurable predictions on a time scale of your choosing? Our understanding of the world is put to the test with predictions; it is always easy to provide tidy explanations after the fact.
I know very little about this company aside from our previous discussion and don't have the time to put together any predictions. -Truly, I don't. But, I will predict that if I were in a sales role and had a guaranteed $70k and couldn't make more or less based on my performance, I would be one shitty salesman. A business lives and dies with sales. I may have time tonight to do more research, but I am deep in the throws of interviewing for... you guessed it, sales jobs. I have to research Hernia surgical products tonight. -fun.
There definitely is a correct answer right now to the question posed, which was "Which of the following scenarios best describes Gravity Payments today?" There's even a correct answer to the question "Which of the following will best describe Gravity Payments a year from now?", although none of us knows what that answer is. Attempting to divine it would be an exercise in analysis of economics and human nature.
#5 -- but I wouldn't use the word "disastrous." It's still too early to tell. There will have to be tweaks. Probably there should be some graduated incentive program. Shareholders should probably be consulted or bought out. But it's a wonderful jolting social experiment. Let's have more. When the dust settles I hope for a happy ending.
I regret having done so. I trusted readers to read past the first sentence of each description and find the lists of verifiable facts on which my shorthand judgment was based. I agree! It is wonderful that a CEO can experiment with innovative compensation models without being forced to follow one-size-fits-all ideas imposed by outsiders. If it works out well, the business will grow and prosper, to the benefit of employees, executives, partners and customers. Other people can learn from the experiment and copy the successful idea. If it doesn't work out, it's too bad for the business. But they accepted a risk of failure by trying a new idea. They may still inspire others to figure out what went wrong and experiment with new variations of the idea.I wouldn't use the word "disastrous."
But it's a wonderful jolting social experiment. Let's have more.