Dan PriceThe CEO of Gravity Payments in Washington state announced a few months ago that he was going to pay all of his employees a minimum of $70,000 per year — regardless of what position they held in the company. Dan Price was going to be part of the vanguard in the fight against income inequality. If all went well, then history would record him as a leading general in the war against human nature.

The New York Times caught up with Mr. Price, and it appears as though human nature is a worthy adversary. The newspaper reported July 31:

Two of Mr. Price’s most valued employees quit, spurred in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises. Some friends and associates in Seattle’s close-knit entrepreneurial network were also piqued that Mr. Price’s action made them look stingy in front of their own employees. …

“Income inequality has been racing in the wrong direction,” he said. “I want to fight for the idea that if someone is intelligent, hard-working and does a good job, then they are entitled to live a middle-class lifestyle.”

If someone is “entitled” to a “middle-class lifestyle,” then how does one define “middle-class lifestyle”?

Why does Mr. Price seem to believe it is his role as CEO to play God by defining the kind of material comforts humans are “entitled” to receive?

Why does Mr. Price — a businessman — seem to mistake the wages he pays as a representation of an employee’s value as a person instead of the value their labor brings to the company?

Mr. Price’s intentions are well and good (he took a large pay cut to try and make the numbers work), but they are clouded by intellectual gobbledygook, economic ignorance, and a fundamental misunderstanding of human nature. To make matters worse, he violates his own litmus test for the middle-class lifestyle “entitlement” by issuing a blanket $70,000 minimum wage to employees who may not be “hard-working.”

The Times continued:

Maisey McMaster was also one of the believers. […] She helped calculate whether the firm could afford to gradually raise everyone’s salary to $70,000 over a three-year period, and was initially swept up in the excitement. But the more she thought about it, the more the details gnawed at her.

“He 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,” she said. To her, a fairer proposal would have been to give smaller increases with the opportunity to earn a future raise with more experience.

A couple of days after the announcement, she decided to talk to Mr. Price.

“He treated me as if I was being selfish and only thinking about myself,” she said. “That really hurt me. I was talking about not only me, but about everyone in my position.”

Already approaching burnout from the relentless pace, she decided to quit.

The new pay scale also helped push Grant Moran, 29, Gravity’s web developer, to leave. “I had a lot of mixed emotions,” he said. His own salary was bumped up to $50,000 from $41,000 (the first stage of the raise), but the policy was nevertheless disconcerting. “Now the people who were just clocking in and out were making the same as me,” he complained. “It shackles high performers to less motivated team members.”

The reason why many “intelligent” and “hard-working” individuals do not live a “middle-class lifestyle” is not because CEOs make a lot of money — it’s because humans are complex, spiritual beings with free will.

Some people invest their cash in fancy cars or expensive vacations, while others obtain human capital. One man puts in 70 hours a week at his job while a team member clocks out a 5:00 p.m. every day. One woman decides to raise children and work part time from home, while another devotes herself solely to her career. One man spends $1,000 per year on Starbucks coffee while the other puts it into an IRA so he can start his own coffee empire by the age of 40.

The businessman’s job is not to try and put a dollar sign on someone’s worth as a person, but instead to try and figure out how valuable their work is to the company.

Mr. Price’s compassion may give Gravity Payments short-term branding as the company with a big heart, but the biggest heart in the world is of little use if warped ideas swirling around the brain bring about an untimely death. Regardless, I am looking forward to a follow-up by The Times that takes place five years down the line.

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About the Author Douglas Ernst

I'm a former Army guy who believes success comes through hard work, honesty, optimism, and perseverance. I believe seeing yourself as a victim creates a self-fulfilling prophecy. I believe in God. I'm a USC Trojan with an MA in Political Science from American University.

10 comments

  1. I can see it now… In 5 years his company is going bust as all the hard workers are fed up with an employer not appreciating them and decide to go elsewhere.

    1. I think that Mr. Price’s idea could theoretically work, if he was able to fill the company with people who were all on the same page. But even then he’d be building on a fragile foundation. The business’ growth would also have a ceiling on it (or be severely stunted), because filling slots with quality individuals who believe in the mission would be extremely difficult.

    2. As The Times story shows, even employees who were initially on board with his plan soon came to realize that giving people a huge paycheck just because you wish they could live on your block and take the same sorts of vacations, etc., is incredibly idealistic. Wages and prices convey important information, and for whatever reason Mr. Price seems to want to ignore the information that doesn’t mesh with his worldview. That type of behavior is usually a death sentence in the private sector.

  2. So what then is the motivation to work harder? The old reward was advancement within the organization coupled with additional responsibilities and salary increase. Within Mr. Price’s system, I am inclined to do the bare minimum to keep my job as as I am going to be paid either way.

    1. I can obviously only speak for myself, but money has never really motivated me to work harder. I suppose a raise can provide a short-term boost to morale, but in general I’m happy to take a smaller paycheck if I get to do what I love for a boss who is a cool guy/gal.

      With that said, there is a difference between getting a few thousand dollars less than someone who has the same job, and getting the same pay as an employee whose job requires little human capital. Imagine a hospital where the skilled surgeons are paid the same as the nurses or the nurse assistants. It makes no sense. It’s actually a slap in the face to someone who put in blood, sweat, and tears in order to specialize in a given field.

  3. Kind of an amusing experiment, isn’t it? I find the same thing to be true with my own job, I really have no desire to go the extra mile anymore, to work as hard as I used to, because less skilled people who genuinely don’t care about the quality of their work, now start at a wage that once took five years for us to earn. Terribly mercenary of me, but how do I benefit from covering extra shifts, from training new people, from helping others with their work? Worse yet, how do I train others to do these things? Where is the incentive? It would be far wiser to quit your job, come back in at the new and improved base wage and enjoy the limited responsibility and lack of expectation. 🙂

    Also somewhat funny, Seattle with all their minimum wage increases and equal pay experiments, never took into account the now increased cost of goods and services. If you are running a lunch counter for those 70,000 a year employes are you still going to sell them lunch for 5 bucks? Heck no, they can now afford to pay more so that same lunch now costs 14 dollars. Seattle’s rental market has now been priced out of people’s reach, a cup of coffee costs six bucks, no one wants to tip low wage workers anymore, and many people who once lived and earned a living there have now been priced right out of the market. What’s 15 dollars an hour if your rent now exceeds your income?

    1. The “go the extra mile” comment is the key. You are adding more value to the company by going the extra mile than the person who clocks out at 5:00 p.m. every day because they want to go play video games or get drunk or whatever. Your paycheck should reflect that. It isn’t “greedy” to expect to be justly compensated for your labor, nor is it inappropriate to ask for more pay because you have a skill set that is hard to find.

      A friend of mine recently asked if I would be interested in working for his cousin. The job paid $135K per year. I could do the job, but I would not be allowed to write for a living. I respectfully told my friend the job wouldn’t be the right fit for me, and instead I interviewed for a different job that will pay a lot less while still allowing me to write. My first day at the new job is likely to be Aug. 31. I share this story because I chose to accept less money — not because some evil CEO out in the ether is keeping me down.

      I can see Mr. Price talking to me one day and when I tell him how much I make he’ll be like, “What? Wow. That’s unacceptable. How can you live a middle-class lifestyle on that income? Who’s the boss holding you back?” The answer: No one. If I want more money, I’ll ask for it. If I don’t get a pay raise, then maybe I’ll leave. Or not. But to pretend that some CEO is preventing me from earning what I want is absurd.

  4. I love the expose on another failed Marxist experiment, thanks for giving it wider reach.

    Statistics 101 teaches that on earth any population of anything (people, plants, baseball players, whatever) a “normal distribution” will reveal itself (an average rating on a metric, surrounded by the highs and lows and the rest of the data points). This is why such a pay scheme will never work as intended, because it is impossible to assemble a group of anything and have each unit be the same as the mean.

    And differences lead to different values, and in the case of this dumb company one of those values became “I quit”.

    Which raises another point: the bedrock of American freedom is choice (Free to Choose by Milton Friedman, of course a great classic for all time).

    Statists, or Marxists, or Fascists, or Socialists, seek to impose their impoverishing systems by removing choices, including the choice to opt out.

    Obamacare’s individual mandate is a classic example of this brutality, and there are many others (more so since the ascendancy of the Manchurian candidate).

    The fascist imposes a pay regime like the one in this article and then forbids anyone from quitting…..

    Play this out further and we get full-blown misery and eventual violent revolution, and the cycle repeats itself.

    Will the current American generation break the cycle, or will it give itself fully to Leviathan and the death of choice…a slavery that tramples the soul.

    1. Will the current American generation break the cycle, or will it give itself fully to Leviathan and the death of choice…a slavery that tramples the soul.

      I don’t have too much faith in Millennials to embrace freedom and liberty. They helped keep president Obama in office for eight years and now they’re gravitating towards guys like Bernie Sanders — a self-described socialist. If Elizabeth Warren decided to run, Hillary Clinton would be toast.

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