This is really interesting because it juxtaposes two fundamental issues: (1) The business need to make sensible, sustainable decisions that increase the ability of the company to prosper, and (2) the human need to address the day-to-day realities of getting by on a sub-$50k salary.
Notably, the article focuses almost entirely on #2, but doesn't really try to claim that this is a strong business move.
I have really mixed feelings on this. Too many businesses are all about profits and have forgotten the critical human need for compassion.
But what are the consequences of one business offering way above market salary for a given position? What happens if a better man for the job shows up? At such a market premium, the business could reasonably hire the slightly better person and terminate the other person, but then this is hardly "compassionate."
And will employees remain with the company even if they're no longer in love with their job because the salary is substantially higher than a comparable position elsewhere? Does this serve or hurt the company?
I'm not really criticizing or supporting this move. I'm just really curious how it will play out.
Things work out much better if you start out with assuming good will from both parties. With that I mean the employee wants to do a good job and the employer wants to treat his employees well.
I think the employer in this case made a good start by giving the employee a decent salary. It doesn't make much sense to think this is some scheme to swap them out for 'better' employees. Also, don't forget the kind of jobs this will affect. It will mostly be low skilled work. The upside of replacing this type of employee with someone who is a little bit better is just not worth the trouble.
The 'golden handcuffs' argument doesn't make a lot of sense either. Sure, it would be hard to give up a seriously overpaid job. But just think of the opportunities it gives you. You could save up a lot of money to start your own business. You could invest in your own education so you are able to land a higher paid job. That's all probably not even interesting because the company from the article treats its employees really well, so they are probably willing and able to help you with any ambition you might have.
People strongly favor secure income over risk, once they have the income. risk-taking is far greater before the safe option has actually started delivering.
The HN crowd (especially founders) probably skews toward risky, but that's not the general mode of behavior.
And people are pretty good at spending the delta of $70k-$50k/yr, especially on things like mortgages that have a many-year lock-in, or past accumulated debt.
This is a different story from the webtech world where a $100K to $200K (or even $1M+) bump creates financial independence (not just security) in the near term.
For the CEO, success appears to be defined as keeping the minimum wage across the entire pool of job candidates set above $70k. The easiest move is the first shift to raise everyone's existing salaries as this is based on previous staffing behavior. The test will be if they have the discipline to continue hiring as they have previously going forward.
For example, if they were hiring new college grads out of school at $40k, will the continue to do so at the same pace? Will they continue to hire new college grads at all?
I mention this because if they don't, they won't meet the CEO's stated goal -- rather they will slowly shift their workforce to weed out those with market rates below $70k.
The only way to prevent this will be to ask managers to purposefully hire candidates with less experience while simultaneously handing them a larger hiring budget.
It just is the situation taken to an extreme. While people should be treated fairly its is not wise to treat all jobs as equal. I am all for his reducing his pay to what he deems proper, whether it 75k, twice that, or five times that. I do think it a bit of a off the cuff stunt to move the whole office to one pay rate.
I would not feel all that impressed with the idea if I were a senior level in my career and earning 75k and suddenly the mail boy makes 75k or the level 2 call taker does
> I would not feel all that impressed with the idea if I were a senior level in my career and earning 75k and suddenly the mail boy makes 75k or the level 2 call taker does
I would understand your feeling if it implied you being somehow less well off, or having less chances of being promoted in the future, etc. But you seem to dislike the idea of other people being better off, period. I don't see what you gain from the mail boy being poorer.
> But you seem to dislike the idea of other people being better off, period. I don't see what you gain from the mail boy being poorer.
Great point.
This seems to be an unfortunate aspect of human nature. Many people seem to exhibit the same kind of attitudes, myself included. It takes mental effort to correctly realign one's own thinking.
Similar attitudes arise around the idea of a Basic Income. The gut reaction of most people is "why would I support the idea of a lazy bum getting free money?". It takes mental effort to shift one's own position on the matter.
It's interesting that (in America at least) a lot of people who are not wealthy fight to keep taxes low for the wealthy because they assume they might be wealthy someday. Yet fewer people fight for entitlements for lazy bums despite the fact that becoming a lazy bum is a much more realizable aspiration.
So let me make my assumption: the people are not fighting to keep taxes low for the wealthy because they assume they might be (extremely) wealthy someday. That possibility is so very small. They are fighting to keep taxes low for the wealthy because they assume that this helps the society to develop its economy and technology, become wealthier and collect a higher tax revenue, as opposed to higher tax percentages.
You know, the government cannot consume percentages, it consumes money.
Over 20 years ago, in the midst of a huge recession and collapse of tax base, my country dropped the marginal tax rate for high earners of capital gains from 65 % to 25 %. What followed was a substantial rise in tax revenue. It doesn't happen overnight, it doesn't happen in one year. Conjunctures impact it. But when you are at the falling slope of Laffer curve, it would be good to do something about it.
A) Nobody is mad that a mail boy makes $75k. They are mad that they carry more of a workload than a mail boy but are rewarded with identical compensation.
B) It bolsters stagnation. $75k is great pay for mail room work. I should buy a bigger house, more TV's, enjoy this life. Never shall I be bothered with professional growth again!
C) Mail room workers don't generate or assist in $75k of revenue for the company, they generate or mitigate costs of drastically less. Therefore we are now working for a company that is forced to needlessly pass the costs on to our customers.
All this crazy pay is fun if you are in a tech bubble or in a single city in California where everyone can be this 'innovative' but the fact is, most people aren't able to contribute to a cause to the tune of $75k/yr.
Your logic right also be a tad messy. A company like that probably doesn't have a "mail boy" or anything very similar. The lowest paying jobs are probably customer support and office manager which are always inexplicably low-paying jobs.
I think this is the way of thinking in capitalism. "I have been working my ass off to become what I am now, I have paid college, and now one with lower try is making as much as me. That's not fair." Also this leads to another hidden thought of "That mail boy is currently getting the money which I should have been making".
Well I can't say thought first one is not justified but the second one is really absurd.
Hard work may give you an edge over other people in the same job role, so seniority way be seen as somewhat correlated with hard work within a position, but across job roles pay is much more dependent on other factors for instance the opportunities provided to you by your wealth, race and sex to name a few. I'm of the opinion that just because someone is paid less, doesn't mean they work less hard, and I don't think it fair to begrudge people their pay for quite possibly just not being born with the same silver spoon.
P.S: Not to imply that wealth, race, and sex don't also hinder you within a job role, but I think that it's probably even more prevalent across them.
Shockingly, hard work gives you an edge over other people even in the same wealth, race, or gender categories as well. So, why lean on those categories as an excuse?
As for what if someone better shows up, well if you were swapping out staff every time someone you thought was better showed up, irrespective of money, you would kill off your business. Stability is more important than chasing some vision of perfection if you are wanting to get stuff done.
Ford was more or less forced to do it due to technological advantage he developed (assembly line) and increase in amount of training an efficient worker would have to go through.
There are businesses that survive on innovative processes (and highly trained workers to follow those processes) and those that survive on dumbed-down any-idiot-should-be-able-to-follow-this processes. In some industries you get an edge by choosing the former, in some you have to choose the latter.
That's a good point. Part of me is trained to think about this like an economist (the subject of one of my bachelor's), but in the end I really hope that human compassion triumphs and this proves to be a win-win. I'm routing for Mr. Price.
I frequently worry that the measurement of success is shrinking from how a community prospers to how well an individual prospers. As low-wage workers commute from distant communities and we become isolated in our own worlds of gated communities and like-minded netizens, there's little incentive to improve our surroundings.
It's tough to quantify the happiness and peace of mind that I get from experiencing a well cared-for community.
Here's the part of the quote you ignored. Notice he says person twice.
> What happens if a better man for the job shows up? At such a market premium, the business could reasonably hire the slightly better person and terminate the other person, but then this is hardly "compassionate."
I implied it, but didn't claim it. Using the word "man" in a sentence where the subject is also referred to as "person" is at least a copy editing mistake.
Also, you have no idea if he was discriminating. I don't think he was, since I'll give him the benefit of the doubt. But you don't know either.
The point is: people should be conscious of the words they use. Accidentally or not.
I commend the spirit of what this CEO is trying to do, but if I am an investor, director, or just even regular employee I would have serious reservations about this business strategy.
> pay for the wage increases by cutting his own salary from nearly $1 million to $70,000 and using 75 to 80 percent of the company’s anticipated $2.2 million in profit this year.
I don't know what the financials for Gravity look like, but this really only makes sense from a financial standpoint if (1) the company can't re-invest the profits with a better ROI (rate of return) and (2) they aren't worried about competition - i.e. have a serious business moat. In addition, the company will have a higher payroll tax burden because of the higher salaries. (1) is somewhat justifiable as investing in your employees may garner loyalty/harder work which may raise the top-line, but (2) seems unlikely. There are a lot of credit card processing companies.
What happens if profits aren't as good next year? Are they going to slash wages to previous levels (or lower)? Or, if he's intent on sticking to the $70k minimum wage, this means he'll have to let go more people if the time comes. Did they look at alternatives - issuing more equity, special dividend, more generous bonuses??
I wonder how the conversation with finance went on this one.
You're assuming there are other investors/directors that aren't Dan Price.
At their current size/growth over the past 10 years it seems like they're a lifestyle business (urgh, I hate that phrase) where the company has grown organically from a small level of investment.
If Dan wants to provide his employees a higher level of pay from what probably seems to be a very predictable business, then that's his prerogative.
Businesses only have to act as psychopathic entities when they're run by dispassionate third-parties who's only motivation is literally increasing the profitability/value for shareholders.
Yeah, I get the sense that it's just Dan too. Which means this is even more likely to fail.
Don't get me wrong, I totally support this from a moral perspective and wish more companies would follow suit, but the economics of this move are just not favorable.
The system is structured in a way to dis-incentivize this behavior (paying above-market rates for labor), and I'm skeptical what one man/company can really do to change the system. They will have to make up the increased expense/opportunity cost of having less money for re-investment & new employee hiring somehow, while their competitors will have a significant marginal advantage.
I hope they are wildly successful and I hope this becomes a trend because, in my opinion, income inequality is probably the greatest threat to social stability going forward, but I am not holding my breath. History has shown that anything short of real organized labor and government regulations (anti-trust) are just swinging at windmills, unfortunately.
Do you think they'll suddenly get a lot of pressure to decrease their revenues?
Do you think they'll suddenly lose a whole bunch of clients because they're paying above market?
Do you think staff are suddenly going to become less productive because they're paying above market?
Do you think new staff are going to be of a lower quality than his competitors?
This business has been around for 11 years. Has 10,000+ customers. And is profitable, even with the adjusted salaries.
Given some really back-of-the-envelope guesstimates on the way this type of organic business grows and their current profit combined with Dan's current salary, Dan's probably already extracted $5-15m from the company over the last 11 years. That's a very comfortable living wage for someone who doesn't seem to live an extravagant lifestyle.
You're totally missing the point of what I'm saying.
They are putting themselves at a significant competitive disadvantage by incurring a drastically higher yearly operating expense, expenses which their competitors (in a very saturated market) don't have. They were already operating at <1% margins, and this cuts into that even more.
Dan's bet is that they can make up for this by the PR and goodwill they are getting from this story, but in credit card processing, fractions of percentages matter to the customer.
His prices are not changing, only exec compensation is being significantly impacted in a rebalancing of worth. Arguably the PR and motivational impacts should also be non trivial.
My biggest concern would be the normalising effect. If i'm a successful salesperson and it was announced that my 69k salary was going up to 70k - but so was the [lowest paid role; no disrespect intended]? I'd probably slide towards feeling undervalued despite it still being in line with market rates.
My only other concern would be the implicit pressure to outsource some services over time. I know my company gets around paying london living wage by declaring that contractors do our catering so they aren't responsible for the wages paid to catering.
It's still a cool thing done for good reasons and I hope it works out.
Let's take off our HN Goggles with +5 Cynicism enchantment for a moment! What if this CEO feels a bond toward his team, and feels a desire inside his heart to help his employees conquer their dreams?
It doesnt have to make the business more money, all it has to do is alleviate the concerns and worries in his employees that make their lives hard, and if he has a work force full of happy fulfilled people, I bet THAT is how he will measure the success of this.
I don't think competitors figure into this much at all, this is inwardly focused. This is about strengthening the whole team, starting with the weakest financial link.
It's amazing how much you are being misinterpreted. No one is saying that customers will leave Gravity because they pay clients more. BUT, what is keeping competitors from lowering prices to the point that Gravity cannot compete without either cutting salaries or running a loss?
He will be instantly out-competed by people who actually understand capitalism and markets and will die poor, alone, unloved, and unwanted by the world. The people he tried to help will be struck down with him as they lose the jobs they've scrabbled their whole lives to maintain.
Businesses only have to act as profit-seeking (that is the word you mean when you say "psychopathic") when they... want to survive.
I don't know why you chose to write your first sentence, which is so hyperbolic it makes you into a personal joke (he'll die alone and unloved? really? Why not add, "as a meth addict in a homeless shelter in Rio, on the run from the law after attempting to stick up a group of tourists with a butter knife.")
If 18 people can build a $1 billion Internet company, you can do the same while subsidizing out up to a few hundred $80K salaries (let's say $8M/year burned, which is 100 such employees) without any consequence whatsoever. Zero.
After your intro sentence, which sounds like you're attempting to get everyone to stop reading and downvote you, by writing something patently ridiculous, your second sentence is interesting.
Now that nobody is reading, you write:
>The people he tried to help will be struck down with him as they lose the jobs they've scrabbled their whole lives to maintain.
This is interesting. Yes, he is paying well above-market for these jobs. What is the consequence? Someone working as a janitor for $80K is in a job he or she could not ever hope to replace should they lose it.
What about hiring? Since he is paying above market (double), the natural result is that he should have 800 applicants for any job that becomes available. (The only reason he wouldn't is information dissemination.) i.e. if there are 100,000 janitors making $30K working a city, it would make sense for 50,000 of them to apply to him for $80K.
This could have a very large distorting effect. Or, maybe it won't.
We're still not talking 6 figures here. While doubling someone's wage is a very large step up, it is by no means the kind of step that completely distorts the market. And what if someone does scramble to keep or get an $80K job, but actually loses it? In fact, people lose cushy jobs they're happy with all the time. I think this is interesting and unfortunate, but by no means will ruin the people who enjoyed a period of unexpected windfall. In effect, they just become very moderate lottery winners. (They "win" a free excess doubling of their salary, while it lasts.)
> Did they look at alternatives - issuing more equity, special dividend, more generous bonuses??
Well it seems he specifically wanted to increase salary compensation, but I can bet that any organization making a choice this big went so far as to consider alternatives.
Paying your staff seems like a very good reinvestment of profit. In fact, it may well be what will allow them to pull ahead of their competition!
The biggest problem I see with this plan is not increased payroll tax but increased HR costs to weed through the many more job apps they're going to get these days.
If profits are unexpectedly worse next year, the compensation structure is probably the least of their worries.
What they're really doing is investing in their brand as an employer, in the belief that loyal, eager employees make a sustainable company. For a company working a space like credit card processing, that's probably a better bet than a big ad campaign or R&D investment.
I think this this sentiment is a relative of the recurring comment that 'there is a legal/fiduciary duty get investors the highest possible ROI.' I think it's neither true in practice or in theory, taken that literally.
CEOs can't steal from investors or run the company against their interests. But they have a lot of decision making capacity within those bounds. Salaries (and realistically, the more pronounced questions are around executive pay), are within that boundary. So are marketing expenses, R&D expenditure and such. Companies are run using instinct, worldview, eve morals.
It's not like investors can drag CEOs into court over every decision and demand they prove they're in shareholders' interests. If decisions are seriously, provably against investor interests they can, but in practice this means some sort of stealing. Crooked contracts with kickbacks, embezzlement. That sort of stuff. Apart from that it's 'normal' business. If investors don't like how the company is run they can replace him. Otherwise, sell.
I wonder how the conversation with finance went on this one.
If he's sensible he'll have taking his marketing director to the meeting. One of the most important things for a financial institution is being seen to be both ethical and trustworthy - setting out how you're not greedy and you want to improve the lives of your employees goes a long way to doing that. This move sets his company apart from the usual faceless, greed-driven credit card businesses, possibly to the point where they'll take a lot of the green/ethical/social business market.
Given that this move is already paid for, it seems to be a brilliant bit of marketing that also has a real positive impact.
I think your point 2 is overlooking what competition means. This, this very move is putting yourself ahead of competition and there is an overwhelming amount of research that suggests well paid (salary -- not to be confused with performance based "rewards") employees work better.
> "Under a financial overhaul passed by Congress in 2010, the Securities and Exchange Commission was supposed to require all publicly held companies to disclose the ratio of C.E.O. pay to the median pay of all other employees, but it has so far failed to put it in effect. Corporate executives have vigorously opposed the idea, complaining it would be cumbersome and costly to implement."
What's more, it will have the opposite consequence. In his book "Influence", Robert Cialdini wrote that making CEO pay public had the effect of raising exec pay across the board rather than check it, as the lawmakers had hoped.
I can't see how it would be that cumbersome, calculators are lightweight, widely available and easily fit in a pocket.
The thing about CEO pay rising after the information was made public was because it became a metric used by traders, so it started making financial sense to raise the CEO pay as it was thought to raise the company share price by more than the wage increase.
Of course this only works until someone matches your raise, then you have to raise again to keep the signaling going to the market and then the returns from this strategy rapidly diminish.
Now if the ratio was also public, then that would also become a market signal, but if you are a trader trying to gauge the health of a company then it should work in the favour of the employees, as if you are comparing two competing companies and trying to decide which one to bet on, if the CEO pay is the same and they are making similar profits, then the one with a smaller ratio will look like a much better bet.
edit - also, given that publicising CEO compensation can increase CEO compensation, why do you think that publicising employee compensation would reduce employee compensation?
If accounts and HR do not have the figures of what employees are paid already in a spreadsheet somewhere, in a form that is easy to run statistics on, then you have larger problems than producing reports for government.
And given you have not answered, why do you think that publicising employee compensation would reduce employee compensation?
You seem to be using the logic that the government tried something once and it did the opposite, so therefore all government policies do the opposite, rather than engaging with the potential outcomes of this specific idea.
As explained elsewhere, a figure of gross pay is definitely somewhere, but whether that is the figure required by law to be reported, and a figure that someone will think is what should honestly be reported, that's already another matter.
I did not argue that publicising employee compensation would reduce employee compensation, that was someone else. Perhaps you confuse authors.
I'm sure they can find some spare CPU power to tally up the CEO's earnings. I'll be glad to throw a Raspberry Pi in if it helps their cumbersome counting effort.
It isn't. Point me to a column of a table in a database containing all of your employee's salaries, tell me which one is the CEO's salary, and I can whip up a query to compute that ratio in less than a minute.
EDIT: Well, okay, if the given RDBMS doesn't contain rank or median functions, then it'll take a bit longer to implement. But not that much longer.
Or they find other forms of compensation that do not equal "pay" to game the figures. I'm sure the army of lawyers out there can find a loophole or two.
It is most likely not the ratio part but the median pay of all other employees part. You need to keep an ordered list of the pay of every single other employee and keep it up to date as people join and leave the company. Then there is the issue of accounting for part time or temp workers.
Sure, there is a distinction between pay and wage. However, tax offices - at least here in the Netherlands, and the UK - are interested in equivalent wage, rather than the direct salary number.
Really? Tax office is not interested on what was actually paid, but a full-time equivalent pay?
I mean, let's take someone who is working three days per week (not unusual here) for a compensation of 1500 € per month. That means 60 % of full working time. He or she gets 60 % of "full time" salary. The tax office would want to know the FTE salary of 2500 € per month, and not what was actually paid?
I think you're right, we're talking about different things :) I misinterpreted your comment - I was thinking of things like company cars, travel benefits etc. being considered part of the taxable pay package.
Ah yes - that is true as well. How to convert that kind of benefits into equivalent pay from which you calculate a median - that's not simple either.
For instance, in some country, a health insurance is tax-free and does not count towards a benefit, while in another it might be taxable income or considered part of pay. You could have expatriate employees in your team whose pay structure is entirely different from the rest. Now, if you have a multinational company, how do you put those employees into the table from which you start to calculate this figure for how much the CEO can be paid? Not simple.
The devil is in the details. Those "some adjustments" are not exactly trivial, if they need to be correct and undisputed. And different people may have different requirements for what is "correct".
Things get trickier when the company is multinational. You might even be prevented by law from handling the salary data of one country in another.
(FWIW, I have some years experience as a line manager in a multinational, with reports in another country; this was not always a breeze even though from what I know, we were a decade or two ahead of most multi-nationals in the level of international integration of corporate IT.)
Ah, back when I was a programmer without any SQL/DBA skills, I thought like this too. Now I know better than letting unskilled workers (e.g. lots of so-called DBAs, most developers) develop schemas or queries.
That was my thought as well. They need those numbers (or some contractor that handles payroll need those numbers) for reporting taxes etc anyway. There's no way that it is "cumbersome" to implement. I mean they need to total them up (salaries) for the quarterly reports -- and making one of those must be far more "cumbersome" than to report on a couple of core business stats...
So what you're saying is all that non-technical HR people have ever to do is normalize all of the employee salary data and load it into a database and then run this query? Easy peasy!
If HR or Finance doesn't have this, they aren't doing their job. The company should know exactly how much money is going to payroll every pay period and should know exactly how much they are paying each employee. If they don't know this, the company has bigger problems.
And yet somehow they manage to do a payroll cycle every 2 weeks, produce W-2s every year and so on. I don't get it, obviously this would add up to quite a bit of admin work at a very large company but it's basically the sort of thing you can do very easily with a spreadsheet.
Assuming you know what data to include and what not. For instance, it is not obvious to me whether the "company" means a company in one country only, or all the legal entities of a multinational. Should you include part-time workers, and if you should how should you do it (the actual pay or the FTE equivalent pay, and what are the FTE hours for different jobs?)
If that's too much for someone to deal with they're probably not going to last long as a CEO. This is the kind of thing people have HR departments for, and you're telling me they can't crunch a few numbers? Come off it.
It's obviously possible to generate a figure; less obvious that the figure is actually meaningful, once people understand that subtle accounting differences like whether to include the salaries of the staff of the Manila office and whether to include total comp for the sales team with very aggressive bonus structures actually has more effect on the headline ratio than an above-market increase in CEO pay.
And perversely, laying off workers to outsource their jobs to an offshore BPO firm almost certainly gives the appearance the company is improving the staff pay...
It will definitely be meaningful specially for those huge multinational with CEO's earning extreme amount. Given that the article said something like 300:1 ratio of salaries in some companies even if your median wage salary is off by 2 i will still give you an idea that the CEO gets over 100 times the pay of a median worker. It might need some work to process and I am fairly certain the protest didn't start for that reason. Companies decided that they don't want to expose to massive gulp in payscale and then found the reason to protest.
Certainly. Just to illustrate this, assume a small and simple multinational company that has headquarters and marketing (100 staff) in the US and manufacturing workforce (150 staff) in Vietnam. That's all the workforce.
The median salary in the company will be about $200 per month (because a majority of workforce is in a low-pay country). If the CEO makes $250,000 per year (which is not particularly much for a company of this size), she'll earn an outrageous 100 times as much as the median in the company.
Now let's assume that activists are unhappy with this 100 times difference and there's a boycott in order to reduce the CEO pay in proportion to workers. Guess what will happen?
Half of the workforce in Vietnam is kicked out and the gap in production is bought from a manufacturing partner in Pakistan (where the workers will earn $150 per month).
CEO pay is unchanged, but the median pay is now $2500 (pay of a not-high-status sales assistant in US). The CEO now earns only 10 times as much as the median worker!
Did things improve for the poor workers? Well, you could say so, because some people in Pakistan got a job, but the actual outcome still is that the people who work on the product now get less than before.
Road to hell is paved with good intentions, and naive activists are hit by the law of unintended consequences. Yes, the CEO-to-median figures are not very meaningful for a multinational company.
Let's be honest, and not pretend that this has absolutely anything to do with the difficulty of acquiring this information and providing it, and so much more to do with the "the less done to publicize how much I made, either by itself or in comparison to my employees, the better".
I assure you that every company I've ever worked for has had that list of salaries at the tip of their fingers. This would be next to zero additional effort if it's only salary ratio. The problem is - you can easily play games with bonuses, stock options, etc... to make it appear that the CEO has a low salary.
Why yes, I run a company and have no idea how much my employees are compensated, and funnily enough, not even my own salary. This is probably why my books never balance every year. I knew shouldn't have fired our accountant.
It will be interesting to see if the salary increase (for some it will be double) will result in overall better workplace happiness, higher retention rates (meaning less resources required to train replacements) and a better end product as a result of employees being happier. This is really great, other startups and companies should take note of what is happening here.
While it will result in a temporary downfall because profits are being used to fund this in combination with Dan Price's pay-cut, I think the long-term results will mean the company eventually makes that money back and then some more. We need more risk like this in the business world, invest in your employees who in turn will want to be at work and want to do a good job to keep their salary.
I imagine he'll be getting calls from management theorists wanting to do some long term studies to see what happens to happiness, motivation etc.
Traditional management theory has that money is a poor motivator because the effects wear off quickly and people soon come to believe they are "worth" their pay increase. Other perks / benefits are often valued disproportionately more than money.
Now a massive pay rise that takes people out of a problematic income zone may completely upend that, or over time it might have unintended negative consequences. Off the top of my head I wonder what consequences might be for the workers who were on higher salaries now perhaps feeling relatively under compensated.
If I recall correctly (I'm thinking this is from some of Daniel Pink's work), some recent studies show that more money does help up to the point where employees basically don't have to think about their own material problems... and can therefore focus on solving their employer's problems. And beyond that, it's a poor motivator.
My guess is that the ~$70k mark is about right for ensuring middle class security outside of major metro areas.
If you read the article linked in the NY Times article, it is more nuanced than that. From the abstract:
"We report an analysis of more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 US residents conducted by the Gallup Organization. We find that emotional well-being (measured by questions about emotional experiences yesterday) and life evaluation (measured by Cantril's Self-Anchoring Scale) have different correlates. Income and education are more closely related to life evaluation, but health, care giving, loneliness, and smoking are relatively stronger predictors of daily emotions. When plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ~$75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being."
You can see that the income scale is actually logarithmic. Did that blog author even read the paper? Kind of ironic him throwing around Dunning Kruger references.
Anyway, the happiness definitely does level off at around $75k in the Kahneman and Deaton paper. It's just that other research shows happiness increasing beyond this point.
As I said, the conclusion remains the same. $50k->$70k is a huge boost, with a very practical impact (especially given some constant living costs), while e.g. $150k->$170k is a very gradual change.
Yeah, I kind of do the same at my company, but it's not a public matter.
Once an employee gets enough training and is valuable enough for the company, my minimum wage is 1200 pesos weekly. (I'm from Mexico). It's not a huge change, but almost any employee reach that salary within a year in my company. (The minimum wage in mexico is about 402 pesos weekly)
~4000 USD a year, given paid vacation time? Did I get that right? Any tax/medical/etc comming out of that? I knew there was a big difference from the US to Mexico... but... wow.
Cost of living is accordingly lower. I lived quite comfortably on my monthly wage of $400 in South Africa when I was starting out in 1998. When it got to around $1800 a month it was really, really comfortable. Your foreign purchasing power sucks so I never bought Apple, but food, accommodation and anything else in the local economy was affordable as heck.
I get that it is lower, I'm a little surprised that it could be accordingly lower. I mean Mexico and the US must be pretty much the same market in terms of food, energy, water prices etc. Half I could understand, one tenth for crossing a border with lots of trade going both ways... it's more than I expected.
Yeah, that sound quite a bit above the minimum for Argentina as well (though a lot less than any software developer or similar professional would make).
Remember how they say that you can feed someone in Africa with just 1USD per day (356USD a year?). Well, you've got plenty of countries that are halfway between these places and USA, and a lot more than you'd guess.
Are you saying I could live on 10 USD a day in Argentina, including renting a room, and eating food? How much for Internet access? That'd be a cheap retreat at ~1000 USD for 3 months (assuming a 3 month vacation VISA).
I've just returned from Morocco, where the cheapest backpacker hostel bed was around $5. I never stayed in one, they're probably not too nice, but would include linen and cleaning. A small loaf of bread was about 10¢, fruit or lentils similarly cheap. This is how teenage/student Europeans (mostly) can afford year-long holidays before or during university.
Argentina looks to be about twice as expensive for a bed, for a tourist, so I don't know if $10 is doable for three months — there might be restrictions on foreigners renting, for example.
Nope, I didn't say that. I said that that is the minimum wage, but that doesn't mean that those people a life you'd want.
A great deal would be considered poor but US/EU standards, and live in rather poor zones, lack internet access, natural gas or running water (eg: my grandparents have water pumps to get underground waters at home, because that's their only choice).
Several millon people (literally) work in Buenos Aires City, but don't live in the city, and have 1-2 hour trips (one-way trip) to work every day.
If you want to stay in a large city, in a relatively safe area, you'd need trice that sum.
That's all very good. I didn't mean to imply any criticism -- I was just wondering what that pay meant in terms of after-tax etc income per year.
Curious about the house-loan thing: how long does it take to pay for a house with that wage? Can you buy a house with 4k or 8k USD a year in household income, and own that house after ~25 years in Mexico? (As 8k*25 ~ 200k -- I suppose that's not entirely unreasonable. You might be able to get a one-room apartment for that price in Norway, so assuming 50% of the income is spent on housing, and considerably lower cost for housing... not as far fetched as I initially thought).
One of my employees bought house last month, he earns with me 1800 weekly, his wife earns I guess a little less, he bought a 890,000 house, morgaged in 20 years, i don't know how much is he paying monthly but for what he told me, he pays for the mortgage about the same he paid for rent.
the house is 3 bedrooms, kitchen, and garden, a fairly decent one...
most of my employees have houses valued around 290k, the main reason is because their wives doesnt work and they can pull just one infonavit loan.
290k houses are really small, about 80m^2 for what I know. but well, is a brand new house after all.
I live in North Mexico, Durango State to be explicit. But this are general laws for all the country, labor laws support workers a lot, there are a lot of government agencies looking for workers right, formerly there is a secretary just for that called Secretaria del Trabajo y Prevision Social. That government arm specializes on checking workers coonditions on a lot of matters, for example there is a revision called "Seguridad e Higiene" where they check if your facilities are right and safe for the workers, they check to if the workers are properly trained. Companies have the obligation to train workers every year, and as an employer you have to fill out forms called DC-1, DC-2... DC-5 and submit via internet where you manifiest the training your workers have, there is anothere revision called "Condiciones generales de trabajo", where they check if all the benefits mandated by law are properly applied, another one called "Revisione de PTU's" where they check another benefits of workers (when you file your taxes once a year in a form called "Declaración Anual" your report your utilities, and you are mandated by law to pay the workers 10% of the utilities)
STPS have a lot of instances, another one is called "Conciliacion y arbitraje", where workers can go and sue you, its basicalle a government dependency made to protect employees. Most of your paper work like resignations, and fired people must be filed against conciliación y arbitraje.
Unions are very strong too.
Anyway, the main problem with Mexico is that most companies are informal (they dont pay taxes), and of course, they dont offer benefits to employees.
It's been a real problem for the country for years, but if you have followed the news, two years ago a lot of reforms have passed namely reforma hacendaria, reforma del trabajo, reforma energetica and well, a lot more.
Basically the government is cornering informal bussinesses in order to make them pay taxes. it's a very difficult time for the country because as you can imagine, being formal and paying taxes is very expensive, and a lot of the news you read about the crisis in Mexico is because of the problems informal bussinesses are having to turn to formal ones. (Oil price is another factor, but well, bad luck for the current president).
As a simple fact, if an employee earns 1000 pesos with me (the money he sees), i pay aroung 700 pesos in taxes, from infonavit (housing plan), imss (healthcare), afore (retirement fund), isn (impuesto sobre nomina), and all the benefits.
It's very expensive to have employees, but I'm happy to see them and to believe their sons have better opportunities than them.
> I live in North Mexico, Durango State to be explicit. But this are general laws for all the country, labor laws support workers a lot (...)
Thank you. I was mostly curious wrt the housing market :-)
Also nice to see some details from the labour market of course!
> As a simple fact, if an employee earns 1000 pesos with me (the money he sees), i pay aroung 700 pesos in taxes, from infonavit (housing plan), imss (healthcare), afore (retirement fund), isn (impuesto sobre nomina), and all the benefits.
Hm, you mean the employee doesn't pay any taxes on that 1000? In other words the total tax rate is ~41%? Or is the corporate tax on salaries ~41%? For comparison, here in Norway, for a given monthly salary X, the employer pays an additional 12% towards holiday pay, and 7.9% in taxes from that total. The employee pays tax on X, usually ~36%. And then there's an additional VAT on goods and services of 25% (12.5% on food).
So given your example of 1000 in take-home pay, X would be 1000/0.64 = 1562, of which 1000+1562 * 0.12 (as vacation pay "tax free" or rather "pre-taxed") = 1188 go to the employee (or rather a pay out of 1000 10 months, "half-tax" for December, and 11000 * 0.12=1320 for the vacation month (give or take, with 5 weeks vacation, the pay for the month with 3 work weeks is subtracted... it's a little complicated).
The employer would pay taxes on 1188 * 0.079~94. So the total taxes on the monthly take home pay of 1000 would be 94+562=656 -- before considering money spent on VAT out of the 1000. But do not that Norway has a progressive income tax, variable tax on other income etc -- so this isn't the entire picture.
So it sounds rather comparable, if I understood you correctly. We also have free health care, school system (primary through college).
[ed: To add: the employer would also have some expenses for insuring the employee in case of job related injury etc, but I can't imagine that is very high on top of the 7.9% -- I'm not actually an employer, so I'm not sure.]
the entrance wage is about 700 a week, its the wage most people earn on maquilas. Thats the wage for the first 2 or 4 weeks for testing the subject.
In Mexico is very expensive to lay off people, if you lay off somebody without a reason is called "Despido injustificado" and you're mandated by law to pay 3 months of wage. Also, if the subject has been on your company for a while, you have to pay about 20 days per year worked at your company.
Laying off somebody with about 20 years working for you, is paying about a year of wage as compensation. Mandated by law.
It's interesting to see just how many people are willing to argue against a business paying their employees more, when those commentators have no involvement in the issue at all.
A lot of the heated responses I've seen seem to respond to the assumption that a successful business experiment is obviously being showcased to model a mandate around it. Can't get some people off their scripts to save them, I tell ya.
Well, "under a financial overhaul passed by Congress in 2010, the Securities and Exchange Commission was supposed to require all publicly held companies to disclose the ratio of C.E.O. pay to the median pay of all other employees, but it has so far failed to put it in effect" sounds a little bit like someone wants to mandate this kind of a practice. (I'm not in the US so such a law does not impact me directly, at least not at the moment, but as experienced with the totally nuts application of SOX laws, such things passed by US Congress may mean WTF moments to people at the other side of the world).
There's a broader political context, of course, which naturally attracts interest from outsiders. It's apparent from the article that this decision is motivated, at least in part, by progressive ideology. This might sound good, especially to those who believe in "progress", but progressivism at its worst is terrifying (see, e.g., "Comrade Stalin—Leader of Progressive Mankind" [1]). As a result, a move like this, whose potential for capture and enforcement by the state is apparent, understandably gives some people pause.
(1) It effectively sets a certain bar at the company. There are no poor people working here. There are no disappointing dead ends. All jobs here are decent, by general standards. I'm sure that's culturally significant within the company.
(2) It sets a certain bar for employee productivity.
(3) The famous 'pirate codes' usually had rules for distributing booty. Captains got between 2 and 10 shares, while regular crewmen got 1. It's striking how much more CEOs get compared to pirate captains.
> There are no poor people working here. There are no disappointing dead ends. All jobs here are decent, by general standards. I'm sure that's culturally significant within the company.
I just visited Australia for the first time in 9 years, after having lived there for the first 23 years of my life. I've been living in North America (Canada and the US)
Your comment is exactly how Australia feels. There are virtually no poor people, nobody is left behind. Even people working "dead end jobs" like retail are perfectly happy. I would say they're happier than "career" people in North America.
I went to see some of my cousins in Australia earlier this year (and well, to watch the world cup).
This is what surprised me as well. Maybe it was the weather, or maybe it was the atmosphere of the world cup, but everywhere in Australia felt like a vacation. People were generally happy, welcoming and relaxed. I've never seen anything like that after traveling through more than 20 countries (not in Europe though).
I'm not insisting that policy differences are necessarily less important than that, but it's possible that Australia simply has better outcomes to select from.
I'm with you, but did you read that the increase was already paid for out of profits and by reducing his own salary?
I'm not sure if he is still head of the board or what, but this is definitely a bold move. Still, $70k in Seattle is only like $52k in my lowly city of Myrtle Beach, SC. It isn't a whole lot of money for any professional salesperson, clerk, or the like to make. It will certainly be a big win for morale and one would expect, performance, and retainment/turnover.
It's only going to increase the morale of the 70 employees receiving the wage increase. I suspect it will cause some degree of resentment in the rest of the company. It also removes the incentive to improve for the lower tiers, since they have further to move up the ladder before they see an increase in pay.
Personally, I think it's a noble but foolish move.
> I suspect it will cause some degree of resentment in the rest of the company.
Why is that? While some people might be that petty, it's very possible that Gravity never hired those kinds of people in the first place.
> It also removes the incentive to improve for the lower tiers, since they have further to move up the ladder before they see an increase in pay.
Why is that? I don't think the idea here is to raise everybody's wage and then institute some kind of 30 year wage freeze. It's to establish a baseline living wage so that none of your employees need to be hustling for other opportunities just to pay their living expenses. They can focus on their work and their lives. Rewarding exceptional behavior is a small cost once that's out of that way, and I don't see why we shouldn't expect to see it here.
> Why is that? While some people might be that petty, it's very possible that Gravity never hired those kinds of people in the first place.
It may be petty for someone making several hundred thousand a year to resent someone who's market value being 30-40K being bumped up to 70K but for the vast majority of college graduates that is a slap in the face. Your giving everybody the rewards they worked their asses off for. I don't consider that petty, I consider that basic human disposition. Especially in a place like a credit card payment processor. I doubt many people working there go home and take pride in telling their family and friends about the work they did that day and how its making the world a better place. The majority of them are probably working for the paycheck.
Now don't get me wrong. I do admire the guy for what he is doing. Its a great selfless act. But I'm just saying its completely reasonable and understandable for those employees who where currently making ~ 70K to feel resentment and it does not make the petty or bad people. I would hope they thought this side effect through and have plans to deal with it. Since its not going to just be one or two bad apples but the vast majority of people in that position.
A good chunk of college graduates will never see that kind of pay. If you think people only go to college to make more money, you need to think again. Many careers for college graduates pay below average, and people knowingly still go for them.
E.g. in the UK a prime example is law school. The average pay for a UK solicitor is well below the national median salary.
Mankind is foolish and often rewarded for it. I don't yet know how I'd feel about my company abruptly deciding to do the right thing on wages. It's hypothetical though, since I'm with a small outfit that has few if any sub-$70k staff. Not sure if HR and exec assistants are making quite that.
All those who had to go through a lot of effort to get a job requiring higher education, are now earning the same as those who put less effort. They're certainly not going to by happy about this.
I don't think so. If they were happy enough not to quit before, they are even happier now.
In fact, they might be so happy with their job that they want to improve so they aren't replaced with the better candidates the job is going to attract now that it is paying much more.
As I noted below, I have no problems with him cutting his salary. Those profits stop being profits though and are now expenses. If revenue comes downs little bit they are losing money.
Personally I think it would make more sense to raise salaries by whatever he wants to cut his salary, and then add some profit sharing in as opposed to just removing all the profit and adding significant risk to the business.
How do you define "the value they provide the company"?
It appears the people working at this company company are providing enough value for the company to be able to pay them this amount. If it can sustain revenues, who's to say it has to return its profit to the shareholders rather than to its employees.
That raises an interesting question. Assuming the profit levels haven't suddenly risen, if the workers are now producing enough value for the company to be able to pay them this amount now, they presumably already were producing that value.
Isn't this an implicit admission that the company was underpaying them before?
Sure, but if the raises are portrayed as a question of fairness (rather than simply as a business tool to retain and attract better employees), then implicitly they're saying that the salaries weren't fair before, no?
You're assuming that the wage market is already efficient and that Gravity's employees aren't worth $70k or more.
We know that your first assumption is wrong, and I don't think any of us are in a position to know if your second assumption is wrong or not. It certainly doesn't seem unreasonable.
If you read the article, the owner is offsetting all the wage increases by reducing his salary and using existing company profit. And, I suspect he'll be able to hire/retain his best employees - which is important in a customer service centric business.
There are 120 employees total and you're only accounting for salary paid directly to employees (good rule of thumb is employer pays an additional 25-40% of your actual salary in employer taxes/expenses).
Under your scenario (assuming the 120 employees figure from the article is correct) a jump in average salary from $48k to $70k minus the CEO's old salary results in a net increase of $1.7mm (or about 75-80% of this year's profits as the article stated).
This scenario isn't correct though, because an average salary of $70k means there are still a significant number of employees still making below $70k. A more realistic estimate is the average salary will be well north of $70k, and if we include the additional cost of payroll taxes (let's say very conservatively 10%), then we're talking about:
($80k new avg - $48k old avg) * additional 10% payroll taxes * 120 employees = ~$4.2 million in additional wages
Granted, that's over 3 years, but this is a very conservative estimate assuming 10% payroll taxes, no additional employees hired, and the new average wage will be $80k which is also very conservative.
You're right, I didn't see the 120 employee figure.
I'm going to work this out a little different though than you assumptions, given the types of jobs that are here, I don't think the average will jump a huge amount though.
The average for a callcenter employee in WA is around $30-35k. There are 70 employees that are going to receive an increase and I'm going to assume that they're all on $35k (even though there will probably be a proportion of those closer to $70k), even though this is overly conservative. Even minimum wage in Seattle now is about $32k/yr.
70x ($70k - $35k) is a net $2.45m increase in wages.
Payroll tax in WA is 5.5% on salary expenses above $800k/yr.
5.5% of the additional $2.45m is $135k.
The net increase in wages is therefore around $2.6m.
His salary will be brought down to $70k.
Their current net profit is $2.2m, the additional gain from his pay cut is around $900k.
Therefore this increase (even if done in year 1) will still have their net profit (assuming the $2.2m is before tax) at $500k. Sure, not as good as my original math, but still sustainable in a predictable business like this probably is at this stage.
You are assuming too many things and you HAVE to account for the fact that the minimum wage is going to be $70k, so the minimum average wage possible is $70k (i.e. everybody is making 70k). Thus, there is a net increase of at least (70k-48k)*120 = 2.6m
This assumes everybody will be brought down to $70k salary, which we know is not going to happen.
Also, 5.5% for total payroll taxes is wayyy low. Did you include FICA/medicare/SS/unemployment insurance (federal and state)?
Sorry, that payroll tax was incorrect. WA doesn't have a payroll tax. They have an unemployment tax/insurance… and is based on how many employees have become unemployed from you. It would be pretty easy to consider this to be quite low in a company that pays above-market.
The maximum is around 5.84% But seems the average is around 1% or less.
Medicare is 1.45% from employer (the additional 0.9% on amounts of $200k don't really count here).
Social Security is 6.2%
So my total tax rate was off, but it still seems to be around 8.65%. Even less if their unemployment insurance figure is lower.
By the way, there were only 70 employees that were going to get an increase in salary. Hence my estimates of people who would be under $70k at all. I took what I thought would be the lowest figure for employees in a company like this (as well as the doubling comment in the original article) and estimated the total maximum increase at $35k to $70k (even though the actual increase will be lower).
Not that our figures are really that different in that case. My $2.45m increase versus your $2.6m. Plus an extra 8.65% tax ($220k).
You also mention that this is a highly competitive market. You're right, but it's also one that scales disproportionally compared to staffing. What do you think Stripe & PayPal in San Francisco pay their staff?
I'm heavily involved in the finance sector (in AU anyway) and I can assure you that these businesses (especially in the USA) have significant margins on their average retail fees. 2.9% + 30¢ might seem like a great deal to most of everyone on here, but their top-line margins are > 30% on that, moreso for small transactions, as that 30¢ fee doesn't really exist anywhere but the gateway.
As an example (in AU), a business doing mediocre credit-card volumes of < $1m/year will be paying less than 0.4% + the Visa/Mastercard interchange fees (which is about 0.33% for the vast majority of card types… 1.023% for platinum cards).
My math was very naive (no tax impacts positive or negative) but even if he phased in the change on day one (as opposed to the 3 years he is planning on), it would move his $2.2m profit (assuming that is before tax) to $1.6m.
As the only (majority?) shareholder, wouldn't that be sufficient to live comfortably off… assuming stagnant growth?
[edit: sorry, my above comment was meant to originally be posted to the parent, rather than the comment I posted this too… if only I could reassign it!]
I have no problem with him cutting his salary, but the 80% of profits won't be profits. They will now be going to expenses. If revenue is a little less, that means they are now losing money.
Well, they could apparently afford half to one-third of that by paying Price more than the "value he provided". Maybe. I don't really think they can measure that in any meaningful way, anyway. Can you?
except that workers, perhaps especially lower-wage workers, aren't typically paid based on the value they provide the company, but rather on the market rate it would cost the company to replace them with someone else.
The whole premise of making money by providing capital and hiring labour is that you do not pay according to value created/contributed, but as little as the labour market will allow.
Some people think that the invisible hand of the market will ensure that the difference approaches zero. These people often tend to believe that unions are worse than hiring right-wing thugs to bust up unions, too.
I'm not sure why he would not phase this in gradually.
Also, I've read somewhere that paying someone significantly above market rate can lead to more stress due to increased fear of job-loss. $70,000 is great, but only if you're able to convince your employees that they're worth $70,000.
(edit: I missed the part about 3 year phase in. I still wonder about the effects of paying someone 60% above market rate.)
Hopefully he adds some money management training to go along with this.
Someone who is used to living on $48k/year (their current average) suddenly making $70k/year is a huge change. And unfortunately, most people will adjust their standard of living to whatever their making instead of banking the difference.
As a result, I can easily see your concern about "increased fear of job-loss" because of what they're making.. and how hard it is to be "poor" again. It's the definition of golden handcuffs.
To be clear, I'm not implying that the current market rate wage is a fair one. It's entirely possible that, had real median wage kept its pace with economic and productivity growth, the market rate would be much higher.
But the $75k equals happiness is largely predicated on it being significantly higher than median wage.
If all other companies followed suit and pay the same amount, we'd have to move the yardstick much higher than $75k.
It is interesting to consider what this does to the psyche of the 45k/yr employee.
Do they become less likely to risk leaving this role? Do they value less the opportunity to test out a different career, even if the potential salary is higher? Do they become more devoted to the wellness of the Company? How does this impact their drive? Results? Retention?
It would be fascinating to see their HR metrics 10 yrs from now.(assuming Gravity Payments doesn't put itself out of business)
If an employee is living paycheck to paycheck on an above market salary it is a set up to lose everything. This is definitely an intentional management technique.
It's worse than that. About half of people spend more than they make at least a few months each year. While they may still be net positive for the year, there are times they are likely paycheck to paycheck in there. And about half have no plan for building savings either, so they're unlikely to change the situation.
Further, I forgot about another aspect.. many tax deductions start phasing out at $50k and are completely gone by $80k (iirc), so at $70k they're not only in a higher tax bracket, they also have less deductions so their overall tax burden will go up.
Getting a big salary change in this climate can trigger the ole Imposter's. I hope they have someone involved with the group to educate them about being very realistic toward a life change even when it's positive as this.
Paying more than what the job is actually creating in value isn't a fair wage. It's the type of thing that is likely to put a company out of business. Then instead of having a 70k job they didn't earn they are unemployed.
It's funny to me how many people on HN are criticizing this decision and making semi-insulting comments about how people aren't creating enough value for the company to deserve the pay increase.
First, paying the CEO less and employees more isn't going to put the company out of business because it's all just payroll.
Second, the people actually making the decision know far better than you how much value their employees are adding to the company and whether it's worth cutting into profit to pay them more.
When you've bootstrapped your own company, hired hundreds of employees, and are making millions of dollars in profit, you can pay your employees whatever you want. Until then, stop shitting on this guy's plan to do something cool for people.
But the employees are creating more value than they are being paid. The company is a going concern and are still making a profit even while paying everyone at least $70k.
OTOH, take a startup that's paying everyone over $120k and is running in the red on VC money. Those employees aren't (yet) creating enough value to cover their salary.
It's just that it's become so ingrained that companies must maximize profit for their owners at the expense of the employees that we've lost sight of whether it's right or not. (I posit it's not.)
Indeed. I think it's pretty ridiculous how critical people here are of these raises. It's as if Dan is doing something unnatural when he's not maximising his own profits.
A reason we have seen through history is that company owners often use as an argument that it can't possibly work for all kinds of reasons. If someone pays more (or cuts working time) and remains successful it creates an example of viability, and also changes the market - even if only slightly in the case of a single small company like this - and at least some people worry it will affect them to.
It's never a particularly compelling argument to start from the position that you can't understand that other people hold opinions different from yours.
republicans (with a lower case r) ought to be both economically as well as socially liberal. I don't think being a republican means you have to oppose unions in all its form.
We owe a lot to unions and I'm sure they still have a role to play in today's environment.
I'm curious how quickly the company's manpower model already progresses people from entry levels to more productive and higher paid roles. Can they do this by making their people more productive, and thus worth more in the labor market or as part of the company? And if so, how are they going to do that? That's a workforce-led business model: We're going to provide value in the market place by taking people and training them up to do productive stuff for customers. We're basically investing in training people to enhance their productivity.
So what would be really interesting is if Gravity were to say, if we've got people stuck at entry level after two years, then we're doing something wrong and we've got figure out how to grow them better.
That is a model that all managements and investors would want to emulate. And then you're paying people more not out of noblesse oblige but because they are literally empowered to go make more. It's a much better model, economically and morally, than CEOs and investors paying more because they're such great people.
Probably most profitable and growing companies are already doing this to one degree or another. Your best workforce strategy is finding good people and then making them better.
Interesting that paying marginally adequate wages is allegedly a difficult business decision from a competitive standpoint (although judging from the steady rise in profitability in industries across the board, I doubt it).
But if so, perhaps running trade deficits for decades on end with nations that brutalize their work force was not such a good idea after all.
This does not work in businesses with either low margins (profitability) and/or high labor intensity. You will not be able to obtain any new funding. In addition, this policy being only selectively applicable will increase wage differentials.
> Mr. Price ... would pay for the wage increases by cutting his own salary from nearly $1 million to $70,000
There's money in every successful company that could be redistributed — it's a moral choice whether you do so. If you prioritise your own comfort over that of the people you stand on, feel free to do so.
> and using 75 to 80 percent of the company’s anticipated $2.2 million in profit this year.
You forgot this part of the source of funds. This will not be a one-off reduction in profits. Increasing the wages of the 70 affected employees from an average of USD 48k to USD 70k translates into an annual cash outflow of at least ca. USD 1.5m. This reduction in cash flow will make it more difficult to (re)finance the business.
As said before, this is not viable for businesses with low margins and/or high labor intensity. So you imply that those business owners (i.e., with low margins or high labor intensity) prioritize their own comfort over that of the people they stand on?
> Mr. Price, who started the Seattle-based credit-card payment processing firm in 2004 at the age of 19, said he would pay for the wage increases by cutting his own salary from nearly $1 million to $70,000 and using 75 to 80 percent of the company’s anticipated $2.2 million in profit this year.
What a crazy world we live in where people can start companies and pay themselves a salary of $1 million. Wouldn't that money be better off being reinvested into the company? Sure, they are doing it now, but didn't it cross their minds when they (he?) first decided his contributions were worth $1m per year?
If it's his company he can pay himself whatever salary he sees fit as long as the company doesn't tank, in which case it might be looked at as 'bad management'.
After all, it's mostly a taxation issue, if he pays himself a million in salary he'll pay one tax rate, but if he pays himself a lower salary and a chunk of the profits as dividends that's simply another tax rate.
So you can start your own company and pay yourself whatever you want as long as you stay liquid as long as you own the thing. As soon as you have other shareholders or co-founders you won't be able to do that any more.
Who said he was drawing $1m in 2004? That was 11 years ago. You're assuming that he's not the only shareholder.
Did they grow to be a billion dollar business in 11 years? No.
Has he created a successful business? I'm pretty sure you could argue a business with $23k/employee net profitability (after his changes in minimum salary) for a SME is pretty successful.
Yeah, what a crazy world where a person who creates 70 jobs after taking on great personal risk and working hard gets rewarded after 10 years. I suppose you'd rather that he never got rich, and didn't even bother to take on risk and work hard and create those jobs in the first place, because why bother if he's just going to make the same money he would otherwise?
As this is HN, surely the argument is along the lines of "he should plough everything into growth and take external investment too". Then, instead of paying himself $1m per annum now, he could have a 10% chance of $100m in 10 years time!
I think his 70 employees probably prefer his existing approach, even when he was taking all the $1m for himself.
This is amazing, the new triple bottom-line company...? not for the environment but for the people. Interesting times call for innovation everywhere.
Go Pro announced the opposite news today as highest compensated CEO (sold shares).
Personally, I think companies that have decent margins should create a culture of well paying jobs and high value for their employees. I guess this already occurs with companies like FB, Google, Banks, etc.
One of the few things that money genuinely cannot buy is the satisfaction of proving to yourself that the lustre of a shiny coin is not what rules you.
You can - withdraw all your money as bank notes and convert to gold bullion coins in suitcases, sail in a hired boat to the middle of an ocean, drop suitcases into the ocean. Sail back to port, yell "The lustre of a shiny coin is not what rules me!".
Or do what this CEO did and buy it using a reduction of income.
You could say that turning down or throwing away money is purchasing the experience of turning down or throwing away money, but I think that is stretching the definition somewhat.
Buying tends to usually involve an exchange of items of value with another entity, rather than not exchanging anything or dumping gold in the sea.
By your definition, it would seem I purchase my sleep by not working while unconscious, which is obviously ridiculous.
Just because you can look at something as a financial loss, whether it is something of value being destroyed or an opportunity to profit not taken, does not automagically mean that something was therefore purchased.
It was meant to be a humorous post, but I'm glad you humoured me anyway. Let's do this.
By your definition, it would seem I purchase my sleep by not working while unconscious, which is obviously ridiculous.
My definition of buying means giving up tangible goods, i.e. gold, money, shares, in return for a change in the world (e.g. receiving a massage).
So, to exchange time for sleep would not fit as your time is not a tangible good. And since you require sleep to work, it would be more accurate to say you earn the ability to work by sleeping. I stipulate no buying is involved.
Opportunity cost does not necessarily mean buying. Exchanging a tangible good for something else does.
I suppose where your definition and mine differ, is in your definition you require a sentient seller, and in mine the seller could be non-sentient, or could be metaphorically represented by a collective of gold owners who would benefit from you losing your gold to the ocean.
To buy something I definitely think requires a sale and an implicit contact between two parties. Also, it is perfectly possible to buy something with your time, tangibility is not required for something to be purchased, definability for the purposes of the contractual arrangement is the important bit.
That's the wrong question. The right question is "Will he be more satisfied with a million dollar salary or a company full of employees whose lives he knows he's making better?"
If I owned a company such that my livelihood and retirement were basically covered (I don't need a mansion) I would probably take a similar approach to investing in people. They are more valuable to me.
Yes, boost the lives of already rich people instead of figuring out where that money could do real good. And he gets reinforced for it by getting a news article.
I would hardly call earning 48k "rich" in the US. Sure, the same money could buy education for lots of bolivian children, but do we really have to point out a "more noble cause" any time somebody tries to do some good?
Notably, the article focuses almost entirely on #2, but doesn't really try to claim that this is a strong business move.
I have really mixed feelings on this. Too many businesses are all about profits and have forgotten the critical human need for compassion.
But what are the consequences of one business offering way above market salary for a given position? What happens if a better man for the job shows up? At such a market premium, the business could reasonably hire the slightly better person and terminate the other person, but then this is hardly "compassionate."
And will employees remain with the company even if they're no longer in love with their job because the salary is substantially higher than a comparable position elsewhere? Does this serve or hurt the company?
I'm not really criticizing or supporting this move. I'm just really curious how it will play out.