In what rational system of economics, other than socialism or communism, does every person get equal pay without regard to performance or position?
Here is a story of Dan Price, CEO of Gravity Payments, a credit card processing firm, located in uber-liberal Seattle, Washington. Price’s genius idea was to set Gravity Payment’s minimum wage to $70,000. To accomplish this feat, he planned a staged implementation and allegedly cut his million dollar salary to provide funding for his unusual, to say the least, initiative.
Is this a case of liberal guilt, where a 31 year-old single man finds himself earning a million dollars a year and heading a prosperous and growing company? Or is this a do-gooder who actually believes that he can overcome the dynamics of human nature to implement a solution to wealth inequality.
Reported impacts …
On employees …
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.
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.” <Source>
On business …
More troubling, a few customers, dismayed by what they viewed as a political statement, withdrew their business. Others, anticipating a fee increase — despite repeated assurances to the contrary — also left. While dozens of new clients, inspired by Mr. Price’s announcement, were signing up, those accounts will not start paying off for at least another year. To handle the flood, he has already had to hire a dozen additional employees — now at a significantly higher cost — and is struggling to figure out whether more are needed without knowing for certain how long the bonanza will last. <Source>
On his minority shareholder …
Then potentially the worst blow of all: Less than two weeks after the announcement, Mr. Price’s older brother and Gravity co-founder, Lucas Price, citing longstanding differences, filed a lawsuit that potentially threatened the company’s very existence. With legal bills quickly mounting and most of his own paycheck and last year’s $2.2 million in profits plowed into the salary increases, Dan Price said, “We don’t have a margin of error to pay those legal fees.”
Lucas, who lives in Seattle, declined to be interviewed but wrote in an email: “Dan has taken millions of dollars out of the company for himself while denying me the benefits of the ownership of my shares, and otherwise favoring his own interests as the majority shareholder over my interests.” He said his complaints predated the pay raises. <Source>
On growth …
With profits, at least in the short term, shifted to salaries, there is little left over to buy out his brother, let alone pay the legal bills or make longer-term capital improvements in the company, Dan said.
The outcome …
Seattle CEO who set firm's minimum wage to $70G says he has hit hard times
The Seattle CEO who reaped a publicity bonanza when he boosted the salaries of his employees to a minimum of $70,000 a year says he has fallen on hard times.
Dan Price, 31, tells the New York Times that things have gotten so bad he’s been forced to rent out his house.
Only three months ago Price was generating headlines—and accusations of being a socialist -- when he announced the new salary minimum for all 120 employees at his Gravity Payments credit card processing firm. Price said he was doing it, and slashing his $1 million pay package to pay for it, to address the wealth gap. <Source>
Bottom line …
What any corporation owes to society is to be a strong, growing, and prosperous enterprise that treats its employees well, pays its taxes, and supports the community. With pay and perks conditioned to performance and the needs of a competitive marketplace.
Disadvantaging the enterprise to engage in social experiments is both foolhardy and non-productive since productive people, the twenty-percent of the people who actually do eighty-percent of the work. often become disheartened and leave when a walk-on with little or no responsibilities earns a comparative salary.
I am surprised that the progressive socialist democrats who run the City of Seattle have not rushed to implement legislation giving tax breaks to those who use Dan’s company to process their credit card payments. Or hand Dan’s company social service and training grants for training the poor, the minorities, women, and the handicapped. After all, these can be productive people too.
At the very least, Dan Price has greatly improved his visibility street cred in the progressive world and should not be lacking for potential girlfriends in the near future to help console him over his self-inflicted wound.
The idea that an enlightened elite can provide equal benefits for the masses works only as long as there is money in the system. Once the money is gone, there are three reactions: a continual reduction in the standard of living where misery is shared equally; taxes are raised to the point of being confiscatory; and more totalitarian measures are implemented to both raise money and keep the productive people working on behalf of the system. And, as we have seen historically, the leadership becomes increasingly entitled and corrupt until you have tyrants and dictators ruling their fiefdoms with an iron hand. In the end, it devolves into rot, decay, and revolution – where the next generation of leaders are military men.
We are so screwed.
"The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane." -- Marcus Aurelius