$70k Salaries Didn't 'Backfire'; Gravity Payments' Profits Have Doubled (inc.com) 500
AmiMoJo writes: In April, Dan Price, CEO of the credit card payment processor Gravity Payments, announced that he will eventually raise minimum pay for all employees to at least $70,000 a year. The move sparked not just a firestorm of media attention, but also a lawsuit from Price's brother and co-founder Lucas, claiming that the pay raise violated his rights as a minority shareholder. But six months later, the financial results are starting to come in: Price told Inc. Magazine that revenue is now growing at double the rate before the raises began and profits have also doubled since then. On top of that, while it lost a few customers in the kerfuffle, the company's customer retention rate rose from 91 to 95 percent, and only two employees quit. Two weeks after he made the initial announcement, the company was flooded with 4,500 resumes and new customer inquiries jumped from 30 a month to 2,000 a month.
In other news.... (Score:2, Insightful)
Re:In other news.... (Score:5, Insightful)
While undoubtedly true, I'd rather companies use such things for PR than what you usually find them doing.
I don't think he did this in order to get the good PR, but even if he did, he made the world a slightly better place. Good for him.
Shachar
Re:In other news.... (Score:5, Insightful)
It's pretty simple: It's his money, he can do what he likes with it; there's no governmental coercion involved, so good on him for doing it.
Now I am curious to see what would happen if every business in his town did the same thing. I'm also curious to know if he gave a similar bump in salary to those employees who were already making over $75k.
Also, yeah he was flooded with resumes: janitors, receptionists, payroll administrators... I'm pretty certain that few of them would have been for positions that normally paid way more than $75k.
Re:In other news.... (Score:5, Interesting)
This situation arose by a law passed in the early 80s that made it illegal for unions to campaign for pay raises without showing an increase in productivity. Businesses, in turn, had to pass on some of the increased earning from productivity gains. All of a sudden, we have unions and businesses on the same page, with unions responsible for their own worker productivity, and the amount of hours-per-year lost from industrial action was an order of magnitude lower than any other OECD country.
Neoliberal economics gets a lot right, but there is a flaw in its theory surrounding labour law. People are not replaceable units, and workers are "sticky", in that they have families and other commitments. This is not true for some industries (like some types of internet work), but it is mostly true. This sets up a very big power differential between businesses and workers, and a type of "prisoners dilemma" where individual businesses act in a way that is helpful to themselves but detrimental to the aggregate.
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I wondered that as well - If I made $70k as a highly skilled professional at that company, and suddenly the mail boy jumps from $35k to $70k but I remained at $70k, I'd feel pretty pissed off!
Not because I want others to make less, but because I have put a lot of time and effort and even straight-up money (via college and CE) into making myself worth what I earn. If suddenly that investmen
Re:In other news.... (Score:4, Insightful)
I like what I do, but sure as hell wouldn't put up with the more stressful parts of it if it didn't pay well - I can "like" what I do on my own time with 50% less bullshit involved, and 100% fewer empty suits at the top of the corporate food chain giving me mutually exclusive commands.
"We are an ethical, environmentally friendly company... Oh, but can you help us cheat on those pesky emissions tests?" - Said the CTO to a janitor never.
Because being a janitor can suck if you don't have the mentality for it
I can substitute in an awfully lot of low-skill-low-stress jobs for "janitor" if you prefer, I didn't mean that as a slam on janitors. And 've spent enough time in IT to know exactly how hard "generic bottom-tier office worker" busts their butt - They have Freecell open more often than Excel.
It sounds like it would be no great loss if you quit your job.
Nice ad hominem! Because anyone who would dare admit they work primarily to get a paycheck must suck at what they do, right?
Riiight...
Hey, do I have a deal for you - Come subcontract for me just because you love what you do, and I promise I'll pay you at least what the client's janitor makes. Because hey, he needs to put up with a tedious, repetitive job, while you "only" have contractually specified monetary penalties for missing a project target.
Yeah, didn't think so.
Re:In other news.... (Score:5, Insightful)
Why? This is part of the problem, it shouldnt matter. $75,000 is more than enough money to live off of almost anywhere in the country. I HATE that people expect to be raised up equally every time we try to lift the floor up a few inches for those on the bottom. It shouldnt matter what your coworker makes as long as you have enough in your bowl.
Re:In other news.... (Score:4, Insightful)
Why? This is part of the problem, it shouldnt matter. $75,000 is more than enough money to live off of almost anywhere in the country. I HATE that people expect to be raised up equally every time we try to lift the floor up a few inches for those on the bottom. It shouldnt matter what your coworker makes as long as you have enough in your bowl.
Where's my mod points when I need them? Totally agree! When someone has "scratched shit with the chickens" as my mom used to say and have lived thru what they are going thru, you tend to appreciate what the folks on the bottom of the totem pole face on a daily basis and are happy to see their lot in life improved by something such as this instead of snorting "Where's my fucking raise?". If I recall, even the higher earners got a 5K raise. Better than nothing, I say. You are already making enough money. Get over it.
Re:In other news.... (Score:5, Informative)
While that is undoubtably a factor, as TFA acknowledges, the point is that the previous reports of it being a disaster are wrong. Two people left, and they attracted a lot of new talent, and the company didn't tank. The predictions of dire woe never came true.
Re:In other news.... (Score:4, Insightful)
Re:In other news.... (Score:5, Insightful)
It's funny how quickly peoples' faith in the rationality of economic actors evaporates as soon as those actors start doing things they disagree with.
Normally purchasers of goods and services are in aggregate considered infallible when it comes to setting what prices they pay and which vendors they prefer, but when they prefer a vendor who does't hew to the party's ideological line then those purchasers are obviously all media dupes who can't decide for themselves what vendor works best for them.
Re:In other news.... (Score:4, Insightful)
What's even funnier is, macroeconomics works the same way. See Mark Blyth: everyone who's done austerity has had their GDP collapse to where their debt percentage is higher than it was when they started. If you're a country, you can only spend your way to solvency by pumping money into the economy for people to do things with, and 'invest in swiss bank accounts and offshore tax havens' DO NOT COUNT for this.
People are idiots who want a very primitive sort of moral justice, but the world doesn't actually work that way. Often the world is unjust in people's favor.
Re:In other news.... (Score:4, Interesting)
My problem with these discussions is that people on both sides talk about "spending" as if all spending is fungible. In my experience it's not. Some things are smart to spend money on, other things are stupid to spend money on; and also it's very easy to spend money stupidly on things that are unquestionably necessary. It's one thing for everyone to agree that, say, defense is an important thing to spend money on; and yet another thing to assume that all defense spending is good.
I think it's quite possible for a country spend its way to solvency -- if it spent overwhelmingly wisely. It's also possible to economize your way to bankruptcy, if you cut overwhelmingly foolishly. Of course it's also possible to economize wisely or spend yourself into a crisis. I've seen every possible combination, both in the private sector and the public sector. Private enterprises can become uncompetitive when management is unwilling to spend the money it needs to compete.
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[citation needed]
But actually, Ireland and Spain [bloombergview.com] have seen higher economic growth after austerity measures.
By which you mean have finally stopped collapsing under the impact of austerity [nytimes.com]. As Krugman points out to make assertions of success for Spain or Ireland "you need to define success way, way down".
He goes on to say:
We see an awesome slump that leaves Spain far below its pre-crisis level of output, and even further below its pre-crisis trend, followed by an upturn that, even if it continues at the current pace, will take many years to recover the lost ground. This is a vindication of policy?
Re:In other news.... (Score:5, Insightful)
Compare this:
My rational side just can't look past the "will it really work?"
with this:
You don't get a ton of resumes and customer inquiries when you're doing the same thing everyone else is doing.
There's no danger that everyone will do it because people just can't get over their conviction that "this can't possibly work." That conviction by the way doesn't stand up to rational scrutiny. It clearly *has* worked, at least in the short term. If it were to somehow become the norm it would be extremely difficult to attract workers without adhering to that norm.
Now the thing about any business strategy is that picking one that can work is a lot simpler than actually making that strategy work. You need to exploit the strategy's advantages (e.g. happy workers) and cover its disadvantages (e.g. higher unit labor costs). In this case the critical success factor is obvious: the CEO absolutely has to get unusually high productivity from his workers. If he doesn't, he's screwed.
I have seen the "expensive, but cream of the crop employees" strategy work really well, but you have to position yourself as the best of the best, from top to bottom. If you get anything less than outstanding performance at every level it won't work. Which is another reason this strategy will never become the norm. Where the leadership is weak, bottom-feeding becomes the only viable strategy.
Re:In other news.... (Score:4, Informative)
Right, because when you change one thing, everything else has to stay the same, otherwise things would get to complicated to discuss in a post like yours.
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Can't answer your first question, but the value was probably chosen because it's near the "$75K happiness number".
http://content.time.com/time/m... [time.com]
Re:In other news.... (Score:4, Informative)
The reason for $70,000 and not $70 billion is because the Princeton study he based the decision on said that making more than $75,000 didn't make people happier on a daily basis but that making less than $75,000 increase how unhappy people were.
Thus by decreasing his own salary and increasing the minimum wage at his company (but not completely eliminating the pay scale) he figured he could increase overall productivity while also being ethically responsible. It seems to have paid off.
Obviously that would differ depending on the cost of living in a region. I assume that number he quoted is specifically calculated for Seattle.
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Re:In other news.... (Score:5, Insightful)
Of course, the other part that needs to be acknowledged is that the business is profitable while paying that much. That is, the employees are producing enough value to cover their cost and turn a profit. It *IS* working right now. That indicates that while the 2nd or 3rd company doing it might not see the same sized boost, it wouldn't likely go under either.
Looking at Walmart's financials, they couldn't afford $75K, but they COULD manage at least a 20% boost all around. In other words, enough to get their employees off of food stamps.
The interesting part was the intense anger people with no connection with the company expressed. They actually took personal offense.
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because people are using it as if it's proof of something we have unwavering faith is wrong: that large increases in the minimum wage are beneficial to employers and the economy.
FTFY.
Re:In other news.... (Score:4, Insightful)
You "know" it to be wrong? The one example we have of it being tried worked beautifully. This "know", is it like we "know" that the planets can only move in perfect circles? Is it like we "know" that Negros will go mad smoking marijuana and rape white women? Or is it like we "know" that leaded gasoline is safe?
I ask because it apparently isn't "know" in the sense of we did an experiment and these are the results.
I think the AC has it right, it's know" as in unwavering faith.
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And?
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Well, yeah, they did it wrong and it went badly, go figure.
Notice that executive compensation and dividends weren't on the table for their move. My guestimate was based on taking a generally more egalitarian approach rather than giving the shirt off of someone else's back and squeezing their testicles if they object.
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The rational side says you get more motivated employees instead of indentured servants. That's gotta help out the bottom line if you're a business that deals with actual customers (probably irrelevant if you only sell to the government though). If you underpay people they will underperform. If you treat employees as fundible assets then they will behave like fungible assets.
Re:In other news.... (Score:5, Informative)
Second, the US economy is closely tied to consumer spending, so giving a raise would boost the GDP. (Figuring out what the ratio of increased wages to increased GDP would be is left as an exercise for the student.)
The tiny increases in wage rates since the recession is an important factor in explaining why the GDP is expanding so slowly now.
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Gains through productivity is *the entire point of capitalism*. Markets converge on the allocations of goods and services with the most productivity, so that the market as a whole ends up with more than it started.
If you don't believe in productivity gains, then you don't believe in capitalism.
Re:In other news.... (Score:5, Funny)
SO when you pay people... (Score:5, Interesting)
They like working for you... Who'da thunk?
So when the revolution comes and the rich bastards are being lined up for the firing squad, Gravity's CEO will be the *last* against the wall. In fact, we might even retain him because we need that kind of thinking after, to rebuild.
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I hope this revolution you're talking about is people realizing they're being lazy dumbshits. 'cause I've been working since I was 12, and I gotta tell ya, in just 18 yrs of workin', there are a lot of dumb, lazy, motherfuckers out there. They do this deliberately. If I was a business owner, I want to pay you what you're worth; just like if I was a customer, I want to buy something I can afford and what I think is valuable to me.
I am not a fan of my generation's idea of a high minimum salary. I don't earn 7
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and I gotta tell ya, in just 18 yrs of workin', there are a lot of dumb, lazy, motherfuckers out there. They do this deliberately. If I was a business owner, I want to pay you what you're
People are deliberately dumb? A business pays you what your worth and not the absolute minimum they can by any means possible?
You might want to reevaluate your own intelligence before opining on others.
Re:SO when you pay people... (Score:5, Insightful)
Yet another AC rant that misses the point, but I'll bite, if only for the benefit of the peanut gallery.
The point of this company's $70k minimum salary is an acknowledgement of the fact that every employee is valuable to the company, including the guy who cleans up your shit when you overflow the company toilet. If a position isn't vital to a business's operation, then there's no need for the position to exist. This has nothing to do with being lazy or entitled (nor is this about to become law, so don't soil yourself just yet). It's just a business owner who seems to have no interest in the usual M.O. of keeping as many employees as possible as close to poverty as possible.
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Well... he's not paying the most productive workers the same as the least.
First, many people making $70k are making it because they know certain things, but that doesn't mean they work efficiently. They're needed for those skills, but they can skate along with them, doing very little other than websurfing.
Second, where I work, most people already make over $70k. Not everyone, but a lot of people. Although it is certainly different based on where you live, $70k is a starter salary for tech here. So, it's
Re:SO when you pay people... (Score:4, Insightful)
I'm honestly not sure if that was sarcasm, but if Norway is a failure then I want to be on the losing side.
Re:SO when you pay people... (Score:5, Funny)
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Greece's problems have far less to do with socialism and far more to do with rampant corruption, fraud, and tax evasion. Seriously, good government has very little to do with size. What is important is that the government is efficiently allocating what resources it has for the common good of the people(people, not businesses and special interests).
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There are "No True Scotsmen" are there?
The claim is made that anything the least bit "socialist" must fail since everything socialist always fails. But when it is pointed out that there are numerous nations far more socialist than the U.S., with many, many "socialist" policies in practice - which are succeeding very well, then the claim is made that "they don't count 'cuz they ain't completely, totally socialist"!
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I don't think so.
I worked warehouses, fast food... when I was in high school.
For the most part, the work load was relatively equal. I didn't really stack skids any faster than the next guy. Plus you kind of have this we're all minimum wage workers mindset. I miss it to an extent.
Whereas in tech right now, paying all people 70k for example would simply not work. Work is not so evenly distributed. When shit hits the fan, everyone knows who is going to get called. Or who does a lot more of the work.
Could we ch
Re:SO when you pay people... (Score:4, Insightful)
If they are being too lazy, why pay them at all? If you are offering a reasonable wage, you should have plenty of applicants willing to work hard and jump through hoops for the job. If your pay is crap, don't be surprised if you get crappy workers. That has nothing to do with minimum wage.
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I am not a fan of my generation's idea of a high minimum salary. I don't earn 70k a year. And I certainly don't, absolutely, have to have it. 'cause I'm not buying lifted trucks, dropping $2,400 a month on a mortgage... and I didn't go to a college that would charge me $100k for the degree. In fact, I have enough money to pay off my student loans now, and I would be debt free -- completely.
You're on the right track, but still a bit naive. Here are some rough numbers for a family of two in my city:
70k - taxes = 49k
49k - health / vision / dental insurance = 45k
45k - 1 car loan = 42k
42k - single car insurance for 2 drivers = 40k
40k - moderate mortgage = 22k
22k - plan with 2 smart phones = 19.6k
19.6k - utility bill (water, gas, electricity) = 16.6k
16.6k - food = 10.4k
10.4k - gasoline = 8.8k ($30 / week)
8.8k - tv / internet / landline = 3.6k (triple play = 100 / month)
3.6k - property tax
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Re:SO when you pay people... (Score:5, Insightful)
I'll forgo the obvious "get off my lawn" jokes..
No, you don't have to buy the lifted truck. No, you don't have to buy a house (but if you do, $2400 a month is not ridiculous - especially compared with rents in that area that are more than that), but if you want to go to a four-year college, you will be paying $100,000. My state university charges $24,000 a year. For in-state students.
No, you don't have to have a smart phone, or a house with a bunch of land, or travel for vacation. You can live like a monk and be happy with the impenetrable amount of smug you have surrounding you, while your landlord fails AGAIN to fix your toilet. These things are not necessary, but they improve your quality of life. And that's really all people want, they want a salary that allows them to have a life that they enjoy outside of work.. and for there to be an "outside of work" where you won't get fired if you don't answer the phone from some idiot VP at 9PM harassing you because you're not still at work.
For so long, we've just accepted the fact that your corporate masters are living off the sweat of your brow, leaving you with little to show for it other than massive debt (which they also make money on by investing.) It's been so long that we don't recognize what an equitable work arrangement looks like anymore - the "social contract" that used to exist between a worker and his/her employer has been demonized as socialism and laziness. Wages stagnate while productivity and profits rise, and anyone that points out this fact is immediately attacked for being greedy, lazy and/or socialist.
The Millenials don't want anything that wasn't considered reasonable 40 years ago. They want a salary that they can live on, and they want to share in the success of their employer. These are not unreasonable things. Things have gotten so twisted that the dude offering this $70k minimum salary was repeatedly harassed by his peers in the business community - one of them actually said to him "If you pay your people that much, what incentive do they have to work hard?" The whole concept of getting what you pay for when you hire workers has completely fallen off the radar, because it would eat into the profits. No, these folks think that the less you pay someone, the harder they'll work. Which is bullshit. It should be the other way around, but we've all been convinced that this needs to continue so companies can be "competitive" (read: the CEO's third mistress wants another Porsche.)
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No, you don't have to buy the lifted truck. No, you don't have to buy a house (but if you do, $2400 a month is not ridiculous - especially compared with rents in that area that are more than that), but if you want to go to a four-year college, you will be paying $100,000. My state university charges $24,000 a year. For in-state students.
Is that for tuition and fees or tuition and fees PLUS housing? My state school, a top tier school, charges about 6k for tuition and fees, but 13K when you include housing and such.
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It takes 2 years to establish.
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I can attest that paying people MORE than what they're expecting (what they think they are worth) gets you hard work, dedication, quality work, and is an excellent investment. We used to have a fun game in the final interview which was more negotiations and form signing than anything. We'd tell them that we could not pay them the amount they'd requested but that we could pay them ten percent more. It is also worth relocating talent and cross-training talent. It is also worth investing in their eduction but
Chicken, meet egg. (Score:5, Insightful)
As an employee, I can just as easily say that when I've worked at jobs at which I was compensated well, knew I could be rewarded even more, and certainly didn't want to lose the position no matter what, I worked my tail off and held myself to very high standards.
When I knew that I could easily get another job at the same level of compensation, and that no matter how hard I worked it was unlikely to be rewarded with more pay, I put more of my time and energy into other avenues, like improving my skill sets and networking outside the company, so that I could transition elsewhere—as well as into simple quality of life stuff, since I knew that work wasn't going to enhance my quality of life all that much.
So you're saying employees work less well = pay them less well.
I'm saying pay them more = they'll work more and better.
Chicken and egg. Which comes first? The rewards or the pay? You make one argument. I'll make another.
Why are employees not as great as they could be? I'll go out on a limb and say it's because you're not motivating them to be as great as they could be, either through great leadership (which is rare), a great environment (slightly more common), or great compensation.
And if you get great leadership, a great environment, *and* great compensation, I'm betting you'll somehow magically find that you have the best employees on the planet, who would do almost anything for the company—and do it at a very high level.
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After the revolution, when everyone is making at least $70,000/year, gasoline will be $7.00/gallon. A modest sedan will cost $45,000. Modest started homes will start at $500,000. Rent will be around $2000/month for a dump. A four year degree will cost a calm $300,000.
Maybe by then, I'll be making a quarter mil annually. Thus starts another revolution for minimum wage to be six figures.
Re:SO when you pay people... (Score:5, Insightful)
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Education is certainly not free.
We have some of the highest taxes in the world, if not THE highest.
Re:SO when you pay people... (Score:4, Funny)
That's not the bad news either. The bad news is we didn't even get a revolution out of it.
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Welcome to the Washington, DC metro area. Oh, and it is like that in Chicago, too.
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Customer inquiries are customer-initiated cold-calls. They have nothing to do with how happy your employees are.
Exactly. They're entirely related to how well you advertise. Those numbers will fall over time unless he figures out another method of advertising that can keep the numbers up - not likely.
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Who'da thunk? Apparently damn few.
It's worked for In-N-Out for decades. (Score:5, Insightful)
It only works while he is the only one doing it and getting massive coverage. As soon as he's out of the spotlight, they're going to have to get back to competing with the rest, but now have to deal with (possibly) inflated staffing costs.
ORLY?
It's worked for the west coast burger chain In-N-Out for decades. (They're NEARLY the oldest burger drive-through-and-eat-in in existence.)
Their people are very happy, very productive, and generally give extremely good service. With no advertising besides an occasional location-ahead billboard they're constantly swamped with customers. When the rest of the burger chains were having a strike, they were business as their (excellent) usual.
They pay their line people almost half-again what the typical fast-food chain pays, plus medical, dental, and vision for both full and PART time workers. This continues up the ranks to store manager as well.
Simple, good, ingredients and fast, friendly, happy service has done it for them pretty much since burger chains existed, and the competition hasn't caught on YET.
Re:It's worked for In-N-Out for decades. (Score:4, Interesting)
Here in Seattle we have Dick's burgers which is very similar. $15+ wages. 401k 50% matching. $2,000 a year towards tuition or daycare. Paid vacation and sick leave. Paid volunteer hours.
What happens is that people take pride in their job and without constant churn they retain their institutional knowledge (yes there is knowledge on how to most efficiently work in any business). The result is increased productivity and decreased labor expenses.
They've been in business since the 70s and they still sell burgers for $1.30.
Chicken and egg issue? (Score:3)
On the other hand, might not at least some of that behavior be the result of the low pay, rather than inherent in the workers themselves?
If the companies pay the workers as if they expect them to take a hike with no company loyalty, is i
Just wait.... (Score:4, Insightful)
As soon as your 15 min of fame is over.... Let me know how it's going then.....
Re:Just wait.... (Score:4, Interesting)
It probably won't change much, do to inertia.
As long as his clients see the reward of staying with him as higher than the risk of moving to a different vendor, they will stay.
And happy employees are one factor in his favour.
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I don't think keeping customers will be his issue, nor will keeping employees. I expect similar levels of service and extremely low employee attrition.
What I do think will be a problem for him is the cost structure for labor. He's likely to be at a disadvantage because his labor costs will be somewhat higher.
It remains to be seen how all this will wash out. Right now he's getting a lot of free PR and has been able to turn that into a steady business, but over the long term, when he becomes "old news"
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Maybe. But he (and his competitors) have elasticity in their salaries. He reduced his salary and increased his employees' salaries.
While his labour costs may be higher than his competitors', his overall costs can be the same. So he can charge the same as they do.
Where this MIGHT hurt him is smoozing with other CxO's to get their business. Wearing the expensive watches and taking them to the expensive golf courses and showing off your expensive houses and expensive cars.
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I don't know how it will turn out, but it makes an interesting case study. Too ma
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Re:Just wait.... (Score:4, Funny)
"Do to inertia as you would have inertia do unto you."
Re:Just wait.... (Score:4, Insightful)
The 15 minutes are up and they were successful, didn't you even read the summary?
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So success is staying in business for 6 months? LOL, good luck with your "success" then.
Re:Just wait.... (Score:5, Insightful)
Gravity Payments was founded in 2003, so it has been in business for 12 years now. The owners have earned millions in profit for themselves over that time, growing their business from nothing into $13.1 million in 2013 annual revenue. Their growth rate is 128% over the last three years.
http://www.inc.com/magazine/201511/paul-keegan/does-more-pay-mean-more-growth.html [inc.com]
THAT is a very good definition of "success".
The Inc. article is very interesting.
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It's already been 4 months. It's old news in a sense; I had forgotten about it. His company was supposed to tank already. At least, according to Limbaugh.
Re:Just wait.... (Score:5, Interesting)
At least, according to Limbaugh.
This made me remember an old joke:
There was a cowboy and a carpetbagger riding on a train in the old west. At one stop, a beautiful lady boarded and sat across from the two of them. After a while, the salesman asked the lady, "Ma'am, would you sleep with me for ten dollars?" She paid him no attention.
After some time had passed, he asked again, "Would you have sex with me for twenty dollars?" She just stared at him, angrily. As did the cowboy.
Later, he asked, "Would you sleep with me for fifty dollars?" At this point, the cowboy stood up, drew his pistol and shot the man.
The lady addressed the cowboy, thanking him for defending her honor.
"Shucks, it wasn't that ma'am. I just didn't want some damned Yankee bidding up the price of prostitutes in Texas."
Rush Limbaugh answers to conservative business interest groups who need people like him to keep the blue collar working class entertained and distracted. Beer, football and occasionally beating the wife are all OK. But don't get any ideas about changing the economic status quo.
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Ask yourself this question: Why is there fame to be had here? Are people calling to hand them their money because they read their name on Slashdot, or are they calling because they feel they'll be treated better by a well paid employee?
If it's the latter, then even if they go bankrupt next year, that means there's a market out there that doesn't rely on soundly screwing employees.
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In increased retention rate suggests that it probably will last. If more customers are sticking with them then there must have been an improvement in quality. Otherwise it would have remained the same, or even fallen as people who tried them after reading the news realized they were crap and went somewhere else.
I don't think all of the benefits can be attributed to the free advertising.
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Well, the issue is his cost structure and remaining profitable when paying some employees beyond their market value. You are correct, he will have eliminated a lot of his labor costs due to attrition, but it still remains to be seen if this will work out in the long term and if his business will thrive in the long term without the free PR his 15 min of fame has given him.
BTW.... His little "I only get paid 70K too" idea, while true, isn't really the whole story. He is a co-owner of the business, so if
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His costs are not beyond market value, because he reduced his million dollar salary to $70K as well.
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His costs are not beyond market value, because he reduced his million dollar salary to $70K as well.
That has nothing to do with what the GP said which was paying employees beyond their market value. Now, it'll certainly help to retain those employees as they'll be hard pressed to go elsewhere since they won't be able to make the same amount; but it hurts the bottom line in the end, and if he ever IPOs the company or primary ownership (51% stake) otherwise to another party then there will be a reckoning as those new owners would take it as their responsibility to reconcile the employees with their actual m
Re:Just wait.... (Score:5, Insightful)
"BTW.... His little "I only get paid 70K too" idea, while true, isn't really the whole story. He is a co-owner of the business, so if the business makes a profit, he directly benefits from it. So don't fall for that little slight of hand. "
Fully agree on this. Business owners, in my experience, complain a lot for people that are in their situation. This is especially true of cheapskate small business owners, the ones Fox News and company round up to complain about how expensive it is to provide healthcare, pay employees, etc. This is not to say that all business owners are like this, but my experience with small business owners is that they will try to weasel out of paying for anything. All the while, they're enjoying massive tax breaks, having their company pay for all their personal expenses, etc. I find it hard to sympathize with an executive who has their loans guaranteed by their company and conveniently "forgiven" over time, or pays for gardening/security detail out of company funds.
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This theory works only for menial and robotic tasks, where a linear increase in wages can correlate with a linear increase in productivity.
If the task requires creativity or cognitive skill, rewards only work as long as you give enough money to make sure they aren't worried about money.
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The purpose of the $70K is to make the job very desirable, so that employees stay (reducing expensive turnover) and work hard (because they don't want to lose their job). Increasing it further isn't going to help, once turnover is as low as it's going to get and everybody is working hard.
From the point of view of an employer, trapping employees is good. From the point of view of the employee, it's less desirable (my wife is staying with a job she doesn't particularly like for similar reasons).
Obviously... (Score:4, Insightful)
A great deal of this good news comes almost directly from the media coverage, not the fact of the the changes to pay structure. Still, it's an interesting case and I look forward to seeing how things are going in the 2 to 5 year range after the media coverage can be removed as a factor in the organization's performance.
Re:Obviously... (Score:5, Insightful)
In a commoditized industry like CC processing, advertising could eat a massive chunk of his profit. This was brilliant. He said his fortunes would rise if it worked, fall if not.
Other companies should try it, seriously. Until it becomes old news, a major player from each industry has a window to do similarly by redirecting ad budget dollars into this type of structure.
Re: Obviously... (Score:2)
Still a drop in the bucket compared to most CC companies advertising budgets.
Impossible to tell... (Score:3)
Even after the media attention has died out, the awareness of the company has been catapulted forward in irrevocable way. No one knew who they were before, now they are known for their media attention getting pay policy, and now people actually know who they are for the business they do. So long as their service makes business sense, awareness acquired under one strategy is not that unreasonable to retain just by 'doing your job'.
Not saying it's a bad idea or can't help or that it's a good idea and can't
Oh I predict... (Score:2)
A lot of people are going to see some sort of causal link between them raising the salaries and the business soaring. And while I'm sure a big salary bump does bring a certain stability to those who previously had the lowest salaries in the company, that morale boost probably doesn't explain, by itslef, the big sales increase the company has seen. I'm guessing the inrush of clients was caused by the PR storm this has created, and any try to replicate their growth will be met with less excitement.
Get over it
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The real question is, was this the original intent of the salary bump?
I think that's a real question, but I think the more interesting question is still whether paying people more makes sense. And the answer, for these guys, is probably yes. Retention saves money, if you hire people worth a crap to begin with. Only businesses which are crap at hiring need to create a crap work environment that makes people quit.
Post hoc ergo propter hoc (Score:2, Insightful)
It is fallacy to assume that, just because revenue increased some time after this thing, it was because of this thing.
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And no, you're not sassing us in "eskimo talk"
Raises work in lower-paid jobs as well (Score:5, Informative)
Re:Raises work in lower-paid jobs as well (Score:5, Interesting)
Almost anything that increases worker retention and job satisfaction will be good for business.
So many companies have forgotten this. Including the one I now work for.
I am retiring in a few years. So to be a good employee, I hired a new college grad and spent the last 3 years training them as my replacement in a very complex semiconductor manufacturing data system.
Well, profits were good, but slightly lower than wall street expected this quarter...so they laid off my replacement (among others).
I am not going to spend my last three years here training another replacement. It takes years for a really intelligent person to learn this stuff. When I leave here there will be no one to do my job. Fuck 'em. I did what a good employee was supposed to do, in fact, had they laid me off I would have been fine. Happy even. But no, they had to screw over a bunch of young folks that should be the next wave of employees. I'm paid well, but I don't give a shit about this company any more. They don't seem to care about their future, so neither do I.
Re:Raises work in lower-paid jobs as well (Score:5, Insightful)
What he discovered quite by accident was that while the $2/day pay seemed to be favorable for the employer, it wasn't favorable for the economy overall. That is, too much of the company's income was going to the company's owners who wasted it on stupid things like gold toilet seats which don't really help the economy. A $5/day wage seemed like it would lower the company's profitability, but the boost it gave to the economy more than offset that decrease since the average worker spends a greater share of his income necessities which help the economy. Like being able to buy the cars that Ford was manufacturing. And the net effect was that his company made even more money than at $2/day.
You can see the same thing if you compare the GDP per capita of various countries. The ones with greater income inequality tend to have lower GDP per capita [visualizingeconomics.com]. This is why despite being a fiscal conservative, I've never had a problem with unions (except in government jobs where there's no fiscal counter). Their functional mechanics may not be optimal, but they serve a valuable role in the economy.
The U.S. is a stark outlier in the above graph. It has one of the highest GDP per capita, but it's been regressing in Gini coefficient for a few decades now. To me, that indicates our GDP per capita could be much higher if we could get our income distribution to be more equitable. Yes that'll mean CEOs and mutual fund managers won't be able to afford as big a superyacht. But that money in the hands of the middle class would be much more productive for the economy than cruising around enjoying the scenery while burning 10 gallons of fuel per mile. $70k as a minimum wage probably overshoots the optimal point, but we're far enough below the optimal point that I'm not surprised the dire predictions for the company didn't come true.
(And yes, I really am a fiscal conservative. What both liberals and conservatives have to realize is that they're both right. Under certain economic conditions, liberal philosophies are correct. Under other economic conditions, conservative philosophies are correct. The trick is to figure out where the transition points are and not to stick with one philosophy long after you've left the regime in the solution space where it's true. Like believing that since some regulations are good, therefore completely regulating everything to make a state-controlled economy is best. Or if that since sometimes deregulation is good, completely deregulating everything is best. Even the Henry Ford example I gave above works only up to the point where workers start to lose incentive to improve due to insufficient increase in salary from those improvements.)
Re: (Score:3)
A couple franchises of a fast food burger place in the city I live in did something similar, and actually pays a starting salary of $15/hr. They were doing this even before the rallying for that rate in fast food. The places end up packed, doing better than other near by chains. Yet the service is fast, and people there work hard to keep it clean, efficient and do anything else within reason to help customers. And that was before the newspaper wrote a blurb about their pay policy, although I don't think the newspaper changed much for their business, as most people in the area preferred them already.
That seems like a solid strategy actually. I think a lot of adults in entry level labour are very border-line workers (ie very high rates of absenteeism, low professional standards, etc), but there's also a subset of really responsible hardworking people who due to some combination of things like education and criminal records aren't able to move past entry level positions.
If you offer a solid wage premium you can get a workforce comprising of entirely of those top employees and have a very nicely operating
Well... (Score:4, Insightful)
This doesn't count because, as other Slashdot members have said, the news is a big contributor to this. Nontheless, I am very suprised no one's every run a study on this - paying employees more is cheaper in the long run because you save on training costs, you have higher morale, and you get much more quality for your money - one good worker at 80k per year can easily be worth 3 workers at 40k per year, and it also means less people to pay benefits for as well as a more tightly knit group with a smaller communication overhead.
This practice started with some assholes in suits who wanted to pad out their already bursting accounts at the expense of those they are responsible for; not because any study actually demonstrated long term cost savings by getting many cheap employees with low wages over better trained higher ones.
Short attention spans (Score:2)
I am very suprised no one's every run a study on this
It's been a century... but really? No one... like a certain automotive manufacturer in 1914... http://www.forbes.com/sites/ti... [forbes.com]
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Oh, it has definitely been studied, but like most things in economics is open to interpretation, is counter-intuitive to the MBA mantra, and most importantly subverts the employer as lord and master mindset (you know, the type that imagines being boss as telling everyone else what to do instead of seeing every customer as their boss).
Gent I know who was GM at a Taco Bell broke it down to me like this:
"You see every person here? They are a $10,000 investment I've made. They are going to cost me $10,000 in tr
Shocker - secure employees are happy employees (Score:5, Insightful)
This is what people who tout the "gig economy" and job hopping as the future don't get. There are some companies out there who will spend the time, hire the right people, and keep them for as long as possible by paying them and treating them fairly. They aren't sexy Web 2.0 startups, nor are they public companies for the most part, so you don't hear about them as much. Loyalty may be dead, but I think a lot of companies don't like the idea of churning through yet another batch of contractors/employees and would rather stay productive than retrain everyone constantly.
The flip side is that the company is now forced to be extremely careful about who they hire. Sure, it's the US and you can get rid of someone because you don't like their shirt color that day, but you invest more in each employee by paying them more. So, a model like this can't work in a massive corporation that will hire hundreds at a time, not looking too closely at their qualifications. This is a good thing though -- hiring discipline makes sure you only bring on people who are actually going to do a good job. You just have to be dilligent and prepared to get rid of the people who are clearly coasting before they cost you too much.
Personally, I'd like an environment like this. People are happier when their financial situation isn't dire and they can take care of their basic needs. Someone who isn't stressed about paying their mortgage or their other bills will be able to use those processor cycles taken up by worrying on the task at hand, which is probably what the owner had in mind. The truth is this, for every 10 crappy IT sweatshops, there are 1 or 2 decent employers who offer stable work. People who find situations like this tend to stay in them, which is good for productivity. I just wish we could get the sweatshop-to-stable ratio somewhere below 1.0 at least...
It also helps that Gravity Payments is a credit card processor -- talk about a guaranteed, never ending revenue stream from which to pay your employees.
Is company profit a good metric? (Score:2)
Take a company like Amazon, they show very little profit, and instead reinvest the money into the business. I'm not saying this company hasn't improved, but wouldn't something like average stock price over the last month compared to 6 months ago be a better indicator of how well a company is doing, assuming the hype over the move has died down?
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The problem is that, especially for public companies, long term health of the business isn't really part of the narrative. Even small businesses like startups are just trying to survive long enough to IPO or get bought so the owners can get their payday.
I think the business culture would have to change back to a point where people invested for the long term and business owners put their profits back into their businesses to fuel future growth.
basic economics (Score:3)
the owner "paid" for the increase in employee salaries by lowering his salary.
Also worth pointing out that people are making "at least" $70,000 - which implies that some (i.e. "more valuable") people are making more than $70,000. So this isn't some sort of "commune" [wikipedia.org].
Under the "nothing new under the sun" category - Henry Ford did something similar during the early days of the assembly line (1914), introducing a $5 a day minimum wage (increasing from $2.34). The problem Ford had was people hated working on an assembly line. Employees would work a relatively short time then quit. The constant hiring and training was expensive - but more than doubling the daily wage was enough to increase employee retention and actually saved the company money ...
Catching more flies with honey (Score:2)
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Leveraging assets to invest in a business is not exactly a new idea. But it will certainly be interesting to see which way the long tail points when the ripples even out.