
Owner of a Credit Card Processor Is Setting a New Minimum Wage: $70,000 a Year - greeneggs
http://www.nytimes.com/2015/04/14/business/owner-of-gravity-payments-a-credit-card-processor-is-setting-a-new-minimum-wage-70000-a-year.html
======
joshpadnick
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.

~~~
lotsofmangos
Well, Ford didn't do too badly.

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.

~~~
joshpadnick
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.

~~~
lotsofmangos
Ford wasn't doing it to be nice. Ford was trying to cut turnover as that was
costing him loads.

~~~
loco5niner
And likely getting better quality, harder workers in the process.

------
recondite
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.

~~~
kondro
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.

~~~
tedks
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.

~~~
logicallee
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.)

------
therealdrag0
> "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."

\-- Why would a ratio be costly to implement?

~~~
uiri
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.

~~~
obstinate
So like

    
    
        SELECT MEDIAN(salary) FROM employees
    

(That's valid Oracle.)

I mean I get that there'd need to be some adjustments to normalize salary to
yearly salary and factor in non-cash benefits, but come on.

~~~
raverbashing
But in production this takes 3 Java developers, 2 Oracle "specialists", one
year and a couple million dollars to implement.

~~~
spacemanmatt
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.

------
DigitalSea
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.

~~~
cmdkeen
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.

~~~
wwweston
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.

------
stared
"[happiness] rises with income, but only to a point. And that point turns out
to be about $75,000 a year."

It seems that there is no such limit. See the second plot from
[http://danluu.com/dunning-kruger/](http://danluu.com/dunning-kruger/), or the
original paper:
[http://www.brookings.edu/~/media/research/files/papers/2013/...](http://www.brookings.edu/~/media/research/files/papers/2013/04/subjective%20well%20being%20income/subjective%20well%20being%20income.pdf)

Just the scaling is logarithmic. However, the main conclusion remains the same
- to maximize happiness, some redistribution is good.

~~~
seunosewa
It's a unfortunate that an expensive business decision was made based on an
article that wrongly interpreted a graph.

~~~
cpncrunch
Actually, that's not the original paper, it's a different one. Here is the
original paper:

[http://www.pnas.org/content/107/38/16489.full](http://www.pnas.org/content/107/38/16489.full)

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.

------
sebastianavina
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)

~~~
e12e
~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.

~~~
bitserf
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.

~~~
e12e
> Cost of living is accordingly lower.

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.

~~~
spacemanmatt
You pay the billionaire overhead in America.

------
pjc50
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.

~~~
ptaipale
I don't think people argue against a business paying their employees more.
It's up to the owner of that business to decide.

What people argue against is legal requirements for other, or all, companies
to do the same.

~~~
spacemanmatt
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.

~~~
ptaipale
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).

[edit: typo]

------
netcan
Interesting.

A couple of thoughts:

(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.

~~~
grecy
> _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.

~~~
maxerickson
A significant confounder is that resource exports are a major fraction of the
Australian economy:

[http://www.tradingeconomics.com/australia/exports-of-
goods-a...](http://www.tradingeconomics.com/australia/exports-of-goods-and-
services-percent-of-gdp-wb-data.html)

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.

~~~
grecy
Australia has a GDP per capita of around $43,000 while the United States has a
GDP per capita of around $53,000 [1]

I suggest the United States has the better outcome to choose from, it just
chooses not to.

[1]
[http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP...](http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita)

------
clarky07
They might be less happy when they have to have layoffs because they can't
actually afford to pay people more than the value they provide the company.

~~~
chisleu
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.

I guess we will see.

~~~
ChristianGeek
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.

~~~
tannk11001
> 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.

~~~
digitalabyss
> 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.

~~~
vidarh
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.

------
pcurve
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.)

~~~
bitJericho
Spoken like a true republican.

~~~
pcurve
quite the contrary, I'm a union-supporting liberal.

~~~
bitJericho
Then I'm at a loss as to why you'd be against a fair wage.

~~~
clarky07
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.

~~~
jonah
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.)

~~~
Illotus
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.

~~~
vidarh
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.

------
chernevik
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.

------
kleer001
Looks like a good trend to me. WallMart upping it's pay, Starbucks paying for
college. Etc...

I think value added from workers not under the poverty line is a force
multiplier for business. Source? Arm Chair economics.

------
jonah
I wonder if they're considering becoming a B-Corporation.

It sounds like they're beginning to espouse the triple bottom line concept.

[http://www.bcorporation.net/](http://www.bcorporation.net/)

------
whybroke
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.

------
snksnk
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.

~~~
grrowl
> 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.

~~~
snksnk
> 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?

------
reustle
> 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?

~~~
modeless
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?

~~~
notahacker
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.

------
tropchan
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.

------
JohnLen
A great employer. Appreciate the employees. But one big question, if he ever
do this , will he feel satisfied with his income in future?

~~~
lotsofmangos
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.

~~~
meric
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.

~~~
lotsofmangos
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.

~~~
meric
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.

~~~
lotsofmangos
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.

------
nazgulnarsil
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.

~~~
j_jochem
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?

------
honksillet
Ahem... Inflation.

------
elcct
Minimum wage is in favour of big corporations because it raises barrier of
entry for the competition.

