Company Sets New Minimum Wage: $70,000 a Year

A study a few years back told us that money doesn’t buy happiness, except for people earning under $75,000 a year. The conclusion of the research was that money only contributes to emotional well-being up to the point of not having to stress about money. Above that point, more makes no difference. Dan Price is the owner of Gravity Payments, a credit-card processing firm. He took that study to heart in a concrete way. Yesterday, he announced to his staff of 120 people that he will be giving raises over the next three years to bring them all up to $70,000 a year.

If it’s a publicity stunt, it’s a costly one. 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.

The paychecks of about 70 employees will grow, with 30 ultimately doubling their salaries, according to Ryan Pirkle, a company spokesman. The average salary at Gravity is $48,000 year.

Price hopes to raise his own salary again when the business becomes more profitable. But he still benefits from company profits, and presumably doesn’t have to make monthly car payments. And with employees who should be near the peak of emotional well-being, at least financially, Gravity Payments will most likely continue to do well. Read the entire story at the New York Times. -via Metafilter

(Image credit: Matthew Ryan Williams for The New York Times)

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I'm not going to claim that the 300:1 ratio is good in itself, it could certainly be moved a bit. It seems that this particular CEO was already running his company at about 12:1, so he was already far better than the 300:1 country average, and even significantly better than the 20:1 ratio recommendation. Basically, this guy is already cream of the crop when it comes to fair compensation for his workers vs himself, so there really wasn't any need for him to go all the way to 1:1. It also seems that, in order to make this work, he's decided to severely stunt the growth potential for his company for the immediate future. I hope it ends up paying off, but I am not so certain it will. The linked article seems hesitant to rubber stamp success on this venture as well.

Also, compare that 300:1 to the time of rampant monopolies back in the days of Carnegie and Rockefeller, when it was normal to have a ~10,000:1 ratio. Maybe we've been heading in the right direction for over a hundred years now, and it takes time for this sort of thing to completely sort itself out. Perhaps in another 20-50 years it'll be down to 20:1.

Now watch as people who were somehow struggling to make ends meet at ~$50k/yr somehow manage to still struggle to make ends meet at ~$70k/yr after getting expensive new car payments and more... it's like winning the lottery. The rate of bankruptcies for lotto winners is about double the average in any given year.

Perhaps he should, instead, give everyone at the company ~$60k/yr salaries and use the rest to have private financial advisers to ensure that they're spending what they do have in a responsible manner.
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Don't have to do the math. The linked article says:

The United States has one of the world’s largest pay gaps, with chief executives earning nearly 300 times what the average worker makes, according to some economists’ estimates. That is much higher than the 20-to-1 ratio recommended by Gilded Age magnates like J. Pierpont Morgan and the 20th century management visionary Peter Drucker.
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