In April, Dan Price encountered both praise and skepticism as he announced his Seattle credit card processing firm, Gravity Payments, would set a minimum salary of $70,000 for employees. To do so, Price would use part of his own million-dollar-plus pay package as CEO—an idea that came to him after a friend lamented having to pay rent and student loans on her current $40,000 salary. That decision has led to some unintended consequences, as Mr. Price now says the decision cost him customers concerned with increased fees to pay for the new minimum salaries, as well as two long-time employees, who quit after newer employees received bigger salary hikes than those who had been at Gravity Payments longer. The employees, who were considered top performers at the company, also cited concerns with others not performing as well receiving the same pay.
While Gravity Payments acquired new clients following Dan Price’s announcement, The New York Times reports that those accounts won’t generate profits until next year. Meanwhile, Gravity co-founder Lucas Price (Dan’s older brother) has filed a lawsuit, contending that his brother took millions of dollars out of the company while denying him the benefits of his minority ownership. With most of his own paycheck, in addition to the last year’s $2.2 million in profits, going toward the new salary increases, Dan Price acknowledged “we don’t have a margin of error to pay those legal fees.”
Though most media attention was optimistic when the plan was first announced, the current news of Mr. Price and Gravity Payments paints a truer picture of the outcome of these salary increases. Forbes writes that “no matter how altruistic Price’s intentions, nor how unexpected the media attention was, the departure of long-tenured and more valuable employees was actually predictable.” Brian Canlis, a client of Gravity Payments, argued that the pay raise “makes it harder for the rest of us.” While Mr. Price’s plan was designed to address income inequality and the wage gap in America, it’s become a tough lesson for him that good intentions don’t change economic reality.