Interview with Dan Price, Founder and CEO of Gravity Payments
While some people live at subsistence levels in spite of long and hard working hours, others are rewarded handsomely for similar tasks. Equal pay for equal work is rarely reality. A businessman in the United States refused to accept this and came up with a “crazy” idea: he renounced his million-dollar salary to pay each of his employees at least 70,000 dollars. With his announcement he unleashed a broad debate on the extent to which money is a motivating factor and whether profit as the unique corporate goal has become obsolete. We spoke with Dan Price, CEO of Gravity Payments, who is one of the keynote speakers at Zukunft Personal, the HRM Expo, in Cologne this October.
Dan, you announced in April 2015 that you are raising the company’s minimum salary to $70,000 over three years and that you are reducing your own salary — previously more than $1 million — to $70,000 to help fund the pay raises. What was the idea behind this radical change?
Since starting Gravity Payments, a series of events led me to setting a $70,000 minimum wage. When I first started out, I was only able to pay my first hire $24,000 with no health benefits. Because I had limited financial resources, it was my mission to provide the team with a world class learning experience. But, I still felt horrible about that wage. I promised myself I would do the best I could to solve that problem as soon as possible. We worked to increase our benefits, and provide additional learning and professional development opportunities. We were improving, but I didn’t feel like we were where we should be in terms of compensation.
2008 was a scary time. With the economic downturn, we almost lost the business three times. As a team, we had to work harder and longer than ever, but managed to do it without a single layoff. We not only survived, we had become more efficient. With the rebounding economy, coupled with our increased efficiency, business was better than ever. The recession had kept us from any substantial salary increases until late 2011, when a team member said something that stayed with me to this day. I got the sense that he was angry at me, so I approached him to find out what was wrong. He told me: “You’re ripping me off. You’re paying as little as you can and you’re happy about it.” I gave the logical answer: “I don’t determine your pay. Your pay is based on market data. If you have different data, please let me know. I have no intention of ripping you off.” “The data doesn’t matter,” he responded. “You brag about how financially disciplined you are, but that just translates into me not making enough money to lead a decent life.”
I thought about that conversation for three days, until I realized my colleague was right. I was determined to do something about it.
And what did you do then?
In 2012, we did a $1 per hour pay raise across-the-board. I assumed these raises would cut into our profit, but was surprised to find profit that actually went up. So we set a goal to average 15% annual raises for the next year, but ended up hitting 20% average raises! I decided to try it again in 2013. In a way, I was trying to disprove the business success of the prior year. You know what happened? In 2013, our profit went up again. We did it again in 2014. Same result. I felt proud that at Gravity, we were creating opportunity for people to succeed.
In 2015, I went on a hike with a friend near Seattle. She began talking about how her rent would be increasing by a few hundred dollars a month, and was worried how she was going to afford this. She is someone who is just as smart as me, works just as hard as I do, and had served three tours in the US military. I thought, here I am making a million dollars a year, while she’s just trying to figure out how to make ends meet. I started to consider how many people at Gravity Payments might be facing the same financial concerns. Everyone at Gravity sacrifices so much to make sure our clients are getting the best service possible. They go above and beyond the call of duty. They stay up late answering phone calls, cancel Friday night dates, and have even stayed over at a client’s business to make sure their equipment was working properly the next day. I didn’t want them to be distracted by worries of how to make ends meet.#Payroll the magic number for well-being is somewhere near $75,000 @DanPriceSeattle Click To Tweet
And how did you come to the conclusion that your employees needed exactly $70,000?
I recalled a 2010 Princeton study by Angus Deaton and Daniel Kahneman that basically states the magic number for well-being is somewhere near $75,000. A salary over that doesn’t really have an impact on your emotional health. But dollars up to $75,000 per year have a huge influence on happiness. I started crunching numbers to see if I could make the “magic number for happiness and well-being” work at Gravity Payments. I realized if I cut my own salary and used company profits, we could set a new minimum wage at $70,000 per year. To help fund the policy, I cut my salary from $1.1 million to $70,000. Now, some of our team members have a higher salary than I do.
Some people thought I was crazy when I told them my idea, but I believe this will have a positive impact not only on business, but society. I’ve always believed we need to do what is right, to put skin in the game, for the benefit of the greater good.
A team of researchers of the Harvard Business School are studying your experiment in paying workers. They are tracking Gravity’s results. Are your employees much more motivated?
The Gravity Payments team was never motivated solely by money. We’re motivated by helping community businesses accept credit card payments for less while still providing the best service and value possible. It has always been our conviction to put Gravity’s clients’ needs ahead of our own. We strive to treat them better, and more fairly, than others in our industry.
The Gravity team understands the importance of investing in long-term relationships with our clients. I’m fortunate to work with like-minded people who are passionate about emotionally connecting with our clients and doing more while asking for less.
That being said, we have seen some exciting and positive results a year after the policy went into effect. Our average team happiness rose from 8.1 to 9.0 out of 10. With a bump in salary, Gravity employees have chosen to invest more into their futures. In total, the team has increased their 401(k) contributions by 130%. The average salary has increased 50%, from $48,000 to $72,000. For more facts and figures, please visit thegravityof70k.com.Fairness in #Payroll CEO pay in America is ridiculous @DanPriceSeattle Click To Tweet
You said you cut your own salary from $1.1 million to $70,000. Was it difficult for you to adjust your lifestyle to a lower salary?
CEO pay in America is ridiculous. My salary wasn’t $1 million because I needed that much to live. I was being paid that much because that’s what it would cost to replace me as a CEO if something were to happen. I did make some cutbacks to adjust to the lower salary, although it’s more out of sensibility than necessity. For example, I rent my house on AirBNB during the summer to make extra money, and sleep in the guest room at a friend’s house.
At least in Germany the salary is kept a secret in many companies. However, things are starting to change. Some organizations are already discussing absolute payroll transparency. What advantages and disadvantages do you see in creating full transparency?
My thoughts on transparency transcend payroll. A Gallup poll in 2015 found that 68% of people are not actively engaged at work. The only way businesses can fix that is by earning the trust of their workforce. My Dad always told me that the best way to earn someone’s trust is to always be transparent and tell the truth. Businesses today need to become more transparent in general. I was recently in a debate on a TV station in America on this topic. In the beginning of the debate, 65% of the audience felt salaries should be transparent; by the end, 70% said they should be.
You pay the same for an employee with a lot of experience as for a recent graduate. Do you think this is fair?
To be clear, we don’t pay the same for all team members. We have a minimum wage, which is set so that every valued team member, regardless of their experience or background, could earn enough to live comfortably and hopefully free from financial distraction. If their car breaks down, or a tire goes flat, it is not an emergency anymore. When people aren’t worried about how they’re going to pay next month’s rent, they’re able to focus more on serving our clients. Their economic breathing room has unleashed even more productivity. Their job can be an extension of their values, rather than a place they go to make ends meet.
The reactions to your announcement were quite different. Which were the most enthusiastic and the most rejecting ones?
After I had finished making the announcement, there was an awkward silence. People really didn’t know what to think. The news didn’t sink in immediately. I was surprised. I had been thinking so much about this policy for the last three weeks, I expected everyone to reach my level of cognition instantaneously. There was just empty space. Finally, someone asked me to repeat the announcement, so I went through it all again. I wasn’t sure what was going to happen after this next iteration. After I finished there was another span of silence. After about ten seconds, a sales rep from Boise started screaming. Then everyone started screaming and clapping. The mood changed from one of awkward internalization to one of ecstasy. Everybody felt it. There were some people that later expressed unhappiness and discomfort with the decision, but in that moment, everybody was equally euphoric. It was amazing. To this day, I cannot imagine being any happier than I was that day.
Many public figures came out in support of our new policy, including Bernie Sanders, Russell Brand, and Trevor Noah. There were a few critics who said this raise will kill every employee’s drive and motivation. They said human nature would take over, the business would implode, and Gravity would forever be an example of how to destroy a company. Rush Limbaugh weighed in saying, “I hope this company is a case study in MBA programs on how socialism does not work, because it’s gonna fail.”
Frankly, those critics are half right. I appreciate the merit of what they have to say. But what those critics are doing is appealing to the part of human nature we’re moving away from. We underestimate the quiet strength inside of us that says always do the right thing and always live by your values.
Your employees have thanked you – recently they gave you a very special gift: you were given a new Tesla. Nevertheless, there have been some reports of high employee turnover in your company after you made the decision. Is this true?
Receiving a Tesla from the Gravity team was the biggest surprise of my life, and I’m very grateful. It is true that two people out of 120 decided to move on after the announcement, but in actuality, our employee turnover rate is at an all-time company low: -18.8% from our six-year average. Of course, not everyone was happy. The two employees who left didn’t like the fact that they had been at the company for some time, and people who were brand new were making the same amount. Our team is very entrepreneurial, and we adapted to the changes without sacrificing service to our merchants.
You went to court with your brother Lucas Price, who said you improperly charged Gravity Payments for personal expenses and that you worked against his interests as a minority shareholder. How has this trial been linked to your million-dollar cut?
I love my brother. For much of my life, he has been my best friend. I don’t know all of his frustrations with me and the way I run our business, but I do know some of them. He is not involved in the day-to-day operations, but I will never take for granted the incredibly valuable role he played in creating our company. I’m thankful for the court’s favorable ruling, so I can get back to investing all of my time and energy into supporting our clients, communities, and our team’s mission to change the way we think about the purpose of business.#Payroll #fairness For a fairer business world - more than 500 people support @DanPriceSeattle or are inspired Click To Tweet
Was all this worth changing your payroll policy? Would you do it again?
Absolutely. The way I normally try to make changes is with a lot of one-on-one conversations and then a lot of engagement. I try to have the whole group decide together. But this time, I did it completely differently. I basically had a top-down mandate. I think back to that moment of announcing the minimum wage to the whole company, and then celebrating the change together. It was such a fun moment for us. The salaries of our lower paid team members were a burden that had been weighing me down. All of a sudden it was lifted, and I felt free. It’s fun to have well-thought-out conversations and do things by the book, but doing something that some would call reckless, but that I knew was the right thing to do, made me really happy. It’s still the best money I’ve ever spent.
You said, you hope others will follow your lead in tackling inequality. Has anything like this already happened?
Over 500 million people from all corners of the world voiced their support and have been inspired enough to start taking bold actions of their own. We’ve seen business owners who want to follow our lead and do what they can to better the lives of their team. One of our clients, who owns a business near Seattle, was inspired to switch to Gravity Payments after hearing about the $70k minimum wage. We were able to save him over $7,000 per month on processing. Instead of keeping those savings, he decided to take that money, and some of his own profits, and give everyone in his company a raise.
Another business owner in Florida was inspired enough to assess his own situation and see what he could do for his team. He ended up giving his employees 35 to 50 percent raises across the board.
Josh Ledbetter of Ledbetter, Inc. cut his pay by 82%, brought a part-time employee to full-time, and raised the salaries of his other employees. Tony Tran of Third & Loom raised all his employee’s wages in the US and factory workers in Vietnam to $70,000. Stephan Aarstol of Tower Paddle Boards implemented a five-hour work day where he encourages his team to go out and be active in their free time. Already, there’s a small shift happening in the way business is done. My 40-year goal is to be a small speck in a revolution where business ceases to be about financial engineering and greed and starts focusing on values, serving others and alleviating problems in society.
Keynote speech by Dan Price at the exhibition Zukunft Personal:
What I Learned from my Million-Dollar Pay Cut
Wednesday, 19 October 2016, 3 to 4.15 p.m., Forum 1, Hall 2.1, Koelnmesse
About Dan Price
In 2004 at the age of 19, Dan Price co-founded Gravity Payments, a credit-card processing and financial services company. Dan’s recent decision to raise his company’s minimum salary to $70,000 has captured headlines and inspired millions around the world. In October 2015, Dan Price was sued by his brother and co-founder Lucas Price over claims that Dan received excessive compensation and that he had been working against Lucas’ interests. Dan prevailed in the case. His leadership and entrepreneurship have earned him many awards, notably Entrepreneur Magazine’s “Entrepreneur of 2014” and the 2010 SBA “National Young Entrepreneur of the Year” awarded to him by President Obama. His upcoming book, “The Force of Gravity”, dives deep into his story, with real life examples of business and life lessons learned through his unique upbringing and inspiring entrepreneurial success story.
Please find more facts and figures about the million dollar pay cut at thegravityof70k.com.