Gravity Payments

Perhaps the most striking illustration of economic inequality in this country is the pay gap between C.E.O.s and workers at their company. Gretchen Morgenson writes (Times 4/10/15) that despite federal regulations most companies fail to report this measure.

She cites an academic study that reported the C.E.O pay as a multiple of the average worker ‘s pay increased “from an average of 20 times in 1965 to 295.9 in 2013!”

Acknowledging that their estimates are imprecise, two labor economists, Dean Baker and Nicholas Buffie, have nevertheless calculated pay gaps in specific companies. They found that the Walt Disney had the widest pay gap in 2014. Their CEO received $43.7 million last year, while the median worker received $19,530, a C.E.O. worker ratio of 2,238!

Microsoft was next on the list. Their C.E.O. pay package last year was $84.3 million, 2,012 times the estimated median employee earnings of $41,900 at Microsoft.

And so it goes, down the list of enormous compensation for C.E.O.s and comparatively modest salaries for their employees. Is it any wonder public companies fail to report the C.E.O. pay ratio comparison with their workers. While efforts have been made to require them to do so, not surprisingly the rule met an avalanche of opposition.

Occasionally you read about a company that significantly increases the salary of the people who work there. The most recent example is the decision of Dan Price, the founder of Gravity Payments, a credit-card processing firm, to raise the salary of even the lowest-paid clerk to a minimum of $70,000.

A company spokesman said the salary of 30 of the 70 employees will double. The average salary at the company is $48,000 a year. So with one exception, the salaries of all the employees will increase. The exception is the salary of Dan Price who will pay for the wage increases by reducing his own salary from nearly one million to $70,000.

How many other C.E.O.s would be willing to follow suit? Clearly there aren’t many, a sad commentary on the state of capitalism in this country.

So who would have believed that Dan Price’s policy of guaranteeing each of his employees a minimum salary of $70,000 would cause the backlash it has? At least, I never imagined the controversy it has produced as described in Patricia Cohen’s article in the Times (7/31/15).

First, several long time clients withdrew their business because they didn’t agree with Price’s new policy. Others left because they anticipated a fee increase, in spite of assurances there wouldn’t be one. In addition, other companies in the Seattle area complained it made them look stingy.

Then employees started to leave because long serving staff members only received small or no raise. A few others left because of burnout, they simply didn’t much like Price or because it shackled high performers at the expense of less motivated staff.

Worst of all, Price’s older brother and Gravity co-founder filed a legal suit that threatened the company’s existence. Price simply didn’t have the money to pay the eventual legal fees. So he would had to scramble or consider borrowing heavily.

Even though the new minimum $70,000 salary plan generated many new clients, a great deal of publicity, and thousands of job applications, the effort to deal with all this was exhausting and distracting.

Price’s original goal had simply been to take a stand against income inequality in the only way he could. He had no idea of the brouhaha it would give rise to or that it would affect his personal life and financial condition so greatly.

Note: Dan Bertolini is the only other C.E.O. that I know about who has taken a somewhat similar action. I quote his example from an essay I wrote on economic inequality.

“It was a breath of fresh air to read that Mark Bertolini, Aetna’s C.E.O, announced (New Yorker, 2/2/15) that his lowest paid workers would receive a substantial raise, as well as improved medical coverage.

Even more remarkable was the reason he gave for the decision. He framed it in terms of the growing economic inequality in this country, mentioning Thomas Piketty’s influential Capital in the Twenty-First Century and that he had given a copy to each of his top executives.

Bertolini also said it wasn’t “fair” for a company as successful as Aetna for its employees to be struggling to get by, while his senior personnel were paid lavishly.

Companies are not just moneymaking machines. For the good of the social order, these are the kinds of investments we should be willing to make.

I suspect that an employee who is paid more will work harder, remain in the company longer, be absent from work less often, and, in turn, that the company’s productivity and profits will increase. Bertolini’s decision is an investment with an immediate and highly beneficial outcome for his company, as well as its many workers.