Not Asian-related, but this story has got to be one of the more interesting business stories that I’ve seen: A Company Copes With Backlash Against the Raise That Roared. Dan Price is a young 31-year-old millionaire in Seattle who is the CEO of a payment processing company called Gravity. A few months ago, he made the decision that the lowest paid worker at his company would make a whopping $70,000 as a bare minimum. He came up with this number based on reports that happiness tended to rise until one made $75,000. He decided that he’d do his part to ensure his workers were happy. With the new system, even the lowest-paid clerk would make at least $70,000.
As it turns out, the new pricing structure backfired. Some of his top employees, angered at seeing new workers having their salaries double while more valuable employees got little to nothing, quit. Some employees didn’t like the fact that their salaries were public. Some employees resented the fact that hard workers got paid the exact same as those who simply worked to punch the clock. Some customers were angry and pulled their accounts.
I think there would be little to no issue if he set the floor at a lower number, say, $30,000. $30k is a good number for someone getting out of college, and it’s a really good number for someone without a college education. At $30k, a single young person can live quite comfortably, even in a place like Seattle. At $30k, a person can be happy with a good, solid entry-level salary and the hopes of eventually making more. This would be a good starting point towards improving one’s skill set and value to the company.
$70k kinda removes the incentive right away. If you make $70k with no college degree, $70k regardless of your contribution to the company, regardless of the effort you put into your work, there is little incentive to do better, nor is there reason to go out of your way to impress the bosses or coworkers. $70k more or less says that you’ve already made it. If you’re 22 years old, and you make $70k as a mail-room envelope-stuffer, while a human resources manager makes only slightly more, there’s little incentive to improve your skill set. If you’re the human resources manager, it’s even worse.
People like meritocracy, and most people like some inequality. If there were a chess championship and all players were declared the champion, top players wouldn’t play. Why excel in a sport where the rewards are the same regardless of your results? Such a system benefits those who perform poorly in competition, but it hurts those who have the talent and work ethic to become leaders. Similarly, if the least valuable contributors to a company makes $70k a year to start while top players make only slightly more, fewer top people will want to play.
I have nothing but kind thoughts about Mr. Price for his stand on income inequality. It takes a brave man to do what he did. To try something like this at 31 takes balls. But I can understand why his employees are angry.