The video of Gravity Payments’ CEO Dan Price telling his 120-person company that the new minimum wage there will be $70,000 a year is priceless.
The story by this point is well known. Inspired by psychological research that suggests emotional well-being rises with income but not beyond about $75,000 a year, Price announced a policy change in April that Gravity would move the company’s lowest earners to at least $70,000 a year (the average salary there is $48,000) over the next three years.
About 70 employees received raises as a result, with 30 percent seeing their pay literally double overnight. To do this, Price said he will reduce his salary from $1 million a year to the minimum $70,000.
The video shows employees hollering and cheering. It also shows some employees with little to no emotion. Perhaps they were too stunned to cheer. Or maybe the news wasn’t happy news to them. How ironic.
In the months since Price made the policy change, Gravity has dealt with plenty of unhappy backlash — mostly because of the political nature of the move, as Price openly related it to the fight against income inequality.
While the publicity brought Gravity a lot of new business, many customers of the credit card processing firm withdrew — some because of the move’s political underpinning, and others anticipating a fee increase.
According to The New York Times, the flood of publicity forced Gravity to hire a dozen additional employees (at a significantly higher cost). What’s more, two of the company’s best employees left, citing the view that it’s unfair to double the pay of new hires while the longest-serving employees get small or no raises.
Then came the biggest blow: Two weeks after the announcement, Price’s brother and Gravity co-founder filed a lawsuit citing long-standing differences, entrapping the company’s slim $2.2 million profit last year in legal bills on top of the massive pay increase.
So what can HR learn from Gravity’s bold minimum wage boost, and, perhaps more importantly, its recoil?
The first is that, as disappointing as it is to admit, simple utopian concepts don’t always agree with the complicated economic and sociological forces of business. Price’s desire for all his employees to be happy is noble, but the way he went about it appears shortsighted.
As Steve Tobak, author and managing partner at management advisory Invisor Consulting, writes in Entrepreneur, leveling the playing field all at once promotes the wrong employee behavior. It breeds resentment and “virtually eliminates the merits of meritocracy.”
The second lesson is that major culture change cannot happen overnight.
Gravity might have considered implementing a training and development culture that provided employees the opportunity for skill-building — and thus greater earning potential — over time. Reviews on Glassdoor.com suggest Gravity doesn’t have the most robust career development. Give employees ample opportunity for development and promotion, and the salary increases won’t just end with Gravity but follow them wherever they go.
Lastly, consider the potential of hidden consequences for even the smallest policy changes. I’m sure Price thought through his wage-increase strategy, but did he expect the magnitude of the backlash?
The bigger the policy change, the slower the implementation — including its announcement — should be.
Otherwise, talent initiatives thrown up in the air too quickly are likely to come tumbling down to earth.