The CEO Who Didn’t Want Money
On the day of the announcement that would be heard around the world, Jose Garcia awoke without realizing anything unusual was in store. He dressed, left the run-down rental home he shared with his sister and drove to his job at the Seattle credit card processing company Gravity Payments. In the back of his mind was the worry about his pickup truck’s transmission. It was about to go, and when that happened, he knew he would have to eat beans and rice for two weeks while struggling to pay for repairs.
Single mom Alyssa O’Neal, 21, also had no idea this day would be out of the ordinary when she began her commute of some 35 miles to the same workplace. Neither did Nydelis Ortiz, 26, an underwriting analyst for Gravity Payments and a former Miss Vermont USA who grew up in low-income housing and was the first in her family to go to college.
Gravity Payments CEO Dan Price had known for some time that he would transform lives with his announcement. “I lost sleep for two weeks. That’s somebody who is terrified about what he’s going to do,” recalls Price, 31, who co-founded the privately held company at age 19 in his dorm room at Seattle Pacific University.
During one of his sleep-deprived nights, Price had written himself a five-page letter to convince himself to go ahead with it. And he did. His announcement to the assembled staff would go viral.
Standing with microphone in hand, before employees seated on benches, Price let it fly: “What I want to announce today is, effective immediately, we’re going to put a scaled policy into place, and we’re going to have a minimum $70,000 pay rate for everyone who works here.”
One female employee’s mouth formed the word, “What?” Another staffer, Phillip Akhavan, recalls the dead silence of that moment. “My jaw definitely dropped, and I never have seen so many people so speechless,” says Akhavan, a merchant relations specialist.
In the silence, Price explained the phased-in raises. “You might be making $35,000 a year right now. But everyone here will definitely be making $70,000 three years from now, and I’m super-excited about that.” Applause erupted. Smiling employees jumped to their feet in ovation, some extending their hands for celebratory high-fives with the boss.
Price astonishingly slashed his own salary from a little more than $1 million to $70,000 to help pay for the wage hikes in a move that made news as far away as South Africa and Australia. “Millionaire boss takes huge pay cut to give staff [raise],” declared an Irish Independent headline. Price also plans to use most of the company’s expected 2015 profits of $2.2 million to cover the wage increases. He is looking at ways to cut his personal expenses, too.
Before the big day, Gravity’s average salary was $48,000. Now more than half of the staff will receive raises. Eventually 30 people will see their pay double.
The Rest of the Story
So what has happened since the big announcement in April? How has it affected Price, his staff and the business?
On the day before the announcement, Gravity’s website had about 1,600 visitors. In the two days after, there were more than 300,000. Price pondered the numbers while sitting in a Seattle coffee shop. “We never in our wildest dreams imagined that we’d have that many people on our website at the same time.” Letters and emails followed. Not all of the feedback has been positive.
In the two weeks following the announcement, a whopping 7,500 résumés poured into Gravity. The higher pay attracts a lot more applicants who want the job for the money, whereas past recruits took market-rate pay because they fit the team mission and culture. That’s an unintended consequence, and from now on the company has to scrutinize applicants’ motivations more carefully.
Gravity’s business philosophy centers on charging lower fees to small businesses for processing credit card charges. Price sees standing up for small independent businesses that operate on slim margins as a matter of moral conscience. “We never really want to make screw-you money like the rest of the financial services industry,” he once said in a speech.
Gravity operates in all 50 states and ranks 35th among credit card processing companies in the U.S., according to The Nilson Report, which covers the payments industry. As an act of transparency, Gravity’s invoices state how much profit the company makes on each transaction. At least occasionally, clients are able to pass on the savings. Pop’s Pizza & Pasta in Federal Way, Wash., earned kudos from Gravity on Facebook in April for planning to pass on its $7,000 savings in annual credit card processing fees to employees in the form of raises.
Price freely admits that it’s risky setting a $70,000 minimum wage. “This risk may end up costing us everything. And I’m OK with that,” he has written. “About 75 percent of company profits will be eliminated overnight, eating up a healthy buffer we’ve created since the 2008 recession when we almost saw the company go under. However, I think this will pay off for our company multiple times over. I’ve always believed we need to do what is right, to put skin in the game, for the benefit of the greater good.”
As he explains it, “I want to do this. The issue of income inequality is incredibly close to my heart. I want to, literally, put my money where my mouth is and to be the catalyst for drastic change.”
Making Ends Meet
A conversation with a friend while hiking on rugged Mount Si near Seattle inspired Price’s idea. His friend said her monthly rent shot up a couple hundred dollars, which was too much for the wages she made working at a spa.
New apartment leases in Seattle reportedly averaged $1,405 per month as of June. Complaining about the rising cost of living in the home of Amazon and Microsoft is a usually pointless pastime among locals, even as some are forced to move because they can’t afford to live in the region. But Price took his friend’s words to heart.
“I found the majority of my colleagues are contributing over 40 percent of their monthly income to rent,” Price has written, adding that experts consider anything over 30 percent unaffordable. “When I think about all of this, I feel guilty.”
Price set $70,000 as the magic salary number because of a Princeton study on happiness. The way he interprets it, the study states that dollars earned over $75,000 annually don’t have a positive influence on happiness. But dollars earned up to that mark have a huge impact. “If I’m paying my team below that, there’s a huge gap where they could be happier, and, in turn, make their job an extension of their values, rather than a place they go to make ends meet.”
Inspired by Price’s example, Andrew Green of Fort Lauderdale, Fla.-based Green Solutions, a media manufacturing company, made local news for raising his three employees’ pay 35 to 50 percent. “So happy to see this man in Florida stepping up to the plate for his team! What an amazing guy,” Price wrote on Facebook.
If he wanted to start people talking about the gap in wages between workers and CEOs, Price succeeded. Reactions ranged widely. Rush Limbaugh decried it as “pure, unadulterated socialism, which has never worked.” A sixth-grade class at Woodbury Elementary School in Irvine, Calif., sent Price 33 handwritten letters of support, prompting the CEO to make a news-making visit to the class.
Back at Price’s alma mater, Seattle Pacific University, Provost Jeff Van Duzer was thrilled to hear of the big minimum wage: “I thought it was a very bold move on his part.” While the business school at the Christian university teaches the need to provide a fair return to employees, “I don’t know that we would’ve ever taught going to $70,000 a year,” says Van Duzer, author of Why Business Matters to God.
An Economist’s View
At the University of Washington, Ed Rice, an associate professor of finance and business economics, was more cautious. On the upside, Gravity’s minimum wage increase “will make the workers work harder, and [Price] will get some gain from that. They will feel better about him, which is a nice thing. [But] the reason you get more loyalty is their alternatives are worse. If everybody does this, the loyalty you get from paying $70,000 goes away. This is not something that scales up.”
Rice thinks it’s important that wages reflect the value of work. Suppose a clothing maker in Bangladesh paid $1 a day in wages and raised it to $200 a day to reflect U.S.-style wages. “Is that a good thing? Sounds like a good thing, doesn’t it?” he says. “What’s going to happen is all the most talented people in Bangladesh are going to show up for those sewing jobs. All of the people who would be doctors and engineers, they will be sewing clothes. Is that something you want?”
Price knew his decision would be controversial, but he didn’t anticipate all the backlash. While the publicity resulted in some new business, it also prompted criticism and canceled contracts from some longstanding clients. Some worried that Gravity would raise its fees, despite the company’s statements to the contrary, or that quality would suffer because higher-paid employees would have less incentive to provide good service, according to The New York Times.
Two longer-tenured employees reportedly resigned because they believed the lowest-skilled workers were reaping undue rewards.
Possibly more troubling, Price’s co-founder brother, Lucas Price, filed a lawsuit over longstanding differences with his brother less than two weeks after his announcement. The suit claims Dan Price had overpaid himself over the years and violated Lucas Price’s minority-shareholder rights. Dan Price has denied the allegations.
Lucas Price’s attorney told the Seattle Times that the lawsuit wasn’t directly related to his brother’s announcement, but Dan Price indicated otherwise. “I deeply regret the rift this has caused in my relationship with my brother, whom I love, and I’m hoping and praying for a quick resolution that’s positive for everybody,” Dan Price told a reporter.
Mounting legal fees were another big concern, he acknowledged, as he and company struggle to pay for raises.
A few weeks later, Dan Price spoke at a chamber of commerce event in his hometown of Nampa, Idaho. His dad, Ron Price, a business consultant and executive coach, was among those winning awards there. “My calling, my one thing,” Dan Price told the audience, is “I just want to be a small little speck of sand in a revolution where business ceases to be about financial engineering, greed and always focusing on money. And it goes back to our Idaho way of doing business, which is serving others, having a purpose.”
Best Money Ever Spent
Back at Gravity Payments, Jose Garcia, 30, thinks he may have shed tears when he called his parents, Mexican immigrants, with the news that his pay ultimately will double. He now has his own apartment closer to work and could afford to pay movers to do the heavy lifting. His $54,000 student debt is shrinking, and he is ahead on payments for the first time ever. When a tire on his truck blew out, Garcia bought a whole new set of tires without thinking about it, and he purchased a motorcycle for more reliable transportation. He also joined a gym. He reaches for fresh vegetables and fruits at the supermarket instead of cheaper processed foods. “It just hit me in the last couple of weeks that I didn’t have to think about money…. Just in general, it’s brought a peace of mind.”
When Alyssa O’Neal saw her first paycheck—which grew by about $400—“it was shocking.” She took her son out for a steak dinner. Her higher pay, which eventually will double, allows her to shovel payments into her car loan, bringing it down from three years of payments to one. O’Neal also is intent on buying an affordable suburban home while she still is 21.
Nydelis Ortiz kept her first pay stub after her $14,000 annual pay boost and realizes she’ll ultimately earn more than both of her parents combined. “If I was ever to be on Oprah, I feel that’s what it would feel like,” says Ortiz, who can attack her $40,000 in student loans and has paid off a couple of credit-card balances that grew during her prior stint as a Peace Corps volunteer in Peru. She plans to fly her parents from Vermont to Seattle for their first visit out West.
Phillip Akhavan, 29, says that with his raise, he and his wife might start a family sooner than planned and save for a home down payment.
Price, meanwhile, is adapting to a 93 percent smaller paycheck. Being one of six kids raised largely in rural Idaho, he has always tried to live debt-free and below his means. Sometimes working 16-hour days, Price is single and doesn’t have a mortgage on the house he shares with his dog, Mikey, in Seattle’s quiet Magnolia neighborhood. An investment property brings in $800 in monthly rent. For cash-flow reasons, he’s thinking about selling the house, which he bought for a little under $900,000, and is downsizing in other ways. He might move to an apartment. “I’m still trying to figure it out.”
When asked of his reaction to his first pay stub since the big change, he chuckled. “You know, um, happy. Really happy,” he says.
“It just felt like the best money that I’d ever spent in my life. Every time I see my next pay stub, it gives me a chance to ask myself: Are you happy with your decision? Are you happy with the way you spent your money? The answer is absolutely yes.”
This article appears in the October 2015 issue of SUCCESS magazine.