Month: August 2015

Employee Pay: It’s Not All About the Money

Posted on Updated on

xJQr33C

Dan Price, CEO of Gravity Payments, recently made a grand gesture. He would raise all his 120 employees’ salaries to at least $70,000 per year, and cut his own $1 million salary in order to pay for it.

In an age when CEO’s earn on average of 475 times as much as their average employees, rising up into the tens, or even hundreds of millions of dollars per year, Price has been lauded by many for his move. It is a small victory of morals over money. There are naysayers, of course. People who say he is na├»ve, or that the plan won’t work. Some of his Gravity Payments’ clients even dropped the company, fearing the pay increase would result in higher costs for them (even though Price assured them it wouldn’t).

One group you would think are overjoyed by the idea are Gravity Payment employees. Most are, but a handful aren’t. A couple have even quit over the issue.

Their problem? They are already earning near or over the $70,000 minimum. They feel they have worked hard to get to their current salary, and believe it is unfair to give people who aren’t as hard-working, skilled or accomplished as they are a bigger raise than they are getting.

Hopefully, they can find new jobs working for Donald Trump.

The displeasure over someone else getting a bigger raise than you hits at one of the aspects of compensation planning that makes it more art than science. For many, pay is more than what puts a roof over your head and food on the table. It is a measure of your value. That’s why athletes who are already earning millions want millions more. That’s why CEO’s negotiate for more money than they could ever spend in a lifetime.

But those employees unhappy with the plan are wrong to think that their pay is directly tied to hard work. I know plenty of skilled, hard-working people who don’t earn what they are worth. I also know executives who are well paid despite a history of bad decisions and poor leadership. Choice of careers, your employer, your ability to negotiate and just plain dumb luck all play a role in how much you take home at the end of the day.

I am guessing that those who left Gravity Payments have more issues with the organization than just their pay. People rarely jump ship over money alone. If it was just about the money, why didn’t they go to the CEO and ask him for a raise? He seems like a reasonable guy who at least would be open to considering the idea.

The only problem I have with paying everyone so much higher than the market is that it can put golden handcuffs on employees. People who are unhappy in their jobs might stay because they can’t make as much money anywhere else, and so you end up with unengaged employees who feel stuck in their jobs.

This is a minor drawback, however. Price’s ethics regarding pay no doubt carry over to other parts of the organization and so this would happen to relatively few employees. Most will be more motivated, so it will be a net win.

And for those who don’t like the idea of others making as much as them, they should take Louis CK’s advice, “The only time you look in your neighbors bowl is to make sure they have enough.”