You probably heard the news about Gravity Payments CEO and co-owner Dan Price who has agreed to drop his salary to $70,000 from approximately $1 million and at the same time increase the salary minimum in the company to $70,000 by 2017. This means a doubling of salary for some employees. All employees making less than $70,000 will receive an immediate $5,000-per-year raise or be paid a minimum of $50,000, whichever is greater. News of this has made all the major outlets.
From all the accounts about Gravity Payments, it is a great place to work and with an owner like Price, how would anyone expect any different? Not only is it admirable for the company to share its profits with its employees, but also if properly structured, it can actually lead to more profit. Bill Abernathy’s book, “Sin of Wages” shows how.
Price hopes that his actions will result in higher or better performance, but I wouldn’t count on it. Unfortunately, a raise is soon forgotten and as the saying goes, “What have you done for me lately?” is more on the minds of employees. It would not be that people are ungrateful, and having a high salary does help employee’s personal lives, but positive reinforcement affects the behavior that is occurring when you get it. If employees are working hard when the reinforcement occurs, that behavior will increase.
Given that Price and his brother have done other things that certainly express in tangible ways that employees are really their most important asset, I would expect that they already have a high performing culture. What I don’t know is how supervisors treat employees. If you have a supervisor who uses negative reinforcement to get things done, even an increase of this magnitude will not trump day-to-day happenings in the course of doing one’s job. The data from many studiesindicates that employees do not leave companies so much as they leave immediate supervisors.
If Price had asked me, I would have suggested that he distribute the money in the form of a performance bonus rather than an increase in salary. Salaries are forever; bonuses are for current performance. Many companies run into trouble when they have a high salary cost during poor economic times, leaving executives to worry about their high cost of business. Most often, their decisions lead to laying people off to adjust to business conditions. Under a profit-indexed pay system, a lower base payroll protects the employee and the employer since the company pays well when times are good and lower when times are not so good making layoffs less likely.
My own philosophy is that companies should invest in people, and part of that is to pay as well as they can and not be guided by what they “have to pay.” As CEO, Price should be commended for operating outside the box in running the company. My only concern is about the long-term ability to continue it. From all that I have read about Galaxy Payments, senior management truly operates as though “employees are their most important asset.” While many executives say that, few actually make that a reality when making decisions about how they run the business. Long live Galaxy Payments.