Q: Last year, I heard about the Seattle CEO who gave a raise to all 120 of his employees so they would make a minimum of $70,000. After that, some of his high performing employees left the company and then they were inundated with applications for employment. Now I hear that the company is struggling. What’s the story?
A: For those who don’t know, twenty something Dan Price, CEO of Gravity, was hiking in the woods with a friend who was sharing her struggle to make ends meet on her $50k a year salary, when he had an epiphany. He realized many of his valued employees at Gravity made about the same amount, and compared to what he was making as CEO (about 1.1 million), he realized that just wasn’t right. Then he announced -with great publicity- that he would cut his own salary to $70k and increase everyone’s pay to a minimum of S70k.
Why 70k? he read a social science study that found people’s happiness scores increased with income but only up to a certain point: $70k. And yes, some of the company’s high performing employees -who were already making high salaries- were not happy that all workers (regardless of contribution or workload), would be making about the same, so they quit.
At first, I thought this was an ill-advised (if well-intentioned) compensation move by an idealistic CEO looking to balance some of our economy’s very real wage inequality problems. I say ill-advised because any HR rookie would have predicted the morale problem this would create. Few things are more demoralizing to high performing employees than to see average employees (or worse, slackers!) rewarded at their same level. As humans we have an inherent antenna for what is fair, a trait we apparently share with capuchin monkeys. If you haven’t seen the “grape-and-cucumber-experiment” on Tedtalk or Youtube, you owe it to yourself to Google it.
So even if well-intentioned, the tactic was flawed. But now it’s coming to light that this was probably a combination publicity-stunt and defensive legal maneuver on the CEO’s part. For all the cynical details you can read the Dec 1, 2015 article by Karen Weise at Bloomberg.com.
And that’s the rest of the story.
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Eva Del Rio is creator of HR Box™ – tools for small businesses and startups. Send questions to Eva@evadelrio.com
