I’m referring to Dan Price, CEO of Gravity, who recently announced to all 120 employees that their pay will be increased to $70,000 over the next three years. The new minimum pay will be $70,000.
To fund this initiative Price’s own pay will be cut from $1 million to $70,000. Additional funding will come from using 75% to 80% of the company’s anticipated $2.2 million in profit this year. He plans to keep his own pay at $70,000 until the company earns back the profit it had before the new pay scale practice.
The trigger for Price was a study he read by psychologist Daniel Kahneman and economist Angus Deaton. The $70,000 figure is just below the $75,000 salary pegged in their 2010 Princeton University study as an ideal benchmark for achieving happiness
In other words, if you make less than $75,000 a year, you are constantly worried about money to the point that it affects your overall happiness. On the other hand, if you make more than that, money is no longer such a pressing concern.
Price insists this is a capitalist solution. He believes the pay raises are an investment. In theory, workers motivated by higher salaries will ultimately attract more business and handle clients better.
While the overwhelming majority of responses are positive, there are also skeptics and naysayers*:
1) Everyone is getting a ‘trophy’ even if they don’t deserve it.
2) Low-skilled workers will be paid a much higher salary than the market requires.
3) Paying everyone the same will reduce motivation and lead to decreased productivity. There’s no evidence that happy workers are productive workers.
4) Gravity will ultimately go out of business as competitors with lower cost structures will offer customers lower prices.
5) Overpaying lower skilled workers may create resentment among higher skilled employees who feel they are more valuable and therefore worth more.
Is this just a marketing gimmick? Perhaps. Will he fail? Probably --- but there is always failure at first. Is he naïve and idealistic? Most likely.
But this isn’t the only newfangled crazy scheme going on currently. Here are some others:
1) Elimination of merit pay (Lear, Netflix, Kelly Services)
2) Google’s pay raise of $10,000 to all employees
3) Ben and Jerry’s setting a pay ratio between highest and lowest paid
Why on earth are these companies, including Gravity, doing this? They aren’t located in Colorado so we can’t blame it on pot!
In my opinion one of the biggest reasons for all these new practices is the huge increase in Gen Y and Z in the workforce. They have different views of work. They will "walk away" if a company doesn't match their ideals. And those ideals include fairness, social justice and a less competitive/more collaborative/caring work environment.
I for one am pleased and excited to see traditional practices being re-examined in a business environment that has dramatically changed. Makes sense when all functions are being forced to re-examine all of their models, operations and long-held assumptions.
What do you think?
*Space doesn’t permit an in-depth discussion of how this conflicts with traditional Compensation principles.
Jacque Vilet, President of Vilet International, has over 25 years’ experience in Human Resources assisting companies with both domestic and international HR issues. The companies she has worked with include start-ups as well as major multinationals. Jacque’s expertise includes compensation, benefits, wellness, learning/development, strategic workforce planning and mergers and acquisitions. She has a B.S. and M.S. in Psychology from the University of North Texas and an MBA from Southern Methodist University. She has been a speaker at conferences in the U.S., Asia and Europe. In addition she is a regular contributor to various HR and talent management publications and conducts frequent webinars.