In April, Dan Price, CEO of the credit card payment processor Gravity Payments, announced that he will eventually raise minimum pay for all employees to at least $70,000 a year.
The move sparked not just a firestorm of media attention, but also a lawsuit from Price’s brother and co-founder Lucas, claiming that the pay raise violated his rights as a minority shareholder.
But six months later, the financial results are starting to come in: Price told Inc. Magazine that revenue is now growing at double the rate before the raises began and profits have also doubled since then.
On top of that, while it lost a few customers in the kerfuffle, the company’s customer retention rate rose from 91 to 95 percent, and only two employees quit. Two weeks after he made the initial announcement, the company was flooded with 4,500 resumes and new customer inquiries jumped from 30 a month to 2,000 a month.
The changes may not come as a surprise to Price. After an entry-level employee got angry with him in 2011 over low pay, he decided to give out 20 percent annual raises to his 120-person staff. While the raises came with a cost, profit still rose as much as the year before thanks in part to a 30-40 percent productivity increase. He decided to hand out the same raises the next year, to the same result. Before April’s announcement, the company reached $150 million in revenue, $2.2 million in profit, and had a 15 percent annual growth rate.
Now the company is in the process of instituting the larger pay increases, which immediately raised the lowest salaries to $50,000 a year and implemented $10,000 raises at the bottom each year for the next two years. Those who already earn between $50,000 and $70,000 will also get $5,000 raises.
The whole plan will cost $1.8 million. To help cover the expense, Price cut his own pay from $1.1 million to $70,000. He’s also sold all of his stocks, drained his retirement accounts, and mortgaged two properties to pour $3 million into the company. He’s vowed not to fire employees, raise prices, or cut executive pay further to make it all work.
“Most people live paycheck to paycheck,” he told Inc. “So how come I need 10 years of living expenses set aside and you don’t? That doesn’t make any sense. Having to depend on modest pay is not a bad thing. It will help me stay focused.”
Price’s big bet that significantly higher salaries will pay off is grounded in some support from economists. Two economists surveyed years of research and found that when major American companies raised pay, it increased productivity and performance, enhanced customer service, reduced turnover, and attracted better job candidates, all of which can lower costs and increase sales. One of the studies they examined found that more than half the cost of higher wages can be offset through such improvements, while other research has found that a higher minimum wage can benefit companies through improved efficiency, reduced turnover, and improved recruitment.
Yet most employers are not increasing pay. While American workers have increased their productivity over the last four decades, they haven’t gotten commensurate raises for doing so.