Seattle Firm's Profits Double After Raising Minimum Salary To $70,000
In April, Dan Price, CEO of Seattle-based credit card payment firm Gravity Payments announced that he would raise the minimum annual pay for all the company’s employees to $70,000. The announcement put Price at the center of a media firestorm, attracting a wave of inane conservative criticism over the move to give workers a living wage. Conservatives were certain that the move spelled doom for the company. But now, six months later, the financial results are filing in and it’s clear that the move has been overwhelmingly beneficial for Gravity in spite of a lawsuit from Price’s brother and co-founder Lucas who charges that the pay raise violates his rights as a minority shareholder.
In a recent interview with Inc. Magazine, Price revealed that profits have doubled since the raise was announced and revenues have been rising at twice the previous rate. Moreover, customer retention has improved from 91% to 95%, productivity has increased by 30-40%, and the company has seen its new customer inquiries jump from 30 per month to more than 2,000 per month. The company is still in the process of instituting the pay raises, which will occur in the form of yearly pay increases of $10,000 or $5,000 from a minimum of $50,000 that all employees have been bumped to for this year, but the results so far are overwhelmingly positive.
The entire plan will cost around $1.8 million, much of which will be paid for by Price’s decision to cut his own pay from $1.1 million to $70,000, with the remainder covered by increases in productivity and sales that have already been readily apparent. In explaining his decision to cut his own pay to benefit his workers, Price told Inc. magazine, “Most people live paycheck to paycheck, 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.”
The real-world benefits of increased pay that are on display at Gravity are backed up by the work of economists. Recently, two economies surveyed years of research and dozens of studies and came to the unavoidable conclusion that raising pay increases productivity and performance, enhances customer service, reduces turnover, and attracts better job candidates, all of which serve to reduce costs and increase sales.The survey concluded that more than half of the costs of a higher wage can be offset by these benefits, while the remainder can easily come from cuts to executive pay.
In spite of the overwhelming evidence in support of raising wages, most Americans are seeing their wages stagnate, and as a result the American middle class is declining. While American workers’ productivity continues to rise, pay is no longer increasing to match, and the inflation-adjusted average income in America has actually been in decline since around 2000. Much of this can be attributed to the influence of pervasive Republican rhetoric that raising wages hurts companies and the economy in general. As with so many Republican talking points, examining the facts quickly disproves this myth. As is so often, however, Republicans ignore facts and reality to continue pressing their belief in the way they think things should work rather than bothering to find out how things actually do work. This has had tragic effects on the American middle class and hopefully many more companies can learn from the example of Gravity Payments and raise wages, which will not only improve the lives of their workers but will benefit the company tremendously as well.
