Tuesday, August 4, 2015

Seattle CEO Raises Minimum Pay: Loses Employees

CEO Dan Price (YouTube)

Surpassing the forced minimum wage hike of the Seattle, Washington City Council, Gravity Payments CEO Dan Price went further and offered a $70,000 minimum salary for his entry level employees. Many celebrated this measure, in line with the rest of the liberal enclave’s progressive agenda that forced wage hikes all around will improve the economic conditions of all.

Business Insider reported on one of the employee’s joy:

One employee told him the raise would allow him to fly his mom out from Puerto Rico to visit him in Seattle. Another said the raise would make it possible for him to raise a family with his wife. Overnight, Price became something of a folk hero — a small-business owner taking income inequality into his own hands.

“Folk hero” brings to mind images of Robin Hood or the Highwayman, yet Price’s action is slightly more honorable, since the business owner is using his own money to pay his lower-level employees more. Much like the cheering crowds in Los Angeles who had lobbied the city council to force the wage, the Gravity Payments staff have more reason to rejoice.

But not all of them.

But in the weeks since then, it's become clear that not everyone is equally pleased. Among the critics? Some of Price's own employees.

The New York Times reports that two of Gravity Payments' "most valued" members have left the company, "spurred in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises."

In the pursuit of ending income inequality, Price’s voluntary wage hike proved to have some grave consequences. Higher paid hires received no requites wage boost. Feeling slighted by these in-house move, they chose to quit.

Two long-standing members of the company admitted that they had supported the substantial salary increases, but concerns about the cost and the effect on company morale caused them to entertain doubts about the measure:

Maisey McMaster — once a big supporter of the plan — is one of the employees that quit. McMaster, 26, joined the company five years ago, eventually working her way up to financial manager. She put in long hours that "left little time for her husband and extended family," The Times says, but she loved the "special culture" of the place.

But while she was initially on board, helping to calculate whether the company could afford to raise salaries so drastically (the plan is a minimum of $70,000 over the course of three years), McMaster later began to have doubts.

"He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump," she told The Times. A fairer plan, she told the paper, would give newer employees smaller increases, along with the chance to earn a more substantial raise with more experience.

Gravity's web developer, Grant Moran, 29, had similar concerns. While his own salary saw a bump — to $50,000, up from $41,000, in the first stage of the raise — he worried the new policy didn't reward work ethic. "Now the people who were just clocking in and out were making the same as me," he tells The Times. "It shackles high performers to less motivated team members."

He also didn't like that his salary was now so public, thanks to the media attention, and he worried that if he got used to the salary boost, he might never leave to pursue his ultimate goal of moving to a digital company. Like McMaster, Moran opted to leave.

Even for the entry-level staffers now receiving double their original salary, they have entertained different concerns:

But according to the Times, even employees who are "exhilarated by the raises" have new concerns, worrying that maybe their performances don't merit the money. (Arguably, this is evidence the increase is actually a good idea, potentially motivating people to achieve more.)

A pay increase which induces individual staff to work harder does offer a commendable argument for increasing pay. The demands to perform and achieve more do rise in turn, too, however.

Final Reflection

Seattle’s public push for higher wages has already met with unpleasant, unintended results. Restaurants are closing in larger numbers, more  youth are struggling to find work, employees who had eagerly anticipated the wage hike regret the measure, as they have lost out on a number of perks. Other employees are refusing hours, for fear of losing public benefits, like food stamps and government subsidized health care.

Now, private firms of their own free will offering higher salaries to individual employees absent any reason related to work or work ethic face similar unintended consequences.

The  economics of wage hikes in the name of social justice, progressive agenda-pushing, and fighting income inequality, whether in the public or the private sector, run against the inevitable and ultimately overpowering laws of supply and demand. Employees offer a service for which they seek a certain level of pay. Employees have to respond to the needs of the marketplace in determining wages, as do individual employees seeking the best salary.

Outside intervention, based on ardent sentiment or ideal ideologies, only disrupt this market system, and end up creating the very opposite of the conditions sought by employee and employer.

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