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Is A $70,000 Minimum Wage A Good Idea?

With one company taking the plunge, should others follow?

1Dec

Gravity Payments' CEO, Dan Price, not only looks like the Messiah, he - if Jesus Christ were an entrepreneur - is seemingly as selfless as him. His decision to establish a minimum wage of $70,000 at his company became a huge hit on social media, with NBC's video covering the story now the most shared in network history.

He wasn't always so generous. Before 2013, his company ran like any other - keeping salaries high enough that they don't demotivate, but lean enough that they don't stand in the way of company profits. A feature in Inc. described how the situation came about. One of Price's employees was outside on a smoking break, visibly annoyed. The man in question - a 32-year old phone technician called Harley - was earning $35,000, a figure, which despite matching the industry average, wasn't generous. When Price approached him Harley said: 'You're ripping me off,' and that 'I know your intentions are bad. You brag about how financially disciplined you are, but that just translates into me not making enough money to lead a decent life.'

For a man who prided himself on treating his employees well, it was a hurtful, but also something of an epiphany. Soon after that, he announced that he would phase in the minimum wage scheme - reducing his own salary from $1.1 million to $70,000. As mentioned before, the story went viral, Price was featured in Forbes, found himself on the frontcover of Inc., and was generally the inspiration for a number of related stories, primarily cash-hungry CEOs taking pay cuts. The most notable was a former Yahoo executive who left her role to work for Price's company - Gravity - where she reportedly took an 80% pay cut.

It has also reignited the debate regarding salary increases. Most middle class Americans, according to Ben Casselman [http://fivethirtyeight.com/features/the-american-middle-class-hasnt-gotten-a-raise-in-15-years/], haven't had a real raise - one above inflation - for fifteen years. More than ever, people are living paycheck to paycheck, unable to buy homes or make any real investments. Businesses, young and old, are keen to keep costs at a minimum, causing wage growth to fall off almost completely. This might boost company profits, but for an economy which relies heavily on consumer expenditure, it shatters confidence. We can't buy what we can't afford. And Inc.'s Contributing Editor states: 'Weak wage growth helps explain why this long economic expansion has been so tepid.'

While the decision made Gravity an overnight sensation, it has been anything but plane sailing for Price. They became inundated with messages, an onslaught they weren't prepared for. The New York Times also reported that a few customers withdrew their services, dismayed by what they thought was a political statement. Two of the company's most valued staff also left, upset that new hires were having their salaries doubled, while they got a minimal raise. Company revenues are also down, and margins are tighter than they have ever been, with Price forced to sell his home to continue funding the business.

In the New York Times he said: 'I want to fight for the idea that if someone is intelligent, hard-working and does a good job, then they are entitled to live a middle-class lifestyle.' A principle grounded in ethics, but one which might ultimately cost Dan Price his business.

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