I'm with you, but did you read that the increase was already paid for out of profits and by reducing his own salary?

I'm not sure if he is still head of the board or what, but this is definitely a bold move. Still, $70k in Seattle is only like $52k in my lowly city of Myrtle Beach, SC. It isn't a whole lot of money for any professional salesperson, clerk, or the like to make. It will certainly be a big win for morale and one would expect, performance, and retainment/turnover.

I guess we will see.

It's only going to increase the morale of the 70 employees receiving the wage increase. I suspect it will cause some degree of resentment in the rest of the company. It also removes the incentive to improve for the lower tiers, since they have further to move up the ladder before they see an increase in pay.

Personally, I think it's a noble but foolish move.

> I suspect it will cause some degree of resentment in the rest of the company.

Why is that? While some people might be that petty, it's very possible that Gravity never hired those kinds of people in the first place.

> It also removes the incentive to improve for the lower tiers, since they have further to move up the ladder before they see an increase in pay.

Why is that? I don't think the idea here is to raise everybody's wage and then institute some kind of 30 year wage freeze. It's to establish a baseline living wage so that none of your employees need to be hustling for other opportunities just to pay their living expenses. They can focus on their work and their lives. Rewarding exceptional behavior is a small cost once that's out of that way, and I don't see why we shouldn't expect to see it here.

> Why is that? While some people might be that petty, it's very possible that Gravity never hired those kinds of people in the first place.

It may be petty for someone making several hundred thousand a year to resent someone who's market value being 30-40K being bumped up to 70K but for the vast majority of college graduates that is a slap in the face. Your giving everybody the rewards they worked their asses off for. I don't consider that petty, I consider that basic human disposition. Especially in a place like a credit card payment processor. I doubt many people working there go home and take pride in telling their family and friends about the work they did that day and how its making the world a better place. The majority of them are probably working for the paycheck.

Now don't get me wrong. I do admire the guy for what he is doing. Its a great selfless act. But I'm just saying its completely reasonable and understandable for those employees who where currently making ~ 70K to feel resentment and it does not make the petty or bad people. I would hope they thought this side effect through and have plans to deal with it. Since its not going to just be one or two bad apples but the vast majority of people in that position.

A good chunk of college graduates will never see that kind of pay. If you think people only go to college to make more money, you need to think again. Many careers for college graduates pay below average, and people knowingly still go for them.

E.g. in the UK a prime example is law school. The average pay for a UK solicitor is well below the national median salary.

>While some people might be that petty, it's very possible that Gravity never hired those kinds of people in the first place.

Yes, that petty university graduate with thousands of dollars of debt and many years invested in his craft should just be a better person.

Until the world is a very different place, return on investment is a huge factor in people's career.

If I was running a company, anyone who was resentful of the lowest paid workers getting a raise, I'd be more than happy to pay them to leave.

Mankind is foolish and often rewarded for it. I don't yet know how I'd feel about my company abruptly deciding to do the right thing on wages. It's hypothetical though, since I'm with a small outfit that has few if any sub-$70k staff. Not sure if HR and exec assistants are making quite that.

Yeah, I was thinking something similar.

All those who had to go through a lot of effort to get a job requiring higher education, are now earning the same as those who put less effort. They're certainly not going to by happy about this.

I don't think so. If they were happy enough not to quit before, they are even happier now.

In fact, they might be so happy with their job that they want to improve so they aren't replaced with the better candidates the job is going to attract now that it is paying much more.

As I noted below, I have no problems with him cutting his salary. Those profits stop being profits though and are now expenses. If revenue comes downs little bit they are losing money.

Personally I think it would make more sense to raise salaries by whatever he wants to cut his salary, and then add some profit sharing in as opposed to just removing all the profit and adding significant risk to the business.

My understanding is that he is using this years profit to fund the expense of the three year plan, not 80% of the profit EVERY year.

And then, after three years, hopefully the ROI on this will be quite high, and then at that point, yes it becomes an expense.

How do you define "the value they provide the company"?

It appears the people working at this company company are providing enough value for the company to be able to pay them this amount. If it can sustain revenues, who's to say it has to return its profit to the shareholders rather than to its employees.

[edit] removed duplicate word

That raises an interesting question. Assuming the profit levels haven't suddenly risen, if the workers are now producing enough value for the company to be able to pay them this amount now, they presumably already were producing that value.

Isn't this an implicit admission that the company was underpaying them before?

Pay should always be less than the value an employee provides otherwise there's be no profit.

Sure, but if the raises are portrayed as a question of fairness (rather than simply as a business tool to retain and attract better employees), then implicitly they're saying that the salaries weren't fair before, no?

You're assuming that the wage market is already efficient and that Gravity's employees aren't worth $70k or more.

We know that your first assumption is wrong, and I don't think any of us are in a position to know if your second assumption is wrong or not. It certainly doesn't seem unreasonable.

If you read the article, the owner is offsetting all the wage increases by reducing his salary and using existing company profit. And, I suspect he'll be able to hire/retain his best employees - which is important in a customer service centric business.

I don't understand. Their current profit this year will be $2.2m, after the CEO takes a $1m salary.

The current average salary is $48k (x70 employees == $3.36m/yr).

If the CEO drops his salary to $70k and ups everyone's salary to $70k it will be a net increase in expenses of around $600k.

Their profit of $2.2m can more than deal with an extra $600k.

I'm also assuming they're still growing and will grow a little more due to some publicity from this.

Your numbers and math are wrong.

There are 120 employees total and you're only accounting for salary paid directly to employees (good rule of thumb is employer pays an additional 25-40% of your actual salary in employer taxes/expenses).

Under your scenario (assuming the 120 employees figure from the article is correct) a jump in average salary from $48k to $70k minus the CEO's old salary results in a net increase of $1.7mm (or about 75-80% of this year's profits as the article stated).

This scenario isn't correct though, because an average salary of $70k means there are still a significant number of employees still making below $70k. A more realistic estimate is the average salary will be well north of $70k, and if we include the additional cost of payroll taxes (let's say very conservatively 10%), then we're talking about:

($80k new avg - $48k old avg) * additional 10% payroll taxes * 120 employees = ~$4.2 million in additional wages

Granted, that's over 3 years, but this is a very conservative estimate assuming 10% payroll taxes, no additional employees hired, and the new average wage will be $80k which is also very conservative.

You're right, I didn't see the 120 employee figure.

I'm going to work this out a little different though than you assumptions, given the types of jobs that are here, I don't think the average will jump a huge amount though.

The average for a callcenter employee in WA is around $30-35k. There are 70 employees that are going to receive an increase and I'm going to assume that they're all on $35k (even though there will probably be a proportion of those closer to $70k), even though this is overly conservative. Even minimum wage in Seattle now is about $32k/yr.

70x ($70k - $35k) is a net $2.45m increase in wages.

Payroll tax in WA is 5.5% on salary expenses above $800k/yr.

5.5% of the additional $2.45m is $135k.

The net increase in wages is therefore around $2.6m.

His salary will be brought down to $70k.

Their current net profit is $2.2m, the additional gain from his pay cut is around $900k.

Therefore this increase (even if done in year 1) will still have their net profit (assuming the $2.2m is before tax) at $500k. Sure, not as good as my original math, but still sustainable in a predictable business like this probably is at this stage.

Look man, your math is still off:

You are assuming too many things and you HAVE to account for the fact that the minimum wage is going to be $70k, so the minimum average wage possible is $70k (i.e. everybody is making 70k). Thus, there is a net increase of at least (70k-48k)*120 = 2.6m

This assumes everybody will be brought down to $70k salary, which we know is not going to happen.

Also, 5.5% for total payroll taxes is wayyy low. Did you include FICA/medicare/SS/unemployment insurance (federal and state)?

Sorry, that payroll tax was incorrect. WA doesn't have a payroll tax. They have an unemployment tax/insurance… and is based on how many employees have become unemployed from you. It would be pretty easy to consider this to be quite low in a company that pays above-market.

The maximum is around 5.84% But seems the average is around 1% or less.

Medicare is 1.45% from employer (the additional 0.9% on amounts of $200k don't really count here).

Social Security is 6.2%

So my total tax rate was off, but it still seems to be around 8.65%. Even less if their unemployment insurance figure is lower.

By the way, there were only 70 employees that were going to get an increase in salary. Hence my estimates of people who would be under $70k at all. I took what I thought would be the lowest figure for employees in a company like this (as well as the doubling comment in the original article) and estimated the total maximum increase at $35k to $70k (even though the actual increase will be lower).

Not that our figures are really that different in that case. My $2.45m increase versus your $2.6m. Plus an extra 8.65% tax ($220k).

You also mention that this is a highly competitive market. You're right, but it's also one that scales disproportionally compared to staffing. What do you think Stripe & PayPal in San Francisco pay their staff? I'm heavily involved in the finance sector (in AU anyway) and I can assure you that these businesses (especially in the USA) have significant margins on their average retail fees. 2.9% + 30¢ might seem like a great deal to most of everyone on here, but their top-line margins are > 30% on that, moreso for small transactions, as that 30¢ fee doesn't really exist anywhere but the gateway.

As an example (in AU), a business doing mediocre credit-card volumes of < $1m/year will be paying less than 0.4% + the Visa/Mastercard interchange fees (which is about 0.33% for the vast majority of card types… 1.023% for platinum cards).

Based on your math, there is more than enough headroom to do this then, right?

Yes?

My math was very naive (no tax impacts positive or negative) but even if he phased in the change on day one (as opposed to the 3 years he is planning on), it would move his $2.2m profit (assuming that is before tax) to $1.6m.

As the only (majority?) shareholder, wouldn't that be sufficient to live comfortably off… assuming stagnant growth?

[edit: sorry, my above comment was meant to originally be posted to the parent, rather than the comment I posted this too… if only I could reassign it!]

I'm pretty sure you folks are arguing in the same direction.

Whoops, sorry, I meant to post the above under the parent, not your reply.

Considering the tax difference between paying employees and profits, it seems like it would be even less than you are calculating.

I have no problem with him cutting his salary, but the 80% of profits won't be profits. They will now be going to expenses. If revenue is a little less, that means they are now losing money.

Well, they could apparently afford half to one-third of that by paying Price more than the "value he provided". Maybe. I don't really think they can measure that in any meaningful way, anyway. Can you?

except that workers, perhaps especially lower-wage workers, aren't typically paid based on the value they provide the company, but rather on the market rate it would cost the company to replace them with someone else.

^This.

The whole premise of making money by providing capital and hiring labour is that you do not pay according to value created/contributed, but as little as the labour market will allow.

Some people think that the invisible hand of the market will ensure that the difference approaches zero. These people often tend to believe that unions are worse than hiring right-wing thugs to bust up unions, too.