One Company’s New Minimum Wage: $70,000 a Year

[MachineGhost]

Dayum, I just may have to get off my lazy fat ass and get a real job!!!

[quote=http://www.nytimes.com/2015/04/14/busin ... -year.html]The idea began percolating, said Dan Price, the founder of Gravity Payments, after he read an article on happiness. It showed that, for people who earn less than about $70,000, extra money makes a big difference in their lives.

His idea bubbled into reality on Monday afternoon, when Mr. Price surprised his 120-person staff by announcing that he planned over the next three years to raise the salary of even the lowest-paid clerk, customer service representative and salesman to a minimum of $70,000.

“Is anyone else freaking out right now?” Mr. Price asked after the clapping and whooping died down into a few moments of stunned silence. “I’m kind of freaking out.”

If it’s a publicity stunt, it’s a costly one. Mr. Price, who started the Seattle-based credit-card payment processing firm in 2004 at the age of 19, said he would pay for the wage increases by cutting his own salary from nearly $1 million to $70,000 and using 75 to 80 percent of the company’s anticipated $2.2 million in profit this year.[/quote]

[Stewardship]

[WildAboutHarry]

Nicely done! 

[MachineGhost]

Nicely done! 

I'm not sure I get it?  Help me.  I'm stoopid.

[MachineGhost]

20th century motors is a fictional auto company from the book atlas shrugged, in the book the company decided to pay employees on a "from each according to their ability to each according to their need basis".. much like it does in the real world this economic stupidity resulted in the company's quick collapse.

We shall see.  Costco hasn't collapsed, has it?  So much of economic and politic thought is pure ideology and not battle tested.

[MachineGhost]

Costco pays their employees this way?  as a needy person who can produce little of value and has less interest in working hard, i am suddenly very interested in working there

Yep, a level pay scale from the cart pusher all the way up to the C-suite.  They save in hiring and retraining costs.  They have fierce loyalty, promote from within and always have way more job seekers than positions available.  Who wouldathunkedit!

Wall Street hates Costco, naturally.  If you can't exploit the workers and consumers, greedy lazy passive investors that do nothing but exploit their advantage in having capital are just not happy.

Remember when Ford raised wages in the middle of the Great Depression?  His reasoning was that happier employees and richer employees would stay in their jobs and have the money to buy his product.  Doh!

[Stewardship]

Yep, a level pay scale from the cart pusher all the way up to the C-suite.

I couldn't find anything to back this up.  Link?

Wall Street hates Costco, naturally.  If you can't exploit the workers and consumers, greedy lazy passive investors that do nothing but exploit their advantage in having capital are just not happy.

This sounds like liberal fantasy and anti-capitalism.  Costco's high P/E ratio compared to other retail stock indicates the opposite.

[Stewardship]

level pay scale doesn't sound like the same thing as  "according to need".
i do like the idea of paying employees (even menial labor ones) enough to keep them, and doing away with the churn and turn, method that relies on the cost of constantly training new people to preform easy tasks as being cheaper than giving better pay..  lots of company's seem to have done the math and came to the conclusion training over retaining is the way to go, there is undoubtedly a reason but i am not sure i see it..

True the business in the linked article doesn't exactly follow the 20th Century Motor model.  It's just reminiscent 

I don't object either when any business pays more than their competition.  I also don't object when a business pays less.  The market will decide who succeeds and who fails.  Costco's levels of pay seems to be working well for them, so more power to them!  That doesn't mean it works well in every case, however.

That brings us back to the business covered in the article.  It left me with some questions.  I wonder what the employees who didn't get a raise think about it?  Does the entry-level clerk make just as much as experienced college graduate now in this business?  Should they?  Why didn't this business owner decide to do across-the-board raises instead?

I would be interested to see whether this company keeps its new pay structure and how it does compared to its competition in the coming years.

[rickb]

Yep, a level pay scale from the cart pusher all the way up to the C-suite.

I couldn't find anything to back this up.  Link?

http://www.payscale.com/data-packages/c ... ortune-100

OK - not exactly level.  The CEO makes 57 times the median employee pay.  In comparison Walmart's CEO makes over 1000 times the median and Target's CEO makes nearly 600 times the median.

In this kind of context, a measly 57 times median seems like the compensation across the board is pretty "level" although "not as outrageously skewed in favor of the executives" (who, from another thread, just push paper around and don't produce anything of actual value) is perhaps a more accurate description.

[WildAboutHarry]

[quote=MangoMan]I would still like to know how small businesses are going to continue to exist, particularly when external forces prevent price increases to compensate for the additional labor costs.[/quote]

I think that was Ayn Rand's point in Atlas Shrugged.

Consumers will ultimately pay for burger flippers or they will not be buying fast-food burgers.

[Stewardship]

In this kind of context, a measly 57 times median seems like the compensation across the board is pretty "level" although "not as outrageously skewed in favor of the executives" (who, from another thread, just push paper around and don't produce anything of actual value) is perhaps a more accurate description.

Don't produce anything of actual value?  Is that really the conclusion that was reached in another thread?  Shouldn't the company's shareholders be the judge of that?

[moda0306]

I would still like to know how small businesses are going to continue to exist, particularly when external forces prevent price increases to compensate for the additional labor costs.

Even McD will be in deep doo-doo if they have to raise every burger-flipper's salary by 50% and add a huge benefits package if the workers unionize. Say good-bye to the dollar menu at every fast food joint in town.

None of this is in a vacuum.  When you increase someone's pay from $6 to, let's say, $9 per hour, you still have options:

1) Demand more productivity from employee, or
2) They're perhaps not worth the pay and should be fired.

An hour of labor is not nearly as fixed in nature or fungible as a gallon of light, sweet crude.  There is still a HUGE variable to play with... Productivity.

Also, macroeconomically, you've not only experienced an increase in the minimum wage of the poorest people in your community, but everyone else's wage is adjusting accordingly to make up for the new price floor.  For a business like McDonald's, which thrives on lower/middle-class folks coming in to buy food, this macro-economic shift could (nay, should) increase sales.  Combine that with your control of what an hour of labor truly means in terms of productive output, you could very well benefit from a minimum wage hike as an owner of a burger joint.  This is a closed system (sorta).  They behave differently than open systems when looking at monetary flows.

I'm generally not in favor of price-fixing, but minimum wage is a very different animal, because you're not really fixing a price in a rigid sense.  Your fixing a price per unit of time, which isn't the ultimate variable of market value to the owner.

[MachineGhost]

This sounds like liberal fantasy and anti-capitalism.  Costco's high P/E ratio compared to other retail stock indicates the opposite.

Where else are you going to get squeeze the profit from?  Costco has a fixed percentage pricing model above its wholesale costs.  A better question is why do secondary market shareholders deserve the lion's share of profits when they contributed nothing to the company?  It's not anti-capitalistic so much as conscious capitalism to reward the consumer members, employees and other stakeholders.  We're all consumers, but we're not all employees.  It's the consumer non-employees that tends to traditionally get the lion's share of profit in our state capitalism.  Anyway, since Costco isn't in the business of fleecing its employees, consumers or giving kickbacks to the Ivy League turds working on Wall Street so they can get their five/six figure year end bonuses, it has no need for investment banking and no need for Wall Street.  Tough titties.  Benefiting the top 1% parasites at the expense of everyone else is not true capitalism.  It's trickle down voodoo bullshit.

A high P/E ratio doesn't mean squat.  It's just one year of past earnings.  It's no substitute for valuation but is a heuristic rule of thumb that works only when grouped with others of like kind so that the winners hopefully outweighs the losers when buying them all.

[MachineGhost]

I couldn't find anything to back this up.  Link?

Use the search function as it's been discussed here before.  The average Costco wage was $17 an hour for everyone a couple of years ago.  I don't know what they do differently with the CEO, probably options.

[MachineGhost]

I'm generally not in favor of price-fixing, but minimum wage is a very different animal, because you're not really fixing a price in a rigid sense.  Your fixing a price per unit of time, which isn't the ultimate variable of market value to the owner.

Realistically, I think what will happen is the qualifications to get a $70K entry level job will increase which will inflate degree inflation even more along with dollar inflation, unless productivity increases to match match the new pay level or inflation whittles down the real value of $70K, whichever occurs first.  It's basically a question of time.  This is the only realistic and workable alternative in lieu of serious structural reform that Congress will never ever do.

I suggest training to be a robot repairer.

[Tyler]

The average Costco wage was $17 an hour for everyone a couple of years ago.  I don't know what they do differently with the CEO, probably options.

http://finance.yahoo.com/q/pr?s=COST

Last year the CEO was paid $831k and exercised $3.79mm in options. 

Personally I think wage competition (both on the low and high side) is a good thing.  That said, I'm a bit skeptical that the business in the OP will be able to make it last.  They're no Costco.  Spending 80% of your profit on increased salaries may make decent financial sense today, but in down years that may come back to bite them.  You have to be smart about these kinds of things.  Impulsiveness gets you in trouble. 

[Stewardship]

Where else are you going to get squeeze the profit from?

Opening more stores.

A better question is why do secondary market shareholders deserve the lion's share of profits when they contributed nothing to the company?

Because they're the ones taking risk.

It's not anti-capitalistic so much as conscious capitalism to reward the consumer members, employees and other stakeholders.

They are rewarded.

We're all consumers, but we're not all employees.  It's the consumer non-employees that tends to traditionally get the lion's share of profit in our state capitalism.  Anyway, since Costco isn't in the business of fleecing its employees, consumers or giving kickbacks to the Ivy League turds working on Wall Street so they can get their five/six figure year end bonuses, it has no need for investment banking and no need for Wall Street.  Tough titties.

Not quite sure what you're talking about or how its relevant.

Benefiting the top 1% parasites at the expense of everyone else is not true capitalism.  It's trickle down voodoo bullshit.

Thankfully anyone can buy Costco stock.

A high P/E ratio doesn't mean squat.  It's just one year of past earnings.  It's no substitute for valuation but is a heuristic rule of thumb that works only when grouped with others of like kind so that the winners hopefully outweighs the losers when buying them all.

A high P/E ratio means Wall Street doesn't hate Costco.

Use the search function as it's been discussed here before.  The average Costco wage was $17 an hour for everyone a couple of years ago.  I don't know what they do differently with the CEO, probably options.

Oh, when you said "a level pay scale from the cart pusher all the way up to the C-suite," I thought you meant everyone received the same wage.

[MachineGhost]

Because they're the ones taking risk.

And the non-shareholder stakeholders take no risk?  Do CEO's deserve to earn millions in salaries and options while they run the company into the ground, screwing over not just the employees, but also the shareholders?  Maybe the shareholders are taking that risk, but Costco doesn't have that issue, so maybe they deserve smaller returns because the other stakeholders aren't being paid less than their fair share?  Investors are not the only ones that take risk.  Risk is more broad and multifaceted than just dollar units.

They are rewarded.

There's no question about that; it's whether they are being rewarded in a justfiable manner or outsized.  What about the risk stakeholders are taking when dealing with a traditional dog-eat-dog corporate capitalist company?  Their losses are being socialized, as with Walmart employees.  Should not the company be more responsible rather than the government in accordance with LibertRepub ideology?  How come they don't walk the talk?

Not quite sure what you're talking about or how its relevant.

I know...  your ideology blinds you to the reality of the situation of how the world really works, especially the warts.  I'm being a bit dramatic so you realize you're missing gaping pieces in your world view.  It's very hard to integrate what you don't personally experience or empathize with, though.

Thankfully anyone can buy Costco stock.

Sure, that's all that pure capitalism is.  Owning the means of production in a democratic manner.  But this so-called strategy does not prevent the abuses in the system which succeeds in spite of the shareholders (and in some cases, the stakeholders).  Ignoring and/or sweeping the abuses under the rug will not make capitalism more fair and just for all.

A high P/E ratio means Wall Street doesn't hate Costco.

A high P/E has nothing to do with Wall Street but everything to do with accounting fiction.  12 month reported earnings divided by the current share price.  That's all it means.  Unless you want to bring up how reported earnings are manipulated bullshit to meet Wall Street expectations, but that's another topic.

Oh, when you said "a level pay scale from the cart pusher all the way up to the C-suite," I thought you meant everyone received the same wage.

They do, unless its changed.  I don't know about the CEO; never read anything about his compensation.  Makes me suspicious that corruption is slowly creeping in.

[Mountaineer]

Because they're the ones taking risk.

And the non-shareholder stakeholders take no risk?  Do CEO's deserve to earn millions in salaries and options while they run the company into the ground, screwing over not just the employees, but also the shareholders?  Maybe the shareholders are taking that risk, but Costco doesn't have that issue, so maybe they deserve smaller returns because the other stakeholders aren't being paid less than their fair share?  Investors are not the only ones that take risk.  Risk is more broad and multifaceted than just dollar units.

Good points, but I still would not want a doofus capable of only a McBurger counter clown paycheck for a CEO of any company I had a stake in.

... Fletch

[WildAboutHarry]

20th century motors is a fictional auto company

Not to pick nits, but I think 20th Century Motors was a motor company, not a car company.  That was where John Galt's magic motor was developed.

But I could be wrong.

[Libertarian666]

20th century motors is a fictional auto company

Not to pick nits, but I think 20th Century Motors was a motor company, not a car company.  That was where John Galt's magic motor was developed.

But I could be wrong.

You could be... but you're not. 

my bad... its been a while since i read the book..

[MachineGhost]

Here's the thrilling followup:

[quote=http://www.nytimes.com/2015/08/02/busin ... oared.html]What few outsiders realized, however, was how much turmoil all the hoopla was causing at the company itself. To begin with, Gravity was simply unprepared for the onslaught of emails, Facebook posts and phone calls. The attention was thrilling, but it was also exhausting and distracting. And with so many eyes focused on the firm, some hoping to witness failure, the pressure has been intense.

More troubling, a few customers, dismayed by what they viewed as a political statement, withdrew their business. Others, anticipating a fee increase — despite repeated assurances to the contrary — also left. While dozens of new clients, inspired by Mr. Price’s announcement, were signing up, those accounts will not start paying off for at least another year. To handle the flood, he has already had to hire a dozen additional employees — now at a significantly higher cost — and is struggling to figure out whether more are needed without knowing for certain how long the bonanza will last.

Two of Mr. Price’s most valued employees quit, 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. Some friends and associates in Seattle’s close-knit entrepreneurial network were also piqued that Mr. Price’s action made them look stingy in front of their own employees.

Then potentially the worst blow of all: Less than two weeks after the announcement, Mr. Price’s older brother and Gravity co-founder, Lucas Price, citing longstanding differences, filed a lawsuit that potentially threatened the company’s very existence. With legal bills quickly mounting and most of his own paycheck and last year’s $2.2 million in profits plowed into the salary increases, Dan Price said, “We don’t have a margin of error to pay those legal fees.”

As Mr. Price spoke in the Gravity conference room, he could see a handful of employees setting up beach chairs in the parking lot for an impromptu meeting. The office is in Ballard, a fast-gentrifying neighborhood of Seattle that reflects the wealth gap that Mr. Price says he wants to address. Downstairs is a yoga studio, and across the street is a coffee bar where customers can sip velvet soy lattes on Adirondack-style chairs. But around the corner, beneath the elevated roadway, a homeless woman silently appeals to drivers stopped at the red light with a cardboard sign: “Plz Help.”

In his own way, Mr. Price is trying to respond to that request.

“Income inequality has been racing in the wrong direction,” 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.”

The reaction to his salary pledge has led him to think that if his business continues to prosper, his actions could have far-reaching consequences. “The cause has expanded,” he said. “Whether I like it or not, the stakes are higher.”[/quote]

[Libertarian666]

Here's the thrilling followup:

What few outsiders realized, however, was how much turmoil all the hoopla was causing at the company itself. To begin with, Gravity was simply unprepared for the onslaught of emails, Facebook posts and phone calls. The attention was thrilling, but it was also exhausting and distracting. And with so many eyes focused on the firm, some hoping to witness failure, the pressure has been intense.

More troubling, a few customers, dismayed by what they viewed as a political statement, withdrew their business. Others, anticipating a fee increase — despite repeated assurances to the contrary — also left. While dozens of new clients, inspired by Mr. Price’s announcement, were signing up, those accounts will not start paying off for at least another year. To handle the flood, he has already had to hire a dozen additional employees — now at a significantly higher cost — and is struggling to figure out whether more are needed without knowing for certain how long the bonanza will last.

Two of Mr. Price’s most valued employees quit, 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. Some friends and associates in Seattle’s close-knit entrepreneurial network were also piqued that Mr. Price’s action made them look stingy in front of their own employees.

Then potentially the worst blow of all: Less than two weeks after the announcement, Mr. Price’s older brother and Gravity co-founder, Lucas Price, citing longstanding differences, filed a lawsuit that potentially threatened the company’s very existence. With legal bills quickly mounting and most of his own paycheck and last year’s $2.2 million in profits plowed into the salary increases, Dan Price said, “We don’t have a margin of error to pay those legal fees.”

As Mr. Price spoke in the Gravity conference room, he could see a handful of employees setting up beach chairs in the parking lot for an impromptu meeting. The office is in Ballard, a fast-gentrifying neighborhood of Seattle that reflects the wealth gap that Mr. Price says he wants to address. Downstairs is a yoga studio, and across the street is a coffee bar where customers can sip velvet soy lattes on Adirondack-style chairs. But around the corner, beneath the elevated roadway, a homeless woman silently appeals to drivers stopped at the red light with a cardboard sign: “Plz Help.”

In his own way, Mr. Price is trying to respond to that request.

“Income inequality has been racing in the wrong direction,” 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.”

The reaction to his salary pledge has led him to think that if his business continues to prosper, his actions could have far-reaching consequences. “The cause has expanded,” he said. “Whether I like it or not, the stakes are higher.”

The next step is for him to go to Washington to be in charge of the "Labor Unification Board".

[Tyler]

[quote=http://www.nytimes.com/2015/08/02/busin ... oared.html]
Two of Mr. Price’s most valued employees quit, 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.
[/quote]

The joys of unforeseen consequences. 

On a related note -- working in the deep blue Bay Area, I always found the topic of unions interesting.  The most left-leaning young tech workers would nevertheless have zero interest in unionizing.  It seems that talented people confident in their competitive skills enjoy being able to negotiate their own wage based on merit.  Go figure!

"Fair" pay means different things to different people.  The problem with explicitly catering to one group is that you're likely to alienate another.  When the ones feeling like they're getting the shaft are your best workers, you're in trouble. 

[Reub]

I know the real problem. If only that greedy owner would raise the pay another 30 grand or more everything will work itself out.