In 2015, Dan Price, the CEO of Seattle-based company Gravity Payments, announced that he would cut his own salary from 1.1 million dollars per year to just seventy-thousand dollars. By doing so, he raised the minimum wage of each of his 120 employees to seventy-thousand dollars as well from an average of $48,000.
Price was instantly swamped with social media attention and simultaneous praise and ridicule for his progressive policy. Attention was quickly garnered around the idea of the pay gaps within the United States. According to some estimates, the US has one of the world's largest pay gaps, with executives earning upwards of 300 times the national average. While some people applauded Price's mindset,
However, something interesting happened following the increase in wages. A productivity jump of 30-40 percent followed the initial raise of salary. Further increases in salaries drove productivity up even more. Researchers Angus Deaton and Daniel Kahneman conducted happiness research based on Price's new pricing policy and found that a person's emotional well-being is healthy when earnings are at an annual $75,000.
This only begs the question, should more companies be raising their minimum wages? In a country with one of the largest pay gaps between low-wage workers and CEO's, we need to find a sustainable balance and tackle issues with the best economic mindset.
https://www.nytimes.com/2015/04/14/business/owner-of-gravity-payments-a-credit-card-processor-is-setting-a-new-minimum-wage-70000-a-year.html
https://www.inc.com/magazine/201511/paul-keegan/does-more-pay-mean-more-growth.html
I wholeheartedly believe that the government should raise the minimum wage. Although it may hurt people at the top, at the end of the day, you can improve peoples' quality of life. With a higher salary, people can afford to buy more things and participate more in the economy, as well as do things like pay for their education, which also helps the economy.
ReplyDeleteI can't say that I agree with Dan Price on this one. Salaries are influenced by the fair market price of the labor (set by supply and demand) and human factors such as salary negotiation. While there is undoubtedly some corruption in executives getting to set their own salary, there is also immense value in some of the upper roles. Microsoft CEO Satya Nadella basically turned the entire company around, almost tripling stock price in just 5 years, easily earning his 42.9 million salary. Apple has been coasting off of Steve Jobs its entire life. Entrepreneurial talent comes at a premium.
ReplyDeleteJust as setting limits on the costs of goods generates market inefficiencies visible on the supply-and-demand charts, wage floors create inefficiencies and perverse incentives. Dan Price's flat payment structure refuses to reward employees who make outsize contributions to the company, asking them to work without the promise of a salary increase to reflect hard work. In fact, there's some evidence the pay change was in response to a lawsuit over the CEO overpaying himself. (https://www.businessinsider.com/gravity-payments-dan-price-raised-salary-to-70000-may-have-been-motivated-by-lawsuit-2015-12)