In early 2015, Dan Price (CEO of Gravity Payments) made headlines with his ground-breaking decision to cut his own wages from $1.1M down to $70,000 per year. At the same time, he instituted a new organization-wide minimum wage of $70,000 for all positions. The announcement was met with both praise and skepticism. Some analysts feared the decision would be detrimental to the organization’s profits. They speculated that the increased wages would create conflict between more skilled workers who were already making near $70,000 based on their career growth and unique skill-set. The decision to increase workers’ wages and take a more socially-conscious approach to compensation was expected to be a Business School case study for years to come. Today, if you type “Gravity Payments” into Google, the first suggested search phrase is “Is Gravity Payments still in business?”
Six years later, not only is Gravity Payments still in business, but Dan Price has revealed the impact his wage increase had on both his employees and the organization’s profits. They’ve nearly doubled the size of the workforce and grew revenue by 300%. If those were the only markers for success, then Dan Price would already be able to call the decision a win against his detractors.
But there is so much more to learn from this story.
Dan also noted that in the 6 years since he increased the minimum wage to $70,000, the number of employees who’ve had babies has grown by 10X. Additionally, 70% of his employees reported that they paid down their debt, and home ownership grew 10X as well. It turns out, when you pay employees well, they’re able to grow their families and secure assets for their future.
Additionally, their turnover dropped by 50%. The hidden cost of turnover is substantial, and Gravity Payments is reaping the financial rewards of having a steady workforce with a reduced risk of knowledge loss due to turnover. More importantly, the employees who choose to stay are more engaged (nearly double the engagement rate compared to the national average).
What’s the lesson here? Certainly, there’s a clear story here about fair wages and equitable pay, but it’s equally important to evaluate the impact a $70K minimum had on the overall well-being of the employees. The impact was truly transformative.
- These employees were not only told that they were valued, they were shown their value financially.
- The company invested in them. They were able to bring a better version of themselves to the workplace every day because they had fewer worries about paying rent, affording childcare, and buying groceries.
- They chose to stay because they saw a leader who made sacrifices to bring fair, equitable wages to all employees instead of pushing for higher profit margins.
- They felt comfortable and stable enough to invest in homes and grow their families.
And in turn, their customers are happier as well. Their customer attrition fell 25% below the national average. Happy employees make happy customers. Employers who invest in their employees keep employees who are invested in the success of the organization. A great example of this is how the employees reacted to the financial hardship the pandemic placed on Gravity Payments. By mid-March, revenue had fallen by 55%. They could have made up the financial shortfall by laying off 20% of the workforce, but Dan Price brought the challenge to the table during an all-hands meeting. By the end of the meeting, 98% of the employees volunteered to take a temporary pay cut in order to ensure no team member would be laid off.
While many speculated that the organization’s wage increase would be a case study in a financial meltdown, after 6 years it’s clear we have a lot to learn from the impact a fair wage can have on productivity, engagement, job satisfaction, turnover, and growth.