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Business
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Title: The Threat of Gravity Payments [The Great Bloviator himself, Rush Limbaugh, ruptured a vessel railing]
Source: Huffington Post
URL Source: http://www.huffingtonpost.com/steve ... ravity-payments_b_7106524.html
Published: Apr 21, 2015
Author: Steven Conn
Post Date: 2015-04-24 02:42:13 by A Pole
Keywords: None
Views: 6117
Comments: 44

I won't pretend that I understand what the digital company Gravity Payments actually does (in fact, I don't understand what most digital companies do) but I want to congratulate CEO Dan Price for providing us all with a useful economics lesson.

You've undoubtedly heard that Price recently decided to cut his own salary in order to help finance a radical experiment in employee pay: everyone who works for Gravity Payments, based in Seattle, will now make $70,000/year. He delivered the news to all 120 Gravity employees on April 13.

Actually, the economics lesson didn't come from Mr. Price directly. Rather, it has come from the angry, near hysterical reactions that have greeted this $70,000 piece of news. As reported in the New York Times, Sandi Krakowski, identified as "an author and Facebook marketing expert," whatever that might mean, lamented on Twitter: "His mind-set will hurt everyone." Meanwhile, Mika Brzezinski told Mr. Price on MSNBC's "Morning Joe" show that people probably think "you're a terrible manager."

And The Great Bloviator himself, Rush Limbaugh, ruptured a vessel railing against Mr. Price's move as "pure, unadulterated socialism, which," the Bloviator quickly reminded his listeners "has never worked." Never mind that Mr. Price was acting on his own as the head of a private sector company, not carrying out some government dictate.

So what, exactly, is so bad about Price's salary strategy that it has made some people so upset? Paying $70,000 across the board may or may not be good for Gravity Payment's business; that's beside the point. By implementing an egalitarian salary structure at his company Mr. Price has committed an economic heresy, and like all heretics he is being denounced by the keepers of the true faith.

The orthodoxy about what workers earn is simple: it must be rigorously hierarchical; those at the top must earn more than those at the bottom; and most importantly those hierarchical wages reflect what workers genuinely deserve because they are set by the magical, impersonal and infallible forces of the labor market.

So the fact that American CEOs now make 475 times what the average workers in those companies earn simply represents the market at work -- unavoidable, nothing you can do about it, like any other natural law at work. And if you don't like them apples, I suggest you become a CEO too.

The heresy that Dan Price has committed, therefore, is to suggest that salary structures might actually be matters of choice, that they reflect a company's priorities and not just a set of immovable economic imperatives. And once you start pulling the curtain back from the way corporations work, who knows what Oz-like things you might discover.

Like this little bit of logic bait 'n switch sitting at the center of the salary orthodoxy. We must pay astronomically high salaries to executives because they are worth it, and because Jaime Dimon would quit on the spot if his salary were reduced from $20 million/year to, say, $15 million. Big money buys big talent. As Diana Furchtgott-Roth of the right-leaning Manhattan Institute summed it up, in the labor market "you get what you pay for."

But only, apparently, in the executive suites. "Over-paying" workers in the bottom tier "may make them lazy" as some of Mr. Price's critics have charged. Here's how Patrick Rogers, Associate Professor of "strategic marketing" (as opposed to what? "unstrategic marketing" -- who invents these faux subjects??!!) at North Carolina A&T's business school put it: "The sad thing is that Mr. Price probably thinks happy workers are productive workers."

Silly Dan Price! Doesn't he get it?? Economic necessity demands that we make CEO's happy while simultaneously making cubicle workers miserable, because that's the only way to improve their productivity. The beatings will continue until morale improves! Or until those doing the beatings take a break for some well-deserved spa treatments.

Viewing workers in this way is not economic reasoning, of course; it amounts to Calvinist moralizing. In fact, most economic policies are shaped by a set of moral values more than by a set of natural facts. For at least a generation we have celebrated the rich while vilifying the poor, and we have shaped our economic policies to reflect and reinforce those attitudes.

This is what Dan Price has risked exposing and why so many of the orthodox are rooting for Gravity Payments to fail. After all, if the company does well, it will be a bit harder to ignore that charlatan behind the curtain everywhere else.

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Begin Trace Mode for Comment # 43.

#1. To: All (#0)

The Great Bloviator himself, Rush Limbaugh, ruptured a vessel railing against Mr. Price's move

Here comes the Great Guru of Knuckleheads:

[...]

"Even if the $70,000 minimum wage is a publicity stunt, it's one that will cost him big time," because he's having to slash his own salary 90% to make this happen.

And, again, he read that people's happiness increases dramatically for people when they are earning at least $70,000 a year. Now, I hope that this company in future years -- (interruption) what are you shaking your head at in there? What, you don't think it's gonna work? (interruption) Well, I know, no, he doesn't know the Thanksgiving story. He doesn't know, he obviously doesn't. He is a good liberal, and he's read that people are happy at 70 grand. What he doesn't understand is, happiness does not equal productive. Happiness equals comfort. "Seventy grand, well, I can stop working hard," is what it means.

Anyway, he's not tying this to anything other than employment. He's not tying it to performance. He's not tying it to sales. This is pure, unadulterated socialism, which has never worked. That's why I hope this company is a case study in MBA programs on how socialism does not work, because it's gonna fail. My guess is that just like when Solyndra went south, there will not be a story on Gravity Payments succumbing to gravity and going under.

Now, somebody sent me a note on this story, said, "I was reading some of the comments under this story at Facebook, and I was stunned at the vast majority of comments on Facebook who think this guy is just great and has such a big heart, and thank God there's a nice CEO left in America."

And I'm saying, "Why are people surprised? Why are you surprised that that would be a reaction in a country that's moving toward socialism? It makes all the sense in the world that people commenting on Facebook would think this is great and want to get in on it." The surprising thing to me -- I wish it were true -- would be if a whole bunch of commenters started posting reasons why this is doomed, why it can't possibly work. And remember, it's a startup. They haven't made any profit yet. It's all projected.

He's chosen $70,000 as an arbitrary salary because he read that's where people are happy. And he's gonna find out -- (laughing) -- it isn't gonna take long because once everybody figures out they're all making the same, no matter what they do, the slackers are gonna surface. Human nature. William Bradford found out during the early Pilgrim days in this country. The slackers, the first thing they do is slack off when they find out that everybody's being paid the same. And then if the guy sets up an incentive program where some people start to make more, that's the beginning of his troubles, because he has set this up as everybody's gonna be the same.

So if somebody gets a $10,000 raise everybody better or there's gonna be hell to pay. And if he ever makes more than $70,000 himself, all these people praising him to the end of the world on Twitter and Facebook are gonna come for him with the long knives, accusing him of being a hypocrite. It's probably a publicity stunt here, even though everybody involved is denying that. But the idea that people would not think this is a great thing, in this country, in this day and age, the way things are trending, particularly on social media, makes perfect sense.

[...]

Okay. Let me tell you what he's doing here. I know exactly what this guy is doing, and that's why I know exactly what's gonna happen. The key to this sound bite, "If you're a little bit below what it takes to scrape by, that can be distracting from your passion." So he's assigning the same passion to his employees that he has, but they don't make enough money. He's read that $70,000 is that liberating magic number you become happy, and he wants people to be able to focus on the work, not on they can't pay the light bill, they can't pay whatever bill. So he's gonna pay 'em 70 grand so they don't have to worry about making their payments. They have to worry about being in debt, and they can focus on their passion, which is his business.

And you can do that with one or two, but not every employee is the same. You can do that now and then, that can work for a time. But I think what the guy's doing is trying to buy love. Myself, I think the guy's trying to buy respect, trying to buy affection, that never works, by the way. Here's the next bite. Stuart Varney says, "Terrific idea. You know, I think you're an extremely generous person. You make a million dollars a year so you're gonna take a pay cut down to $70,000 a year, and you're taking some money from your profits, and you're gonna chuck it all into the big pot so that everybody makes $70,000 minimum. You're gonna take some of that profit and turn it back into salaries, not growth of the business, and you think you're gonna get a good return on your investment?"

[...]

Okay, now let me translate this for you. It's about trust and values. When you take care of people, they tend to take care of you. For a while, that will be true, for a while. Don't know for how long, depends on the individual. It's gonna be different for every employee. For a while they're all gonna appreciate it, but it isn't gonna take long before the appreciation dries up and the expectation settles in, and it doesn't take long at all for the appreciation to vanish. He's going to learn that he's not going to be the beneficiary of a lot of appreciation for a very long time. If that's what he's trying to buy.

I read about this unlimited vacation. They set up unlimited vacation time for everybody, and you were on your own, whenever you wanted to go on vacation, for however long, go do it. You know what they found? Nobody took vacation. They were afraid of being singled out as not being hardworking. They were afraid somebody else would come in, I don't know if it was at this company per se, but I've seen this in other companies where they instituted this policy of no defined vacation time, no defined sick days. Total honor system, you take your time.

You want to go on a month vacation, you do it. There weren't any limits. You need to take next two days off because you've got a sick pet, you go right ahead and do it. And they found that people took hardly any sick days, and the number of days people took for vacation fell dramatically.

Now, some said that was good. It added to productivity because people take way too much time off anyway, and they don't need that much time off, and this was good. Whatever it was that kept 'em on the job, whether it was guilt or fear that they would lose the job, somebody else would come in and do their job while they were gone and it would be demonstrated they weren't needed, whatever it was, they didn't take their vacation.

Then, of course, the human resources people started speaking out and said, "That's not fair. You are being mean to your employees. You think you're treating them well by telling 'em they're on the honor system, but look at them, they're not taking any time off and you end up running a sweatshop." So the pressure was then brought to bear to reinstitute a very specific vacation-and-sick-day policy so that people would indeed get some time off, because, left to their own devices, they wouldn't.

In other words, honor system vacation, take as much, whenever you want, just give us a couple days' notice and you're free to go. Same thing with sick days. It did not lead to more productivity. It led to people being scared. It led to people being afraid. It did not liberate people. It imprisoned them, attitudinally.

[...]

You can't spend the rest of your life appreciating somebody. It doesn't happen. Be nice if we did, but we don't. After awhile you take it for granted. After awhile it becomes an expectation and then becomes an entitlement and then it becomes not enough and then it maybe is a trick to keep us from ever having to earn a hundred. Seventy thousand is where he's heard we're gonna happy. He gave us 70 grand, that's supposed to solve all of our problems, but a year or two from now what if I want 75?

No, 70's the magic number. You're gonna have all kinds of theories abound from his own employees. Human nature is what it is. I'm just here to tell him that the mass appreciation that he hopes, that he wants, is not going to be what he remembers as the result of his little experiment.

BREAK TRANSCRIPT

RUSH: Let me give you a couple other examples of what's gonna happen to Dan Price, the CEO of this company Gravity Payments. He's paying everybody 70, the theory being that's what he heard is the number that makes everybody happy. It isn't gonna make everybody happy. Some people, 70 grand isn't gonna cut it. Since he said that the purpose is he wants people free from distraction, he's gonna have some people come to him on the sly: "I really need 80, man." And he's gonna say no, 'cause everybody's getting the same 70 and he's gonna have a disgruntled employee.

"I need that to avoid the distractions you were talking about. I need that to pay the bills that I've got."

"Sorry, man. Everybody 70, including me." Bye-bye appreciation, and hello anger, because now he wasn't being truthful. He said he's paying them this money so they would be liberated from distractions.

"Well, my distractions cost me $90,000 a year. I need $90,000 or I can't work with a spirit and free mind."

"Sorry, man, 70's it." That'll take maybe a couple weeks. But let's say that he did pay the guy 90. Let's say one employee comes to him and makes the case, "Look, man, I need 90. I know you're paying everybody 70, but I need 90," and he gives this sob story, maybe about divorce, kids, whatever. And the CEO falls for it, "Okay, okay, I'll give you 90." He thinks he's really bought some appreciation now. Nope. Next year the same guy will be back wanting another 20. It's never enough, no matter what, no appreciation, never enough.

There's always gonna be one person on his staff that's gonna be that way, because people are different. When that starts to happen, if people get wind, if he does give people more than 70 and people get wind of it, hello fallout.

[...]

http://www.rushlimbaugh.com/daily/2015/04/15/ceo_buys_short_term_love

A Pole  posted on  2015-04-24   4:28:20 ET  Reply   Untrace   Trace   Private Reply  


#2. To: A Pole (#1)

I think this is a stunt for Price who will be selling his company in short order. He's making the grunts happy while reducing his own tax liability by taking a small salary for a year or two prior to the sale so he can use income averaging in subsequent years.

Tooconservative  posted on  2015-04-24   4:47:23 ET  Reply   Untrace   Trace   Private Reply  


#3. To: TooConservative (#2)

I think this is a stunt for Price who will be selling his company in short order.

Maybe yes, maybe not. Either way I like it. Especially that Hush Bimbo is having fits.

A Pole  posted on  2015-04-24   7:18:12 ET  Reply   Untrace   Trace   Private Reply  


#4. To: A Pole (#3)

Either way I like it.

So you're fine if he gives his employees a one-time raise to $70,000 after he took a high CEO salary for years to build his own net worth and is now planning to sell the company and is using these raises as a tax avoidance strategy?

You socialist types are so gullible.

Tooconservative  posted on  2015-04-24   8:31:54 ET  Reply   Untrace   Trace   Private Reply  


#5. To: TooConservative (#4) (Edited)

So you're fine if he gives his employees a one-time raise to $70,000 after he took a high CEO salary for years to build his own net worth and is now planning to sell the company and is using these raises as a tax avoidance strategy?

You socialist types are so gullible.

Aha, so you are saying that his employees should reject this treacherous socialist offer and listen to Rush so he turns them into capitalist zombies.

But yes, I would bet that Rush's masters are frantically collecting money to buy this CEO out so bad example is eradicated.

A Pole  posted on  2015-04-24   8:39:59 ET  Reply   Untrace   Trace   Private Reply  


#11. To: A Pole (#5)

Aha, so you are saying that his employees should reject this treacherous socialist offer and listen to Rush so he turns them into capitalist zombies.

I'm saying that we'll probably see Price and his brother sell this company within a year.

You should also realize that Price, formerly paid $1M in salary for some years, is now cash-rich enough and holds other investments that he no longer needs the cash salary and is positioned to grow the company, possibly with a sale in mind.

As with the praise for phony Warren Buffet demanding that Congress raise his taxes (which he doesn't pay anyway because he structured his business that way decades ago), this is a suspicious story and more will almost certainly surface later about the full nature of this story.

Keep in mind, this supposed increase will happen over 3 years, not all at once. They said that by the end of the year, all employees will be making $50K.

Tooconservative  posted on  2015-04-24   10:46:41 ET  Reply   Untrace   Trace   Private Reply  


#28. To: TooConservative (#11)

They said that by the end of the year, all employees will be making $50K.

Which means Price has been running a sweatshop for years now as even $50K in the Seattle area is most likely below what someone keen enough to figure out gov't bennies makes unemployed.

redleghunter  posted on  2015-04-24   13:00:11 ET  Reply   Untrace   Trace   Private Reply  


#31. To: redleghunter (#28)

Which means Price has been running a sweatshop for years now as even $50K in the Seattle area is most likely below what someone keen enough to figure out gov't bennies makes unemployed.

I saw one of those salary scale websites and Price was paying phone solicitors and their managers in the $30-$40K range. They listed 8 positions like that.

So it does sound like he'd been running a sweatshop, given a fairly high cost of living in that region.

Tooconservative  posted on  2015-04-24   15:56:46 ET  Reply   Untrace   Trace   Private Reply  


#32. To: TooConservative (#31)

"and Price was paying phone solicitors and their managers in the $30-$40K range."

You can't pay telemarketers a flat salary. More than likely there's an added commission or a stairstep bonus. Plus benefits. Plus (maybe) stock options for the managers.

Now, once they're paid $70K per year, who knows how much of those added goodies are taken away.

------------------------------------------------

In support of that, here's a story on the Seattle $15. minimum wage law:

While attending an event at a SeaTac hotel last week, I met two women who receive the $15/hour minimum wage. SeaTac has implemented the new law on Jan. 1. I met the women while they were working. One was a waitress and the other was cleaning the hallway.

“Are you happy with the $15 wage?” I asked the full-time cleaning lady.

“It sounds good, but it’s not good,” the woman said.

“Why?” I asked.

“I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added.

The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay.

What else? I asked.

“I have to pay for parking,” she said.

I then asked the part-time waitress, who was part of the catering staff.

“Yes, I’ve got $15 an hour, but all my tips are now much less,” she said. Before the new wage law was implemented, her hourly wage was $7. But her tips added to more than $15 an hour. Yes, she used to receive free food and parking. Now, she has to bring her own food and pay for parking.

(http://www.nwasianweekly.com/2014/05/blog-seatac-tells-us-15-minimum-wage/)

misterwhite  posted on  2015-04-24   16:25:27 ET  Reply   Untrace   Trace   Private Reply  


#39. To: misterwhite (#32)

But her tips added to more than $15 an hour.

If she's good she can make $60K a year in an average market, in some better markets she could make $100K+.

CZ82  posted on  2015-04-24   19:29:26 ET  Reply   Untrace   Trace   Private Reply  


#40. To: CZ82 (#39)

"If she's good she can make $60K a year in an average market, in some better markets she could make $100K+."

Assuming her customers tip.

misterwhite  posted on  2015-04-24   21:29:59 ET  Reply   Untrace   Trace   Private Reply  


#41. To: misterwhite (#40)

Assuming her customers tip.

And if they don't then it's the managers job to see that they aren't allowed in the building ever again.

Some places have went to a mandatory % tip already put in the check to help protect their employees. But it's also up to the manager to protect the customer by ensuring the girl deserves the tip cause she did her part, if she's not then she should be replaced. And if the customer doesn't like the mandatory tipping then they are free to go darken another restaurants door.

If it's a smaller ticket I usually tip 30% if she did her part, now if it's a really large ticket I may cut back the % some but I ensure she is adequately compensated for her efforts. I also take into consideration how long we were there, especially during rush hours.

CZ82  posted on  2015-04-25   8:48:27 ET  Reply   Untrace   Trace   Private Reply  


#42. To: CZ82 (#41)

"Some places have went to a mandatory % tip already put in the check to help protect their employees."

I see. Create a disincentive for the waitress to give that extra little bit of service that means a lot for a restaurant.

Plus, your method guarantees that all tips are reported as income to the IRS.

Plus, the manager is now watching them like a hawk to "protect the customers".

I bet you're a real hit with the staff, Herr Grubenmeister.

misterwhite  posted on  2015-04-25   10:26:36 ET  Reply   Untrace   Trace   Private Reply  


#43. To: misterwhite (#42)

"Some places have went to a mandatory % tip already put in the check to help protect their employees."

The only place I have seen this practice in action is when I travel to bigger cities (Leftard Ghettos). I'm not saying it's right or wrong I'm just saying that it happens.

The restaurant managers first duty is to see that the customers and his employees are kept happy. If that happens then the place will do a good business and stay open for a very long time. If he decides to place one before the other then the establishment will go out of business in short order.

CZ82  posted on  2015-04-25   15:32:14 ET  Reply   Untrace   Trace   Private Reply  


Replies to Comment # 43.

#44. To: CZ82 (#43)

"The only place I have seen this practice in action is when I travel to bigger cities ..."

The only times I've seen this practice in action is for large groups at a restaurant. But then again, the waitress is working her ass off so a mandatory tip is not an issue.

Other than those instances, my feeling is that if a tip is mandatory there's no incentive to work a little harder to please the customer.

misterwhite  posted on  2015-04-26 09:49:35 ET  Reply   Untrace   Trace   Private Reply  


End Trace Mode for Comment # 43.

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