Is a $70,000 Base Salary Unjust and Corrupting?

[Ed Hudgins]

Is a $70,000 Base Salary Unjust and Corrupting?

By Edward Hudgins

August 6, 2015 -- Dan Price, the CEO of credit card processing company Gravity Payments, recently set a minimum salary of $70,000 for everyone at his company. He saw himself, as did many others, as a benevolent, ideal boss who cared about his employees. But when some employees quit because of this action, it revealed that whether Price meant to be or not, he was a corrupter of justice.

Equalizing wages at Gravity Payments

Price, like many liberals today, sees income inequality in-and-of-itself as a moral evil. He has 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.”

Price over the next few years will almost double the starting salaries of entry-level employees to $70,000 and, in solidarity, cut his own million dollar salary to that level. How could he afford to do this? His business is successful for sure, but in order to pay primo wages for entry level jobs, he had to flatten his whole wage structure. Workers who had been at his company for years or who were contributing the most economic value to the company did not get their wages doubled if they received raises at all. There would simply not have been enough money to do this. In any case, to raise everyone’s wages correspondingly would have perpetuated income inequality.

Gravity's producers shrug

Price’s action was a real-life version of an action depicted in Ayn Rand’s Atlas Shrugged. In that novel, the owners of the Twentieth Century Motor Company decided to run their car factory on the Marxist doctrine “From each according to his ability, to each according to his need.” In that factory the best and the brightest were penalized for their productive virtues with more work and lower wages in order to meet the needs of those who were not as productive. The best people left, production declined, needs multiplied as everyone tried to be the neediest, customers fled, and the factory collapsed.

Sure enough, Price has found some of his best workers leaving as well. His company is still hanging on, though, with some financial challenges ahead. But the reasons for employees leaving highlight important ethical truths.

Injustice of entitlement

The employees who left felt they were treated unfairly because they had worked the longest and contributed the most but were not being rewarded for their abilities. This is the dark side of the thoughtless obsession with equality of wealth or condition. Equality in this context is fundamentally unjust. It’s a rejection of the basic principle of justice that individuals should earn what they get.

And this is the dark side of the notion of “entitlement” to a certain salary or condition. It requires productive individuals to cover the costs of those who are granted unearned benefits. In the case of Price, it is his business, so if he can convince some of his employees to foot the bill for others, he, as the business owner, is entitled to do so. His workers may choose to stay or go, and his customers can bear the inevitable rise in his prices and decline in the quality of his product, or they can shop elsewhere.

But in the political realm we are not allowed to choose whether to foot the billions dollar bills that pay for welfare entitlements. The government simply taxes us and transfers the money to those who are said to “need it.”

Price is perpetuating a pernicious morality. Some argue that those who start at $70,000 will feel the need to earn their keep and work hard. But the entitlement mentality has produced generations of individuals who whine for handouts, degenerates who have lost the moral understanding that they are first and foremost responsible for themselves. The looters in the Baltimore riots were the ultimate manifestation of that morality. They “need it” so they steal it.

Price and other liberals fail to understand that there is nothing morally wrong with inequality of condition as such. What is important is whether someone acquired wealth legitimately by producing goods and services to sell to voluntary customers. In this country cronyism is the real problem. Big banks, auto manufacturers, money-losing PC eco-companies, and others all profit through political pull rather than by serving the needs to customers. The problem is not rich individuals. It is individuals who grow rich by stealing from others with the aid of their political hacks and cronies.

Praise for achievements

It’s good business practice for companies to reward employees in order to keep them happy and productive. And most of us want higher salaries. I know I do! But each entrepreneur must judge what works for the bottom line of their company in the long run, and an unjust system will not work. Worse, it perpetuates envy in the stunted souls of those who demand the unearned, and it creates unearned guilt in those individuals who deserve praise rather than censure for their productive achievements.

----

Hudgins is a senior scholar at The Atlas Society.

Explore:

The Individualist's Guide to Progressive Change

*Edward Hudgins, ObamaCare's War on Personal Responsibility. April 9, 2012.

[Mikee]

"

Dagny rescues a hobo who is riding the rails. He used to work for the Twentieth Century Motor Company. He tells her that the company put into practice the communist slogan, "From each according to his ability, to each according to his need," a scheme that resulted in enslaving the able to the unable. The first man to quit was a young engineer, who walked out of a mass meeting saying that he would put an end to this once and for all by "stopping the motor of the world."

"

[merjet]

According to the NY Times:

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.”

[merjet]

Unintended Consequence of Wal-Mart's Raise: Unhappy Workers

[Derek McGowan]

I'm having a hard time understanding how he did the long term employees wrong. He made a minimum for all employees, he didn't cut anyone's wages correct? Was someone due a raise and didn't get it? Its a good possibility that a liberal CEO had many people working for him long term who actually weren't very productive, isn't that what happens in government? The long term employees left because they didn't start at 70K? If that's the case then should every long term employee leave every other job on the planet because the new hires get paid more than they did when they were hired? Are there examples of other CEOs who decided to pay more (Henry Ford I believe is one) and were still highly successful? Don't silicon valley jobs offer relatively high base pay along with free food and day care services? I'm sure that base increases with inflation, why don't the long term employees quit? Sounds like the ones who are being immoral are those few long term employees who think they deserve the world

Maybe I should just read the article smh......

....oh, I just read "long-term employees" - five years !! LOL

[Brant Gaede]

The 70g thingie is self correcting for it's stupid and already demonstrated nonsense and the government is not involved. The twit running that company, however, may have destroyed it.

--Brant

not a twit but "my" President is one

[Mikee]

Derek,

If you divorce compensation from merit hardworking employees who don't believe they've been recognized and compensated for their hard work will hit the road. I've done this myself. I have no degrees but am an electronics engineer, I've had many jobs, I don't mind starting low, proving myself and then getting a raise commensurate to my value. If it doesn't happen I'm gone, usually in a year or two. I would never even start at a company run like "Gravity" because it would be a dead end. I understand the employees who left Gravity perfectly. The five year employees I think you were mocking had already hung on too long, when he announced his new policy they knew exactly the situation they were in and went elsewhere. Hard working problem solvers can always find work.

[dldelancey]

I'm having a hard time understanding how he did the long term employees wrong. He made a minimum for all employees, he didn't cut anyone's wages correct? Was someone due a raise and didn't get it? Its a good possibility that a liberal CEO had many people working for him long term who actually weren't very productive, isn't that what happens in government? The long term employees left because they didn't start at 70K? If that's the case then should every long term employee leave every other job on the planet because the new hires get paid more than they did when they were hired? Are there examples of other CEOs who decided to pay more (Henry Ford I believe is one) and were still highly successful? Don't silicon valley jobs offer relatively high base pay along with free food and day care services? I'm sure that base increases with inflation, why don't the long term employees quit? Sounds like the ones who are being immoral are those few long term employees who think they deserve the world

Maybe I should just read the article smh......

....oh, I just read "long-term employees" - five years !! LOL

Adjusting base salaries is not really uncommon. For instance, a company may realize that the reason they're having a hard time filling STEM positions is because they aren't offering competitive salaries. Best practice is not just to start offering new employees higher starting salaries, but to also make across the board adjustments for current employees. It's called pay equity, and it's a recognition of two facts... 1) those existing employees can leave you for equivalent jobs elsewhere and make more money, and 2) your existing employees are worth more to you than your new employees because you've already invested x amount of dollars in them AND turnover is expensive.

The problem at Gravity is that the CEO only adjusted the salaries of those employees who were currently making less than 70k and new employees. Anyone already making 70k or higher did not get an adjustment. Whether fact 1 above applies here, I don't know, but I do know that fact 2 is absolutely playing out. Gravity sent a big ol' message to some percentage of their existing employees.... you ain't worth as much to us as you thought you were. And really, that has nothing to do with money. That's a direct hit to a person's self-esteem.

[Brant Gaede]

I'm pretty robust in the self esteem and do-not-envy department. I can get knocked down a little, especially if blindsided and fight or flight kicks in, but I bounce right back up. (It wasn't easy getting here.) There is no way, however, I would even work for the 20th Century Motor Company, even if bribed. Whether egalitarianism deflates or inflates the balloon I want nothing to do with it save in one respect: basic moral equivalency reflected in law and rights--for everybody.

--Brant

it's impossible to know what envy is if you've never been envious, in turn an impossibility--there must be survival value in envy and I suspect it's survival on the basic, tribal level keeping everybody at one level and the tribe cohesive making the necessity in turn of sublimating tribalism to individuality, production and achievement and getting rid of the negatives like blowing up people in the name of your religion and the likes of ISIS making sex slaves of women and raping children--the basic rule of thumb is this: negative is destructive, positive is constructive, negative is looking backwards (victimship), positive is looking forward: so do not linger in negative-land--only proceed with a powerful guide, your critical mind, and if you want revenge eat it cold, for your anger will give you indigestion and it may come back and eat you too, for everything costs something and in the case of anger cold, rational consideration ("Living well is the best revenge" [endorsed by Nathaniel Branden])

[Selene]

Here is a comparison of two Seattle companies that "raised their workers wages," one failed, the subject of this thread and the other "succeeded."

Here’s some quick background. This spring the president of Ivar’s Salmon House announced that he was immediately bumping up the restaurant’s minimum wage to $15 an hour (a 60 percent raise

I do not think these are directly comparable.

What’s happened since? Employees are happy, of course. New customers are flocking in. Revenue is way up. And many diners still tip!

But things haven’t gone smoothly at Gravity Payments, a credit card processing company. Several months ago CEO and majority owner Dan Price announced he would increase—in stages—the company’s minimum wage to $70,000. When news first spread, his move was celebrated as an inspiring example of enlightened capitalism, doing well by doing good.

Context matters all right.

Context matters. When a server brings food in a restaurant, it’s a direct, personal experience for the customer. You see his or her face. There’s light conversation. If the server seems genuinely happy, your pleasure is enhanced. Yes, the nominal menu prices are higher, but you generously pay them—and maybe even leave a little extra, as well.

The roles shift when you pay your bill. The restaurant owner (or whoever is at the register) now becomes a customer (one of Gravity’s, perhaps). A machine reads your credit card and magically the charges are approved. No one at Ivar’s sees the faces of those who designed and maintain the system. Without a personal connection, a customer’s notions of fairness are abstract at best.

https://www.linkedin.com/pulse/why-raising-employee-wages-sometimes-backfires-michael-wheeler

[moralist]

If you divorce compensation from merit hardworking employees who don't believe they've been recognized and compensated for their hard work will hit the road.

Bullseye, Mike.

Compensation without merit is unethical and attracts unethical/entitled employees while repelling the ethical/merit ones.

Greg

[Derek McGowan]

If you divorce compensation from merit hardworking employees who don't believe they've been recognized and compensated for their hard work will hit the road.

What does this article have to do with merit? At what point is any proof offered to even imply that the bottom employees are less productive. Working 80+ hours a week is a right that a company can place upon any employee if they are salary, that proves nothing. In fact the article didn't break down hours at all among staff at all except for the financial lady who helped to do the math as to whether the plan would work.

The long term guy (only two people were verified to have quit) who decided to leave was himself getting a raise from 41,000 to 70,000. And in fact he said one of the reasons he was leaving was because he might grow to love the money so much that it dampens his hunger to start his own business.

Did you guys read the article?

Then the brother who is suing, stated that he had issues with the CEO for years now. He is a 30%, non-involved, stakeholder, and his decision had nothing to do with the raises.

The companies who were supposedly up in arms about the decision have stayed on and only were worried because the new base would put pressure on their own companies to raise wages. Well that's the market, deal with it! Also the numbers reported say that the company was averaging 200 ne clients a month before the announcement but that number went up to 350 in the month after the announcement.

And how is this even close to the 20th century motor company? In that devishly instance of pure socialism, the CEO took away from the talented employees to give to the lazy. Again from my first post, did anyone actually lose pay? In fact as I stated, one of the two confirmed to have left the company was getting a 40% raise. Also where is the evidence that new employees, just from the sheer fact that they are new, are less motivated or lazy?

Does your logic mean that in every job, every new employee, from cashier to software engineer, from teacher to medical doctor, should get minimum wage until the prove themselves?? Again, Google seems to start employees at 80,000. How did they prove themselves to merit such pay? According to this website

https://www.aamc.org/services/first/first_factsheets/399572/compensation.html

there is not a single physician position that gets paid less than 130,000 I'm quite sure there are less talented doctors in the freshman field than others. I'm sure there are less talented experienced doctors than those in the freshman field.

On my own account, I believe that when anyone gets a raise, no matter where they are in the hierarchy, I should get a raise too or I'm leaving... because I deserve it.....

This is a problem of simply knowing what others make, nothing more nothing less. In fact its not even a problem because from what we have presented to us, only two people left and one because he didn't want to love the raise too much.

[moralist]

If you divorce compensation from merit hardworking employees who don't believe they've been recognized and compensated for their hard work will hit the road.

What does this article have to do with merit?

Everything, Derek.

Greg

[Brant Gaede]

I am seeing the situation through moral eyes, Derek, and you are pushing the supposed practical consequences. Morality demands a few principles while countless facts or factoids can be adduced to support "bathtub economics." It's not a matter of who is wrong or right in such an argument, for we're talking past each other.

--Brant

[Derek McGowan]

If you divorce compensation from merit hardworking employees who don't believe they've been recognized and compensated for their hard work will hit the road.

What does this article have to do with merit?

Everything, Derek.

Greg

Please answer upon the merits of my argument

and not the a highlight

[Derek McGowan]

I am seeing the situation through moral eyes, Derek, and you are pushing the supposed practical consequences.

I could agree with your assessment of practicality. After all, what difference does it really make how much someone above or below me makes. All that really matters is how much I make. Most people don't know others salaries (many times those salaries are meritless- cronyism, pay gaps between men and women, etc) and the world seem to work fine. Its only when someone knows that suddenly they want to examine how hard they work in comparison to others. And I'll tell you, many times its an exaggeration.

The base pay at this one company is similar to the base pay of any industry which the market maintains over thousands of companies. That was my point about the software engineer and the doctor pay (though you may be right on the specifics) it doesn't matter what your experience level when you get out of medical school, you are not going to accept a position in your field making 10 dollars an hour. The market has a base, why can't a CEO create his own base?

[Derek McGowan]

As to the moral argument, again, why is it only 2 employees out of hundreds leaving (or at least going on record about it) At what point is he taking from those who supposedly work the hardest? He gave them all raises

Read the article if you haven't then present on what is actually said in the article

[Brant Gaede]

As to the moral argument, again, why is it only 2 employees out of hundreds leaving (or at least going on record about it) At what point is he taking from those who supposedly work the hardest? He gave them all raises

Read the article if you haven't then present on what is actually said in the article

I dropped my doctor comment for I had entered nit-picking land and I didn't want to defend nit-picking. Now, I did read the article. If you have read Atlas Shrugged then we can clear the decks and rationally go at each other--or come to agree with each other--for common courtesy would demand we understand each other properly.

--Brant

the point of the AS story is the moral is the practical and the practical is the moral, which is the point of the whole novel and could even be said to be its theme (which I wouldn't do)

[Derek McGowan]

. If you have read Atlas Shrugged then we can clear the decks and rationally go at each other--or come to agree with each other--

read it twice.

My question is how is this, based on the facts of the case presented to us in the article, comparable to the 20th century motor company, based on the facts presented to us in the novel?

[Brant Gaede]

If you have read Atlas Shrugged then we can clear the decks and rationally go at each other--or come to agree with each other--

read it twice.

My question is how is this, based on the facts of the case presented to us in the article, comparable to the 20th century motor company, based on the facts presented to us in the novel?

Fair enough. I'll get back to you on this this weekend.

--Brant

you have the advantage for it's novel vs. observed reality (is someone going to bail me out in the meantime? Help! Help! Help!)

[dldelancey]

Derek said:

At what point is any proof offered to even imply that the bottom employees are less productive.

Maisey McMaster is quoted in the article:

“He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump,” she said.

But she's just "the financial lady who did the math," so perhaps her five years with the company and her position as financial manager doesn't count for much? Again, making salary adjustments like this isn't a huge deal... unless you do it in a way that your business can't support.

Derek said:

Well that's the market, deal with it!

But that's the point, this isn't the market. It's one guy who made a very public and unpopular display that the author of the article and many others think was just as much for the publicity as for anything. As I said before, market adjustments in regards to compensation are common in the business world, but they have to be driven by the market to be successful, not by one dude with 120 employees.

Derek said:

Also the numbers reported say that the company was averaging 200 ne clients a month before the announcement but that number went up to 350 in the month after the announcement.

The article also reports that those new clients won't start bringing in revenue for another year. A fact that Mr. Price failed to plan for under his new salary structure.

Derek said:

This is a problem of simply knowing what others make, nothing more nothing less. In fact its not even a problem because from what we have presented to us, only two people left and one because he didn't want to love the raise too much.

And this is why so many companies have rules about sharing salary information with coworkers. It just isn't done, so why would a supposedly business-savvy wunderkind CEO make such a move publicly? Poor, poor business decision that even the most green business owner ought to know better than to make. Regarding the two people who left, according to the article they were "two of Mr. Price's most valued employees." When someone says an employee is valued, they are talking about more than money.

Derek said:

Again from my first post, did anyone actually lose pay?

Dan Price did. Just sayin'.

[anthony]

This is quite funny, but what's most telling is for all the grand talk of "equality" around nowadays, everybody knows it doesn't exist and cannot exist, they don't want it, and they know it's a bs ideal.

[Selene]

Read it twice.

My question is how is this, based on the facts of the case presented to us in the article, comparable to the 20th century motor company, based on the facts presented to us in the novel?

It isn't and I have been biting my tongue on this thread waiting for someone to make that observation.

The 20th Century was literally draining the valuable employees skills and transferring the wealth of the company to the least valuable.

To each according to their needs.

The Seattle company is not on the that model at all.

Nice call Derek.

A...

[dldelancey]

. If you have read Atlas Shrugged then we can clear the decks and rationally go at each other--or come to agree with each other--

read it twice.

My question is how is this, based on the facts of the case presented to us in the article, comparable to the 20th century motor company, based on the facts presented to us in the novel?

They're comparable in that the business owners of both companies are attempting to fulfill a perceived need that is undefined and not supported by the market. They're comparable in that both situations address income inequality as if it is an ill that needs curing. They're comparable in that neither business can sustain the changes long term and still remain in business which means that everyone is going to lose. Maybe that's okay with Dan Price. Maybe that's the ultimate income equality he's going for - everyone to be under the bridge with a sign reading "Plz Help."

[moralist]

From the article:

"In the case of Price, it is his business, so if he can convince some of his employees to foot the bill for others,

he, as the business owner, is entitled to do so.

His workers may choose to stay or go, and his customers can bear the inevitable rise in his prices and decline in the quality of his product, or they can shop elsewhere."

That's true.

Employees are just as free to choose their employers,

as employers are free to choose their employees.

So I chose to be employed by myself. My employer and I are in 100% total agreement on our ethical values. I can never be fired, and my employer lets me do whatever I want.

Greg