This CEO Took a $1M Salary Cut to Pay His Employees a $70k Minimum Wage
When employees feel valued, they add more value.
It was a regular day for Rosita Barlow until her boss walked in and noticed a training textbook on her desk. Dan immediately pulled a confused face which made Rosita’s heart jump to her throat. It was time to talk.
Turns out she had been spending every weeknight at a nearby McDonald’s trying to scrape together a few extra bucks. Her $30k salary was barely enough to cover rent in Seattle let alone pay back a heavy student loan. On her worst days, Rosita had to line up at a food bank.
Astonished, her CEO asked how much she’d need to quit her second job. Rosita went home and spent her evening doing the math. The following morning, she announced $10k.
Upon reflection, Dan agreed, provided she took on additional responsibilities. Rosita nodded and the deal was sealed with a handshake.
The significant raise allowed her to live more comfortably. She had time for friends, family, and you know, rest. The result? She quickly climbed the company’s ladder to become Director of Operations.
Looking back at what happened with Rosita, something clicked inside Dan’s head. “What if we do the same with everyone?” he thought to himself, and that’s exactly what he set out to do.
The journey to $70k minimum wage
Dan founded Gravity Payments when he was 19 years old. The idea came to him after he’d noticed a particular problem among small businesses in Idaho, his home state.
Every time a customer swiped their credit card, coffee shops, restaurants, and grocery stores had to pay expensive fees to process the payment. Besides, the terminals broke down often and the customer service was mediocre.
Dan’s goal was to improve the situation for small business owners through smoother and cheaper payment processing services. He acted on his idea in 2004 alongside Lucas Price: his brother and co-founder.
Four years later, the recession hit hard almost killing Gravity Payment. Although Dan bit the bullet and kept fighting until his business recovered, the crisis left a scar on him, as it did on the entire market.
Even after they bounced back and generated massive profits, most businesses kept their salaries low as if they were expecting another crash. Dan was one of these bosses until his experience with Rosita.
He realized he was neglecting the needs of the very people that made his company succeed. It was high time to set things right.
Given his expertise with finance and computers, Dan was skillful with numbers. His plan was simple and phased across three years.
First, he’d raise the minimum wage to $50k, effective immediately. Then, he’d add $10k in each of the following two years. All in all, the strategy would cost $1.8 million. But Dan had to figure out a way to finance the transition.
Should he increase the pricing of Gravity’s services? Maybe lay off some of the staff? Nah. That didn’t sound like Dan.
Dan is the kind of person who’d slash his own salary to make a project work, and sure enough, he did. He cut his salary down to $70,000, using the rest of his income to finance his crazy bet.
And then, all hell broke loose
Ask a competent marketer and they’ll tell you Gravity’s daring move can be turned into powerful publicity. Dan knew it and that’s why he invited NBC News and The New York Times to cover the announcement.
First, there was cheering and high fives among the 120 employees who were present. Then came viral headlines and lots of media attention. That’s when a tsunami of backlash flooded Dan and his company.
People started to call him a crazy socialist who was out to put his employees on the bread line. Several clients canceled their contracts to show their objection to the new policy.
Two of Gravity’s high-paid employees left. They considered the raise unfair to them. Even Lucas, his brother and co-founder, sued him in an attempt to force Dan to buy out his shares.
In this video, Dan collected footage of many people who were against his decision.
“Rush Limbaugh [an Americal television show host] came out and said that we would be a case study in MBA programs for how to destroy a company using socialism,” Dan recounted in an interview. “He said we were going to fail and that I was basically an idiot.”
Limbaugh’s prediction turned out to be exactly right. Harvard Business School does indeed teach classes on Gravity Payments.
“But what they’re teaching is that when you pay people more their productivity goes up — not because they’re more motivated,” Dan said. “But because their capability increases; they have less stress, they have less pressure, and they’re able to focus more on their work and they have an increased sense of license.”
Incredible results, right? What’s even more incredible is that Dan and his team didn’t wait long for the strategy to bear its fruits. In fact…
Six months into Dan’s bet, profits doubled
They say there’s no such a thing as bad publicity. Often, the statement is flawed but with Gravity Payments, it applied to the letter. The harsh critics that Dan faced made enough noise to spread the story worldwide.
Customer inquiries went from 30 per month to 2,000 per week. The increasing demands doubled the profits and created a need for new employees.
Thousands of talented people applied to work for Gravity — including prestigious executives like Tammi Kroll who worked with Yahoo. Unlike many candidates, however, Tammi wasn’t interested in the wage. She accepted an 80% pay cut so she could be part of Dan’s project.
“I spent many years chasing the money,” she said. “Now I’m looking for something fun and meaningful.”
When you think of it, you quickly realize Dan started a movement that goes beyond his company and employees. He showed the corporate world that putting employees first is good for business. Or, in Adam Grant’s words:
“When people feel valued, they add value.”
It doesn’t stop there. Valuing your employees also makes them loyal and grateful. Remember Rosita from earlier? “I don’t see myself leaving Gravity for any reason,” she said in an interview.
Here’s another cool twist: Dan’s employees surprised him with a Tesla in 2006, one year after he announced the $70k minimum wage.
Dan Price post on Linkedin.
But wait, there’s more.
When the COVID pandemic hit and the company lost 55% of its revenues, most of the staff agreed to share the financial burden through a pay cut. Not only did they save Gravity, but they also committed to finding new solutions for their clients.
“I’m so proud of my team,” Dan said. “I’m genuinely shocked by their willingness to sacrifice in so many ways and to help so many small businesses and get us to a place where we’re going to be around for a long time.”
Grateful, Dan refunded everybody’s pay cut and resumed salary raises as soon as the company got back on track.
Why the heck aren’t we doing the same?
Dan made his announcement on April 13, 2015. Six years later, the company is still reaping benefits, benefits that go beyond productivity and profits.
Gravity’s employees are healthier, happier, and more engaged. Another outstanding achievement is the number of babies and house acquirements inside Gravity grew 10 folds.
It’s no surprise that Gravity inspired a couple of other businesses to follow in their footsteps. But the pattern is far from going mainstream.
Why is that?
Perhaps because most CEOs only care about their personal gains. For them, employees are merely costs that need to be reduced. Never mind if burnout is spreading like wildfire. Never mind if the smartest employees are quitting their jobs. Never mind if the economy is owned by a handful of tyrants who are hoarding more money than all humanity can spend in a hundred years.
“Okay Nabil, I understand,” you might say. “But that’s how business has always been done.”
It’s not because we’ve been doing it for decades that it’s the right way.
Besides, it’s straight-up nuts that, on average, CEOs are paid 351 times more than the typical worker. It’s freaking crazy that college grads like Rosita have to work at McDonald’s after hours to make ends meet.
The worst part? We celebrate this ludicrous fiesta. “Oh look, a billionaire CEO who made his fortune mistreating employees and underpaying them,” we say. “How cool!”
Do you know what’s cooler? CEOs who take care of their employees. Sure, not everybody can afford to implement a $70k minimum wage, but we all can support those who do and spread their ideas. Repeat after me:
When employees feel valued, they add more value.
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