SEATTLE — Staff members gasped four years ago when Dan Price gathered the 120 employees at Gravity Payments, the company he had founded with his brother, and told them he was raising everyone’s salary to a minimum of $70,000, partly by slashing his own $1.1 million pay to the same level.
The news went viral and provoked a national debate about whether efficient capitalism could have a heart. Some Americans lauded Price for treating employees with dignity. However, on Fox Business he was labeled the “lunatic of all lunatics,” and Rush Limbaugh declared, “I hope this company is a case study in M.B.A. programs on how socialism does not work, because it’s going to fail.”
So I came to Seattle to see what had unfolded: Did Gravity succeed or crash?
There were bumps, no doubt about it. A couple of important employees quit, apparently feeling less valued when new hires were close to them in pay. The publicity forced Gravity, which processes credit card payments for small businesses, to hire additional people to handle a deluge of inquiries. Worst of all, Price’s brother, who owned a stake in the company, sued and alleged that Price hadn’t consulted him on decisions.
For a while, it wasn’t clear that the gamble was going to pay off.
But eventually it did: Business has surged, and profits are higher than ever. Gravity last year processed $10.2 billion in payments, more than double the $3.8 billion in 2014, before the announcement. It has grown to 200 employees, all nonunion.
[Follow Nicholas Kristof as he travels around the United States and the world, shedding light on crises and hailing unsung heroes. For a behind-the-scenes look at Nick’s gritty journalism, sign up for his newsletter.]
The pay raise also helped attract new employees — including some who yearned to join a company with values. Tammi Kroll, a Yahoo executive, took an 80 percent pay cut to move to Gravity, where she is now chief operating officer.
“My whole goal when I went to school was to make more money,” said Kroll, who comes from a working-class background. But as she rose in the corporate world and her taxable income topped $1 million, she had an epiphany: “Money doesn’t make you happy, doesn’t make you a better person.”
When she heard about Gravity, her heart leapt — and so did she.
Entry-level employees benefited hugely from Price’s decision to raise the minimum wage. Seattle housing is expensive, so many residents had been unable to buy homes or start families. Maggie Goodall, 23, had been making $42,000 a year and couldn’t afford the $400 round-trip airfare to visit her home in Arkansas. After joining Gravity in September, with a $70,000-a-year salary, she was able to go to see her family again.
That’s the kind of thing Price says he was aiming for. He grew up in rural Idaho in an intensely Christian family and spent three hours a day listening to Limbaugh and two hours memorizing Scripture. He’s less religious today, but he says ethics remain deeply important to him.
His brother’s lawsuit was dismissed, and Price bought him out. So Price now owns 100 percent of Gravity, giving him flexibility to do as he wants. The question remains whether raising pay so much would also be a good move for public companies answerable to shareholders.
“For Gravity, it’s worked out great, and I think this type of behavior on balance would work out great for every single company in the world,” Price told me. In the next breath, though, he acknowledged doubts about whether this would work everywhere.
It’s reasonable to be skeptical about how scalable this is. Price enjoyed publicity and new customers by being the first to go to $70,000; those benefits will not accrue to followers.
Jody Hall, a good liberal who worries about income inequality, owns a nearby cafe, Cupcake Royale. She chooses Gravity to process her payments, admires what Price has done and offers her own employees health care.
Yet she said that in the restaurant business, “the model would not nearly work.” Indeed, she worries that Seattle’s increase in the minimum wage to $15 will hurt small businesses like hers and may cost some jobs.
Still, one can believe that Price’s model is not fully scalable and also that it’s a powerful example showing that companies need not treat staff as serfs.
There is now a broad recognition that American capitalism is flawed — see Steven Pearlstein’s superb book “Can American Capitalism Survive?” — and our next step is to figure out how to move beyond blind rapacity. Price seems part of that national rethink.
The gasps when Price announced his $70,000 initiative were echoed in 2016 by his own, after grateful employees led him to the parking lot and presented him with a new Tesla that they had all chipped in to buy, replacing his ratty old car.
That’s probably not scalable, either. But Gravity shows that at least for some companies in some industries, it is possible to thrive while treating even the lowest-level workers with dignity. And that’s not the death of capitalism but perhaps part of its rebirth.