An Entrepreneur As Catalyst

Posted: May 24, 2015 by Jerry Malsh in Culture, Ecosystem, Innovation, Leadership, People, Startup

jerry-malsh-2015By now you’ve probably heard about the young Seattle entrepreneur who recently raised the minimum wage for all 120 employees of his firm to $70,000 per year (phased in over the next three years) while lowering his own salary to $70,000 from its previous high of nearly $1million.

Why?

  1. Because he wanted to help the people who have helped him grow his business by making a positive, significant difference in their lives. Not just the difference between falling behind and catching up, but the difference between catching up and moving ahead.
  2. Because he knows how out of whack CEO-to-worker pay ratios have become. The ratio of CEO-to-worker pay has increased 1000% since 1950, according to data from Bloomberg.

Today’s Fortune 500 CEOs make 300 times more than regular workers on average. This ratio is up from 120-to-1 in 2000, 42-to-1 in 1980 and 20-to-1 in 1950. Interestingly, the ratio of Dan Price’s previous million-dollar salary to the average $48,000 salary of Gravity’s employees was about 20-to-1 or what was considered reasonable by legendary management guru Peter Drucker sixty five years ago. Now that ratio will simply be 1-to-1.

Price’s salary will revert back to its original amount once the firm’s profits he used to fund the new payment structure have been replenished.

  1. Because as an entrepreneur he felt he could create such a major change without being beholden to anyone but himself and his conscience. All he had to do was figure out how.

Dan Price founded Gravity Payments, a credit card processing company, in 2004 when he was a 19-year old student living in a dorm at Seattle Pacific University. Last year, Gravity Payments served more than 12,000 businesses and processed $6.5 billion in transactions.

An article Price read about happiness and its relationship to a specific amount of income prompted him to begin thinking the economically unthinkable for his business and his employees.

That article featured research by Princeton’s Daniel Kahneman, a world renowned psychologist and winner of the 2002 Nobel Prize in Economic Sciences, and his associate Angus Deaton. They concluded that while higher wage earners generally reported better life satisfaction, that sense of emotional well being peaked when it reached an annual income of approximately $75,000.

Price figured if he could increase the salary of everyone at Gravity to $70,000 without raising Gravity’s prices or decreasing its services to its customers, he might just have created a sustainable business model that achieved his objectives by benefitting both groups.

This field of study is actually called the economics of happiness or happiness economics because it represents the quantitative and theoretical study of happiness, quality of life and related concepts, typically combining economics with other fields such as psychology and sociology.

To liberals, Dan Price is a hero. To conservatives he’s a heretic. To Dan Price, he’s simply an entrepreneur doing what he believes is right for himself, his business and his employees. … boldly, innovatively and resourcefully.

And while it’s too soon to gauge how well his plan will work, so far it’s done quite well in terms of acquiring new clients, increased job applications and, of course, even stronger employee morale.

Cedarburg, Wisconsin is an idyllic community of about 12,000 people located about 20 miles north of Milwaukee. So idyllic, in fact, that a creek (Cedar) runs through it and a “Morning in America” commercial for one of Ronald Reagan’s presidential campaigns was filmed there. My wife and I stay in Cedarburg for a few days every July to visit old college friends. On its main street, across from the movie theatre, sits a stone bench with an engraved quote from a Cedarburg citizen that sums up what Dan Price has in mind for his firm’s employees: “Enough is just a little bit more.”

Maybe that’s one of the reasons why Entrepreneur Magazine named Price its Entrepreneur of The Year for 2014.

Jerry Malsh is the Founder of Pure Thought, helping clients think more creatively through personal coaching.

 

 

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