A few months ago Dan Price of Gravity Payments was lauded in the news for decreasing his salary and raising everyone else’s to a minimum of $70,000. This was heralded as the next wave of compensation. Unfortunately Mr. Price’s compensation experiment has backfired on him and his company.
Trouble in paradise
Now three months later Price has learned that compensation plans need to have a bit more planning than he appears to have put into the one he instituted. It has affected employees’ attitudes, client attitudes, his brother’s attitude and his own personal financial situation.
A few weeks after instituting the change two key employees left. One of them, the financial manager told Price that the employees with the greater skill were felt devalued by employees with much lower skills being paid on par with them. Price told her she was just being selfish. So she left.
Clients have also left fearing they were going to have to pay more in fees in order for the company to afford the much higher wage structure.
His brother, whom he started the company with didn’t like his move and claimed “in court documents that his brother excessively paid himself a $1 million dollar salary in the years before the big announcement, an alleged violation of an agreement limiting his compensation.” So now he has a lawsuit to deal with from his own brother.
On a personal level Price miscalculated what it would cost him, because he also took a $70,000 salary. Apparently he had gotten used to living on that $1 million a year salary, because now with the reduced salary he has to rent out his house to make ends meet.
Compensation needs planning
As most compensation pros will tell you changing compensation plans without thought, planning and consideration of consequences, both foreseen and unforeseen, is the sure path to disaster.
The idea behind what Price did may be noble but just flipping the payroll switch without considering the costs of increasing the average salary by over $20,000 per person was just plan foolish. He needed to talk to his financial and HR people first, and heed their advice. Yeah many employees are happy with the extra pay right up to the point where the company closes their doors.