Dan Price of Gravity Payments says he’s not an economist. Agreed. He’s also not a scientist. He thought, like most Liberals, with his feelings and not his head. He upgraded everyone’s salary to $70k while downgrading his $1m salary to the same amount, in his words, “to offset the difference.” Dan had 120 employees. The average wage earned was $48K, now $70K.
Since the move the upside is he has won some new business, which may or may not have been an increase in new business. We would have to see the trend for new business to be sure. The unforeseen downside has caused the company, in his words, to have “fallen on hard times.”
Let’s start with the math.
Dan’s prior salary: 1,000,000.00
Average wage: 48,000.00
# of employees: 120
Dan’s new salary: 70,000.00
If Dan’s salary reduction is to offset the pay increases, he has 930,000.00 to work with.
70,000.00 – 48,000.00 = 22,000.00 x 120 = 2,640,000.00 – 930,000.00 = (1,710,000.00)
The business now has to make up for the $1.7m cost increase in wages. This is not where you want your expenditures to take a hit.
This would explain why his older brother, a minority share holder (30%) has filed suit since he is also now taking a hit. The unforeseen legal fees have been costly, although not as much as the salary increases.
What other negatives has Dan experienced?
Employees at the top of the food chain are now “shackled to the employees who just showed up to clock in/out.” Two of the best left because there was now no reason to produce since everyone will be paid the same.
Two of his best customers left because they saw a future increase for services on the horizon. They have their own bottom line to worry about and if you’re not ahead of the game, you’re trying to catch up.
Dan is also not a student of history. Socialism has failed everywhere it has been tried. An oligarchy at the top and everyone else is equally poor. If Dan loses his business, he’ll reach his goal. Everyone equal[ly poor.]
The reason the people at the top make the most, they control the company’s life. Are there abuses, sure but for a founder who created something, cultivated it, made it grow and provided opportunity for others, this is a crazy act. it’s his life. For the best employees, it’s a career. For the others, it’s a job. There is your difference. They may all be part of a team but they don’t equally provide the same quality to the company. They may or may not have the same level of education, desire, ambition, work ethics. Ask yourself, why are some people at the bottom? Put them under the microscope, instead of the business owner, and you’ll find your answers. Exceptions are not the rule. In a capitalist society, you make your own opportunities. There are enough people out there that want to do business with good companies/people. They have selfish reasons. People pay more for the same product/service they can get somewhere else because they like doing business with that person/company and usually get better service. This is what makes loyal customers. Some of it is logistics and marketing but if they move, so will their business.
Dan has learned some hard lessons and is most likely going to have to eat crow to survive. He’s even resorted to renting out his house to try to make ends meet.
1. Socialism is a failure.
2. Capitalism rewards performance. The market sets the winners/losers.
3. Social activists try to hinder the process for selfish reasons based on an ideological delusion of mindless indiscriminateness. They reject rational thought as a hate crime with an argument built entirely on emotion.
4. If you want to be a Socialist in business, don’t forget you need an oligarchy at the top.
5. Salaries should not be equal. There is no gender equality either. People should be rewarded for their performance, the benefit to the company’s bottom line and not because of some delusional idea of social equality. If you reward people for not performing, they will continue to not perform. If you set everyone’s salary the same, be prepared to lose your best producers. You’ve just taken away their incentive to produce.
6. When making a political statement, don’t use your livelihood as a social experiment, especially when the reason people are doing business with you is because they liked how you do business. If you then alter that, some will leave. How many losses are acceptable?
7. When you make a drastic business move, make sure you have a plan. Failing to plan is planning to fail. $930k cannot offset $2.64m
Based on an article at Foxnews: http://www.foxnews.com/us/2015/08/01/seattle-ceo-who-set-firm-minimum-wage-to-70g-rents-house-to-make-ends-meet/?intcmp=hpbt4