DES PLAINES, IL - NOVEMBER 11: A sign showing the American Express logo is seen outside of a bank November 11, 2008 in Des Plaines, Illinois. American Express won federal approval to become a bank holding company which could cut its borrowing costs and allow access to government money. (Photo by Justin Sullivan/Getty Images)

Read of Subscribe to all Tom Egelhoff’s Daily Blog Posts by Clicking Here

You may not be familiar with the name Dan Price. Mr. Price is the CEO of a $10 billion dollar company called Gravity Payments. They are headquartered in Seattle, Washington with clients across the country but the majorities are located in Washington, Oregon and Hawaii.

Gravity payments provides things like credit card processing for small businesses, gift and loyalty cards, and sales processing software acquisition.

They are the largest credit card processing firm in Washington state.

The New Minimum Wage

On April 13th, Dan Price announced that his starting pay within the next three years for all employees would be $70,000 a year. (For those of you that are math challenged that’s $33.65 an hour.)

Or, to put it another way, a little over twice what McDonald’s employees are demanding.

Price is reducing his own $1,000.000 salary to $70,000 also.

So what’s the best and worst that might happen due to this generosity?

Best Case Scenario

The best outcome I see immediately is there will be a whole bunch of great employees applying for jobs at Gravity. So far they have 3,500 applicants for a sales rep and a support staffer job.

Do you think there might be a winner somewhere in those 3,500 applications?

More on that in a moment.

Price says he’s heard from over 100 CEO’s that applaud his actions and some might even follow his example.

Clients see a certain kind of honesty in this move. A refreshing change that  companies appreciate their workers and are not all about profits at the expense of labor.

Worst Case Scenario

“If you can afford to double your employee’s pay then you must have been overcharging me”, is what some clients might think.

Remember I said Gravity was a $10 billion dollar company with 15,000 clients mostly in Washington, Oregon and Hawaii? How much annual profit does a $10 billion dollar company make?

In this particular case $2 million. Yes, that million with an “M.”

$2,000,000 is 0.02% of 10,000,000,000 – A 0.02% profit margin. That’s a pretty slim profit margin to bet the bank on.

Obviously Price had to dip into profit to make some of these raises happen and that is why it’s planned over a three-year period.

One hundred twenty-six employees making $70,000 per year comes to $8.8 million dollars. Add a pension plan and healthcare and you are talking really big bucks.

I hope Dan and his brother Lucas, a co-owner, took an accounting course.

Employee Turnover

Look for a mass involuntary exodus of current employees. Most of the work anniversaries being celebrated on their web site are two to three year employees.

The company itself started in 2004. It’s pretty hard to establish loyalty and longevity in that high-pressure environment.

When 3,500 more applications come in you’ll see those loyal employees kicked to the curb due to the massive payroll increase and cost of doing more business.

Employees who are worth $70,000 will displace those making $70,000 but whose skills are only worth $35,000 in skills and experience in the current workforce.

Water will seek it’s own level.

Some Final Thoughts

Like it or not, business is a numbers game. Business is not emotional, it’s not loyal, and it’s not compassionate. Otherwise it could not exist.

More dollars must come in than go out, regardless of how those dollars are produced and by whom.

And, as noted above, a 0.02% profit is not what I would consider a safe margin of profit to make this kind of change.

I hope this works, I really do. And I hope the bean counters at some major corporations can emulate Price’s idea and make it pencil out profitably for the company and the employee.

But as we all know the news media will move on and competition will move on Gravity. This might also reduce the confidence of investors.

Would you invest in a $10 billion company if you knew the CEO was making what a good used car salesman might make?

Time will tell if this is an idea whose time has come or another good idea that just can’t be profitable.

Read or Subscribe to all Tom Egelhoff’s Daily Blog Post by Clicking Here