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CEO Buys Short-Term Love


RUSH: Dan Price is the founder of a company called Gravity Payments in Seattle.  He has 120 employees and he has decided he's gonna raise the minimum wage at his company to $70,000.  He's going to slash his own salary to $70,000.  It's gonna happen in the next three years.  He's also going to require himself to plow up to 80% of the $2.2 million in profits back into salaries. If there are profits, they will go to salaries, not growth of the business, not research and development, none of that.  It'll go right, 80% of the profits will go to salaries. 

He says he was inspired to make this step after reading that happiness increases dramatically for people earning over $70,000 a year.  Again, his name is Dan Price, CEO of Gravity Payments, slashing his own salary 93%.  This is a Seattle startup.  He has instituted a $70,000 minimum wage at his credit card processing company.  That's what the business is.  Credit card processing company, and he is paying for it by slashing his $1 million salary to the same as his lowest-paid worker, and 80% of the firm's $2.2 million in profit, expected profit, expected, projected, they haven't earned it yet, 80% of the 2.2 million on paper profit is going to be plowed back into staff salaries. 

"Over the next three years, Gravity Payments will offer at least $70,000 salary to all of its 120 employees -- even the most junior customer service representatives and clerks, CEO Dan Price told the New York Times this week. 'Is anyone else freaking out right now? I’m kind of freaking out,' he told his cheering employees at a meeting on Monday afternoon.  The policy will raise the wages for 70 of the company's workers - more than half the staff.  The Times was present at Price's announcement. Even if the $70,000 minimum wage is a publicity stunt, it's one that will cost him big time," because he's having to slash his own salary 90% to make this happen. 

And, again, he read that people's happiness increases dramatically for people when they are earning at least $70,000 a year.  Now, I hope that this company in future years -- (interruption) what are you shaking your head at in there?  What, you don't think it's gonna work?  (interruption)  Well, I know, no, he doesn't know the Thanksgiving story.  He doesn't know, he obviously doesn't.  He is a good liberal, and he's read that people are happy at 70 grand.  What he doesn't understand is, happiness does not equal productive.  Happiness equals comfort. "Seventy grand, well, I can stop working hard," is what it means. 

Anyway, he's not tying this to anything other than employment.  He's not tying it to performance. He's not tying it to sales.  This is pure, unadulterated socialism, which has never worked.  That's why I hope this company is a case study in MBA programs on how socialism does not work, because it's gonna fail.  My guess is that just like when Solyndra went south, there will not be a story on Gravity Payments succumbing to gravity and going under. 

Now, somebody sent me a note on this story, said, "I was reading some of the comments under this story at Facebook, and I was stunned at the vast majority of comments on Facebook who think this guy is just great and has such a big heart, and thank God there's a nice CEO left in America."

And I'm saying, "Why are people surprised? Why are you surprised that that would be a reaction in a country that's moving toward socialism?  It makes all the sense in the world that people commenting on Facebook would think this is great and want to get in on it."  The surprising thing to me -- I wish it were true -- would be if a whole bunch of commenters started posting reasons why this is doomed, why it can't possibly work.  And remember, it's a startup.  They haven't made any profit yet.  It's all projected. 

He's chosen $70,000 as an arbitrary salary because he read that's where people are happy.  And he's gonna find out -- (laughing) -- it isn't gonna take long because once everybody figures out they're all making the same, no matter what they do, the slackers are gonna surface.  Human nature.  William Bradford found out during the early Pilgrim days in this country. The slackers, the first thing they do is slack off when they find out that everybody's being paid the same. And then if the guy sets up an incentive program where some people start to make more, that's the beginning of his troubles, because he has set this up as everybody's gonna be the same. 

So if somebody gets a $10,000 raise everybody better or there's gonna be hell to pay.  And if he ever makes more than $70,000 himself, all these people praising him to the end of the world on Twitter and Facebook are gonna come for him with the long knives, accusing him of being a hypocrite. It's probably a publicity stunt here, even though everybody involved is denying that.  But the idea that people would not think this is a great thing, in this country, in this day and age, the way things are trending, particularly on social media, makes perfect sense.


Okay, we've got sound bites from the CEO.  If you're on hold, hang on, be patient, coming right back to you.  Dan Price was on the Fox Business Network this afternoon with Stuart Varney.  This is the guy that established a new minimum wage of $70,000 for every employee.  The business is in Seattle and Varney says, first sound bite, "Are you a socialist?"

PRICE:  I'm not a socialist.  What I really want to do, I want to have purpose, right?  What I love about my work is I have a purpose every day. I'm passionate about independent businesses, saving them money, giving them good payment processing services and my team members are, too.  But sometimes, if you're a little bit below what it takes to scrape by, that can be distracting from that passion, from that purpose that you have for what you do. So I'm all about achieving at the maximum amount, but I want to remove those distractions and basically help people move forward.

RUSH:  Okay.  Let me tell you what he's doing here.  I know exactly what this guy is doing, and that's why I know exactly what's gonna happen.  The key to this sound bite, "If you're a little bit below what it takes to scrape by, that can be distracting from your passion."  So he's assigning the same passion to his employees that he has, but they don't make enough money.  He's read that $70,000 is that liberating magic number you become happy, and he wants people to be able to focus on the work, not on they can't pay the light bill, they can't pay whatever bill. So he's gonna pay 'em 70 grand so they don't have to worry about making their payments. They have to worry about being in debt, and they can focus on their passion, which is his business. 

And you can do that with one or two, but not every employee is the same.  You can do that now and then, that can work for a time.  But I think what the guy's doing is trying to buy love.  Myself, I think the guy's trying to buy respect, trying to buy affection, that never works, by the way.  Here's the next bite.  Stuart Varney says, "Terrific idea.  You know, I think you're an extremely generous person.  You make a million dollars a year so you're gonna take a pay cut down to $70,000 a year, and you're taking some money from your profits, and you're gonna chuck it all into the big pot so that everybody makes $70,000 minimum. You're gonna take some of that profit and turn it back into salaries, not growth of the business, and you think you're gonna get a good return on your investment?"

PRICE:  Absolutely.  And I actually think that the way we look at it is about trust and it's about values.  So when you take care of people, they tend to take care of you.  And about a year and a half ago we instituted unlimited vacation for all of our team.  And sure enough, productivity went up.  Paid time off, even though it's unlimited, didn't really go up.  When you trust people, they really take care of you.  There is also a moral imperative of as leaders to try to do the best we can for everybody, and I think if we step up and take these problems seriously, there will be less need for politics to be involved.

RUSH:  Okay, now let me translate this for you.  It's about trust and values.  When you take care of people, they tend to take care of you.  For a while, that will be true, for a while.  Don't know for how long, depends on the individual. It's gonna be different for every employee.  For a while they're all gonna appreciate it, but it isn't gonna take long before the appreciation dries up and the expectation settles in, and it doesn't take long at all for the appreciation to vanish.  He's going to learn that he's not going to be the beneficiary of a lot of appreciation for a very long time.  If that's what he's trying to buy. 

I read about this unlimited vacation.  They set up unlimited vacation time for everybody, and you were on your own, whenever you wanted to go on vacation, for however long, go do it.  You know what they found?  Nobody took vacation.  They were afraid of being singled out as not being hardworking.  They were afraid somebody else would come in, I don't know if it was at this company per se, but I've seen this in other companies where they instituted this policy of no defined vacation time, no defined sick days.  Total honor system, you take your time.

You want to go on a month vacation, you do it.  There weren't any limits.  You need to take next two days off because you've got a sick pet, you go right ahead and do it.  And they found that people took hardly any sick days, and the number of days people took for vacation fell dramatically. 

Now, some said that was good. It added to productivity because people take way too much time off anyway, and they don't need that much time off, and this was good.  Whatever it was that kept 'em on the job, whether it was guilt or fear that they would lose the job, somebody else would come in and do their job while they were gone and it would be demonstrated they weren't needed, whatever it was, they didn't take their vacation. 

Then, of course, the human resources people started speaking out and said, "That's not fair.  You are being mean to your employees.  You think you're treating them well by telling 'em they're on the honor system, but look at them, they're not taking any time off and you end up running a sweatshop."  So the pressure was then brought to bear to reinstitute a very specific vacation-and-sick-day policy so that people would indeed get some time off, because, left to their own devices, they wouldn't. 

In other words, honor system vacation, take as much, whenever you want, just give us a couple days' notice and you're free to go.  Same thing with sick days.  It did not lead to more productivity.  It led to people being scared.  It led to people being afraid.  It did not liberate people.  It imprisoned them, attitudinally. 

It's kind of like in the NFL during organized team activities, the OTAs in the spring, they're voluntary, except if you don't show up, you hear about it.  If you don't show up, you may not start. They're voluntary by terms of the collective bargaining agreement.  But everybody expects you to be there.  So "voluntary" is just thrown in to make it look good, but everybody knows the game.  There's nothing voluntary about it. 

If you really want to stay on this team, if you really want to stay in the good graces of the coach, you will show up.  That's how you prove that you care, by volunteering to be here when you don't have to be, and that's sort of a takeoff on this.  There's another aspect, one more thing here before we go to break.  "When you trust people, they really take care of you." 

See, there's a moral imperative of us as leaders to try to do the best we can for everybody.  Now, in one sense you could say that this guy is trying something different, like Obama is in American foreign policy.  For 50 years we've had a policy with the Middle East Peace process, he's gonna do something different.  Fifty years we've been trying to keep Cuba and our policy with Cuba being specifically defined and, in Obama's eyes, it hasn't worked, hasn't accomplished anything in his eyes, so we're gonna change it.  And virtually everything about America that has been a tradition, Obama says, we've been sticking with this, various tax cuts here and various policies over here, and isn't working.  So I'm just gonna shake it up. I'm gonna do everything differently.  You see where we are. 

This guy is suggesting here, "You know what?  I don't have to run my company the way the book says. I don't have to run my company the way everybody else says it should be.  I don't have to run my company the way experience has taught other managers to run theirs.  I'm gonna do it a different way.  I'm gonna try it.  What have I got to lose?  It's my company."  So applaud him for that.  That's fine and dandy. 

I think that he's going to learn that there are certain characteristics of human nature that are gonna happen here.  Listen to why he's paying people 70 grand.  He's not paying them 70 grand specifically because they've earned it.  He's paying them 70 grand because that's what he read will make them happy.  What if it doesn't? 

He's also decided that since they don't make 70, they've got a bunch of distractions because of their financial circumstances.  They can't, maybe, pay the phone bill or the credit card debt is monumental and escalating or whatever, and he wants to rid those distractions so that people can focus on their work. 

That's an admirable trait, by the way. That would be wonderful if it worked.  But then at some point basic human nature 101 is going to appear, and if you decide to pay people because you want them to appreciate you, they will for a time, but it'll vanish and after a while 70 grand isn't gonna be enough.  I'll even make a prediction that after a while some of these employees are gonna say that this was a trick to get them locked into 70 and no more. 

He's gonna find all kinds of reactions to this.  He's hoping that every employee is profoundly impressed and blown away by the generosity and has never-ending appreciation and therefore will work themselves as hard as it takes to get the job done, and for a while that'll happen.  But then it won't take long before that naturally goes away. 

You can't spend the rest of your life appreciating somebody.  It doesn't happen.  Be nice if we did, but we don't.  After awhile you take it for granted. After awhile it becomes an expectation and then becomes an entitlement and then it becomes not enough and then it maybe is a trick to keep us from ever having to earn a hundred.  Seventy thousand is where he's heard we're gonna happy.  He gave us 70 grand, that's supposed to solve all of our problems, but a year or two from now what if I want 75?

No, 70's the magic number. You're gonna have all kinds of theories abound from his own employees.  Human nature is what it is.  I'm just here to tell him that the mass appreciation that he hopes, that he wants, is not going to be what he remembers as the result of his little experiment. 


RUSH:  Let me give you a couple other examples of what's gonna happen to Dan Price, the CEO of this company Gravity Payments.  He's paying everybody 70, the theory being that's what he heard is the number that makes everybody happy.  It isn't gonna make everybody happy.  Some people, 70 grand isn't gonna cut it.  Since he said that the purpose is he wants people free from distraction, he's gonna have some people come to him on the sly: "I really need 80, man."  And he's gonna say no, 'cause everybody's getting the same 70 and he's gonna have a disgruntled employee. 

"I need that to avoid the distractions you were talking about.  I need that to pay the bills that I've got." 

"Sorry, man.  Everybody 70, including me."  Bye-bye appreciation, and hello anger, because now he wasn't being truthful.  He said he's paying them this money so they would be liberated from distractions. 

"Well, my distractions cost me $90,000 a year. I need $90,000 or I can't work with a spirit and free mind." 

"Sorry, man, 70's it."  That'll take maybe a couple weeks.  But let's say that he did pay the guy 90.  Let's say one employee comes to him and makes the case, "Look, man, I need 90.  I know you're paying everybody 70, but I need 90," and he gives this sob story, maybe about divorce, kids, whatever. And the CEO falls for it, "Okay, okay, I'll give you 90."  He thinks he's really bought some appreciation now.  Nope.  Next year the same guy will be back wanting another 20.  It's never enough, no matter what, no appreciation, never enough. 

There's always gonna be one person on his staff that's gonna be that way, because people are different.  When that starts to happen, if people get wind, if he does give people more than 70 and people get wind of it, hello fallout.  And if none of this is merit based, that's the beginning of the problem here.  And it sounds like it's appreciation based.