Seattle company copes with backlash on $70,000 minimum wage

There are times Dan Price feels as if he stumbled into the middle of the street with a flag and found himself at the head of a parade.

Three months ago, Price, 31, said he was setting a new minimum salary of $70,000 at his Seattle credit-card-processing firm, Gravity Payments, and slashing his own million-dollar pay package to do it. He wasn’t thinking about the political clamor over low wages or the growing gap between rich and poor, he said. He was just thinking of the 120 people who worked for him and, let’s be honest, a bit of free publicity.

Talk-show hosts lined up to interview Price. Job seekers by the thousands sent in résumés. Harvard business professors flew out to conduct a case study. Third-graders wrote him thank-you notes. Single women wanted to date him.

What few outsiders realized was how much turmoil all the hoopla was causing at the company itself. To begin with, Gravity was unprepared for the onslaught of emails, Facebook posts and phone calls. The attention was thrilling, but it was also exhausting and distracting. And with so many eyes focused on the firm, some hoping to witness failure, the pressure has been intense.

More troubling, a few customers, dismayed by what they viewed as a political statement, withdrew their business. Others, anticipating a fee increase — despite repeated assurances to the contrary — also left.

While dozens of new clients, inspired by Price’s announcement, were signing up, those accounts will not start paying off for at least another year. To handle the flood, he has had to hire a dozen additional employees — now at a significantly higher cost.

Two of Price’s most valued employees quit, spurred in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises. Some friends and associates in Seattle’s close-knit entrepreneurial network were also piqued that Price’s action made them look stingy in front of their own employees.

Lawsuit, legal fees

Then, less than two weeks after the announcement, Price’s older brother and Gravity co-founder, Lucas Price, citing longstanding differences, filed a lawsuit that potentially threatened the company’s existence. With legal bills quickly mounting and most of his own paycheck and last year’s $2.2 million in profits plowed into the salary increases, Dan Price said: “We don’t have a margin of error to pay those legal fees.”

The reaction to his salary pledge has led him to think that if his business continues to prosper, his actions could have far-reaching consequences. “The cause has expanded,” he said. “Whether I like it or not, the stakes are higher.”

In addition to providing the devices and software merchants use when a customer whips out a credit card, Gravity makes sure the money shifts securely and quickly among buyer, bank and business. In an industry dominated by global banking giants and mammoth processors, the company last year processed $6.5 billion in sales for 12,000 clients, most of them small- and medium-size businesses.

Longtime customer Solly Amon, proprietor of Pure Food Fish in Pike Place Market, isn’t bothered by Price’s new payroll policy. “He takes care of his business, and I’ll take care of my business,” he declared.

Brian Canlis, a co-owner of his family-named restaurant, is also a client. He said he was fond of Price, but was more discomfited by his actions. Canlis is worried about how to deal with Seattle’s new minimum wage, which rose to $11 an hour in April and is scheduled to reach $15 an hour for small businesses within five years.

The raise at Gravity, Canlis told Price, “makes it harder for the rest of us.”

Price winced. “It pains me to hear Brian Canlis say that,” he said later. “The last thing I would ever want to do is make a client feel uncomfortable.”

Leah Brajcich, who oversees sales at Gravity, fielded complaints from several customers who accused her boss of communist or socialist sympathies that would drive up their own employees’ wages, and from others who felt it was a public-relations stunt. A few were worried that fees would rise or service would fall off.

“What’s their incentive to hustle if you pay them so much?” Brajcich said they asked. Putting in 80-hour weeks after the announcement, she called the mistrustful clients, and eventually lured most back, she said.

As for other business leaders in Price’s social circle, they were split on whether he was a brilliant strategist or simply nuts. As much as they respected him, they were also disturbed. “I worry how that’s going to impact other businesses,” said Steve Duffield, chief executive of Daco Corp., who met Price through the Entrepreneurs’ Organization in Seattle. “We can’t afford to do that. For most businesses, employees are the biggest expense and they need to manage those costs in order to survive.”

Roger Reynolds, a shareholder in a wealth-management company, said his discussion of the pay plan with Price got heated. “My wife and I got so frustrated with him at a cocktail party, we literally left,” said Reynolds, who complained that Price unfairly accused him of measuring his self-worth solely in terms of money and trying to hold somebody else down.

Everyone may have equal rights, but not equal talent or motivation, Reynolds said. “I think he’s trying to bring in some political and aspirational beliefs into the compensation structure of the workplace.”

Upbringing

Price grew up with four brothers and a sister in rural southwestern Idaho, home-schooled until he was 12 and taught to accept the Bible as the literal truth.

The household was run as a “family business,” with jobs and responsibilities set out in charts and diagrams. “All my siblings hated it, but I thought it was cool,” Price said with a laugh.

Price is no longer so religious, but the values and faith he grew up on are “in my DNA,” he said. “It’s just something that’s part of me.”

He transferred that zeal to his credit-card-processing business, which he started out of his dorm room in 2004 with his brother Lucas, five years his senior.

He preached Main Street capitalism that promised to deliver good value, low prices and individual service. His success won him a shelf full of local business awards and a chance to meet President Obama during National Small Business Week when he was 25.

Nydelis Ortiz, 25, a former Peace Corps volunteer in Peru (not to mention the 2010 Miss Vermont), said she was drawn to his passion and community volunteer projects. Emery Wager, 30, a Stanford engineering graduate and a former Marine, decided to forgo applying to Harvard Business School so he could work closely with Price. (He felt vindicated when a Harvard friend who had ridiculed his decision told him Gravity’s pay scale was discussed in class.)

Maisey McMaster was also one of the believers. Now 26, she joined the company five years ago and worked her way up to financial manager, putting in long hours that left little time for her husband and extended family. “I love everyone there,” she said.

She helped calculate whether the firm could afford to gradually raise everyone’s salary to $70,000 over a three-year period, and was initially swept up in the excitement. But the more she thought about it, the more the details gnawed at her.

“He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump,” she said. To her, a fairer proposal would have been to give smaller increases with the opportunity to earn a future raise with more experience.

A couple of days after the announcement, she decided to talk to Price.

“He treated me as if I was being selfish and only thinking about myself,” she said. “That really hurt me. I was talking about not only me, but about everyone in my position.”

Already approaching burnout from the relentless pace, she decided to quit.

The new pay scale also helped push Grant Moran, 29, Gravity’s Web developer, to leave. “I had a lot of mixed emotions,” he said. His own salary was bumped up to $50,000 from $41,000 (the first stage of the raise), but the policy was nevertheless disconcerting. “Now the people who were just clocking in and out were making the same as me,” he complained. “It shackles high performers to less motivated team members.”

Moran also fretted that the extra money could over time become too enticing to give up, keeping him from his primary goal of further developing his Web skills and moving to a digital company.

The attention also was vexing. “I was kind of uncomfortable and didn’t like having my wage advertised so publicly and so blatantly,” he said, echoing a sentiment of several Gravity employees. “It changed perspectives and expectations of you, whether it’s the amount you tip on a cup of coffee that day or family and friends now calling you for a loan.”

Pressure felt

Several employees who stayed, while exhilarated by the raises, say they feel a lot of pressure. “Am I doing my job well enough to deserve this?” said Stephanie Brooks, 23, who joined Gravity as an administrative assistant two months before the wage increase. “I didn’t earn it.”

When Price chose $70,000 as the eventual salary floor, he was influenced by research showing that this annual income could make an enormous difference in someone’s emotional well-being by easing nagging financial stress.

As for the raw feelings of friends or employees, Price admits he can be contentious, even censorious. A disagreement often comes across as a personal attack. “It’s just as painful for me as anyone else,” he said.

Price, who extolled McMaster’s talents, said he didn’t think she was wrong. “There’s no perfect way to do this and no way to handle complex workplace issues that doesn’t have any downsides or trade-offs,” he said.

When other entrepreneurs suggested stock options or profit-sharing would have been a better approach, he said that’s the way capitalism works: Everyone tries to invent the best mousetrap. “I came up with the best solution I could.”

The publicity surrounding the wage policy has generated benefits. Three months before the announcement, the firm had been adding 200 clients a month. In June, 350 signed up.

That new business won’t start paying off for 12 to 18 months, however, Price said, and in the meantime, he is contending with the lawsuit brought by his brother. Lucas Price owns about 30 percent of their company, although he has not been involved in day-to-day operations for several years.

Dan Price, who estimated his current net worth, including his home, at $3 million, said he had offered to “give up everything I have personally and everything I’ll have for years to come.” A court date has been set for May.

For now, Price has undoubtedly made an immediate difference in the lives of many of his employees. José Garcia, 30, who supervises an equipment team, was able to afford to move into the city and replace the worn tires on his car. Ortiz, who was briefly homeless as a child, can now visit her family in Burlington. Vt. Cody Boorman, 22, who handles operations out of his Eastern Washington home, said he and his wife finally felt financially secure enough to start a family.

There have been other ripples. Mario Zahariev, who runs Pop’s Pizza & Pasta, switched to Gravity after seeing Price on the news. When he learned his monthly processing fees would drop to $900 from $1,700, Zahariev decided: “I was not going to keep the difference for myself.” He used the savings to raise the salaries of his eight employees.