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I commend the spirit of what this CEO is trying to do, but if I am an investor, director, or just even regular employee I would have serious reservations about

I commend the spirit of what this CEO is trying to do, but if I am an investor, director, or just even regular employee I would have serious reservations about this business strategy. > pay for the wage increases by cutting his own salary from nearly $1 million to $70,000 and using 75 to 80 percent of the company’s anticipated $2.2 million in profit this year. I don't know what the financials for Gravity look like, but this really only makes sense from a financial standpoint if (1) the company can't re-invest the profits with a better ROI (rate of return) and (2) they aren't worried about competition - i.e. have a serious business moat. In addition, the company will have a higher payroll tax burden because of the higher salaries. (1) is somewhat justifiable as investing in your employees may garner loyalty/harder work which may raise the top-line, but (2) seems unlikely. There are a lot of credit card processing companies. What happens if profits aren't as good next year? Are they going to slash wages to previous levels (or lower)? Or, if he's intent on sticking to the $70k minimum wage, this means he'll have to let go more people if the time comes. Did they look at alternatives - issuing more equity, special dividend, more generous bonuses?? I wonder how the conversation with finance went on this one.

cdcarter 11y ago
> Did they look at alternatives - issuing more equity, special dividend, more generous bonuses?? Well it seems he specifically wanted to increase salary compensation, but I can bet that any organization making a choice this big went so far as to consider alternatives. Paying your staff seems like a very good reinvestment of profit. In fact, it may well be what will allow them to pull ahead of their competition! The biggest problem I see with this plan is not increased payroll tax but increased HR costs to weed through the many more job apps they're going to get these days.
tannk11001 11y ago
If profits are unexpectedly worse next year, the compensation structure is probably the least of their worries. What they're really doing is investing in their brand as an employer, in the belief that loyal, eager employees make a sustainable company. For a company working a space like credit card processing, that's probably a better bet than a big ad campaign or R&D investment.
JDiculous 11y ago
You're looking at it strictly through a profit maximizing financial lens, but obviously this move isn't strictly a financial one. What if the purpose of businesses wasn't to maximize profit/ROI?
- atmosx 11y ago
  > What if the purpose of businesses wasn't to maximize profit/ROI? Mind-blowing concepts :-)
- Kalium 11y ago
  Many of the same moves have to be taken if the business wants to remain solvent into the next fiscal year.
kondro 11y ago
You're assuming there are other investors/directors that aren't Dan Price. At their current size/growth over the past 10 years it seems like they're a lifestyle business (urgh, I hate that phrase) where the company has grown organically from a small level of investment. If Dan wants to provide his employees a higher level of pay from what probably seems to be a very predictable business, then that's his prerogative. Businesses only have to act as psychopathic entities when they're run by dispassionate third-parties who's only motivation is literally increasing the profitability/value for shareholders.
- tedks 11y ago
  He will be instantly out-competed by people who actually understand capitalism and markets and will die poor, alone, unloved, and unwanted by the world. The people he tried to help will be struck down with him as they lose the jobs they've scrabbled their whole lives to maintain. Businesses only have to act as profit-seeking (that is the word you mean when you say "psychopathic") when they... want to survive.
  - kondro 11y ago
    Wow…
  - tzakrajs 11y ago
    Nice!
  - logicallee 11y ago
    I don't know why you chose to write your first sentence, which is so hyperbolic it makes you into a personal joke (he'll die alone and unloved? really? Why not add, "as a meth addict in a homeless shelter in Rio, on the run from the law after attempting to stick up a group of tourists with a butter knife.") If 18 people can build a $1 billion Internet company, you can do the same while subsidizing out up to a few hundred $80K salaries (let's say $8M/year burned, which is 100 such employees) without any consequence whatsoever. Zero. After your intro sentence, which sounds like you're attempting to get everyone to stop reading and downvote you, by writing something patently ridiculous, your second sentence is interesting. Now that nobody is reading, you write: >The people he tried to help will be struck down with him as they lose the jobs they've scrabbled their whole lives to maintain. This is interesting. Yes, he is paying well above-market for these jobs. What is the consequence? Someone working as a janitor for $80K is in a job he or she could not ever hope to replace should they lose it. What about hiring? Since he is paying above market (double), the natural result is that he should have 800 applicants for any job that becomes available. (The only reason he wouldn't is information dissemination.) i.e. if there are 100,000 janitors making $30K working a city, it would make sense for 50,000 of them to apply to him for $80K. This could have a very large distorting effect. Or, maybe it won't. We're still not talking 6 figures here. While doubling someone's wage is a very large step up, it is by no means the kind of step that completely distorts the market. And what if someone does scramble to keep or get an $80K job, but actually loses it? In fact, people lose cushy jobs they're happy with all the time. I think this is interesting and unfortunate, but by no means will ruin the people who enjoyed a period of unexpected windfall. In effect, they just become very moderate lottery winners. (They "win" a free excess doubling of their salary, while it lasts.)
omeid2 11y ago
I think your point 2 is overlooking what competition means. This, this very move is putting yourself ahead of competition and there is an overwhelming amount of research that suggests well paid (salary -- not to be confused with performance based "rewards") employees work better.
onion2k 11y ago
I wonder how the conversation with finance went on this one. If he's sensible he'll have taking his marketing director to the meeting. One of the most important things for a financial institution is being seen to be both ethical and trustworthy - setting out how you're not greedy and you want to improve the lives of your employees goes a long way to doing that. This move sets his company apart from the usual faceless, greed-driven credit card businesses, possibly to the point where they'll take a lot of the green/ethical/social business market. Given that this move is already paid for, it seems to be a brilliant bit of marketing that also has a real positive impact.
zacharycohn 11y ago
Company is 100% bootstrapped, so he doesn't have to worry about what investors think.
netcan 11y ago
I think this this sentiment is a relative of the recurring comment that 'there is a legal/fiduciary duty get investors the highest possible ROI.' I think it's neither true in practice or in theory, taken that literally. CEOs can't steal from investors or run the company against their interests. But they have a lot of decision making capacity within those bounds. Salaries (and realistically, the more pronounced questions are around executive pay), are within that boundary. So are marketing expenses, R&D expenditure and such. Companies are run using instinct, worldview, eve morals. It's not like investors can drag CEOs into court over every decision and demand they prove they're in shareholders' interests. If decisions are seriously, provably against investor interests they can, but in practice this means some sort of stealing. Crooked contracts with kickbacks, embezzlement. That sort of stuff. Apart from that it's 'normal' business. If investors don't like how the company is run they can replace him. Otherwise, sell.
- LLWM 11y ago
  It has nothing to do with that. It's obvious this company is privately owned by him and possibly his brother.
srtjstjsj 11y ago
Is it "finance"'s business what the CEO chooses to do with his compensation?

cdcarter 11y ago

> Did they look at alternatives - issuing more equity, special dividend, more generous bonuses?? Well it seems he specifically wanted to increase salary compensation, but I can bet that any organization making a choice this big went so far as to consider alternatives. Paying your staff seems like a very good reinvestment of profit. In fact, it may well be what will allow them to pull ahead of their competition! The biggest problem I see with this plan is not increased payroll tax but increased HR costs to weed through the many more job apps they're going to get these days.

tannk11001 11y ago

If profits are unexpectedly worse next year, the compensation structure is probably the least of their worries. What they're really doing is investing in their brand as an employer, in the belief that loyal, eager employees make a sustainable company. For a company working a space like credit card processing, that's probably a better bet than a big ad campaign or R&D investment.

JDiculous 11y ago

You're looking at it strictly through a profit maximizing financial lens, but obviously this move isn't strictly a financial one. What if the purpose of businesses wasn't to maximize profit/ROI?

atmosx 11y ago
> What if the purpose of businesses wasn't to maximize profit/ROI? Mind-blowing concepts :-)
Kalium 11y ago
Many of the same moves have to be taken if the business wants to remain solvent into the next fiscal year.

kondro 11y ago

You're assuming there are other investors/directors that aren't Dan Price. At their current size/growth over the past 10 years it seems like they're a lifestyle business (urgh, I hate that phrase) where the company has grown organically from a small level of investment. If Dan wants to provide his employees a higher level of pay from what probably seems to be a very predictable business, then that's his prerogative. Businesses only have to act as psychopathic entities when they're run by dispassionate third-parties who's only motivation is literally increasing the profitability/value for shareholders.

tedks 11y ago
He will be instantly out-competed by people who actually understand capitalism and markets and will die poor, alone, unloved, and unwanted by the world. The people he tried to help will be struck down with him as they lose the jobs they've scrabbled their whole lives to maintain. Businesses only have to act as profit-seeking (that is the word you mean when you say "psychopathic") when they... want to survive.
- kondro 11y ago
  Wow…
- tzakrajs 11y ago
  Nice!
- logicallee 11y ago
  I don't know why you chose to write your first sentence, which is so hyperbolic it makes you into a personal joke (he'll die alone and unloved? really? Why not add, "as a meth addict in a homeless shelter in Rio, on the run from the law after attempting to stick up a group of tourists with a butter knife.") If 18 people can build a $1 billion Internet company, you can do the same while subsidizing out up to a few hundred $80K salaries (let's say $8M/year burned, which is 100 such employees) without any consequence whatsoever. Zero. After your intro sentence, which sounds like you're attempting to get everyone to stop reading and downvote you, by writing something patently ridiculous, your second sentence is interesting. Now that nobody is reading, you write: >The people he tried to help will be struck down with him as they lose the jobs they've scrabbled their whole lives to maintain. This is interesting. Yes, he is paying well above-market for these jobs. What is the consequence? Someone working as a janitor for $80K is in a job he or she could not ever hope to replace should they lose it. What about hiring? Since he is paying above market (double), the natural result is that he should have 800 applicants for any job that becomes available. (The only reason he wouldn't is information dissemination.) i.e. if there are 100,000 janitors making $30K working a city, it would make sense for 50,000 of them to apply to him for $80K. This could have a very large distorting effect. Or, maybe it won't. We're still not talking 6 figures here. While doubling someone's wage is a very large step up, it is by no means the kind of step that completely distorts the market. And what if someone does scramble to keep or get an $80K job, but actually loses it? In fact, people lose cushy jobs they're happy with all the time. I think this is interesting and unfortunate, but by no means will ruin the people who enjoyed a period of unexpected windfall. In effect, they just become very moderate lottery winners. (They "win" a free excess doubling of their salary, while it lasts.)

omeid2 11y ago

I think your point 2 is overlooking what competition means. This, this very move is putting yourself ahead of competition and there is an overwhelming amount of research that suggests well paid (salary -- not to be confused with performance based "rewards") employees work better.

onion2k 11y ago

I wonder how the conversation with finance went on this one. If he's sensible he'll have taking his marketing director to the meeting. One of the most important things for a financial institution is being seen to be both ethical and trustworthy - setting out how you're not greedy and you want to improve the lives of your employees goes a long way to doing that. This move sets his company apart from the usual faceless, greed-driven credit card businesses, possibly to the point where they'll take a lot of the green/ethical/social business market. Given that this move is already paid for, it seems to be a brilliant bit of marketing that also has a real positive impact.

zacharycohn 11y ago

Company is 100% bootstrapped, so he doesn't have to worry about what investors think.

netcan 11y ago

I think this this sentiment is a relative of the recurring comment that 'there is a legal/fiduciary duty get investors the highest possible ROI.' I think it's neither true in practice or in theory, taken that literally. CEOs can't steal from investors or run the company against their interests. But they have a lot of decision making capacity within those bounds. Salaries (and realistically, the more pronounced questions are around executive pay), are within that boundary. So are marketing expenses, R&D expenditure and such. Companies are run using instinct, worldview, eve morals. It's not like investors can drag CEOs into court over every decision and demand they prove they're in shareholders' interests. If decisions are seriously, provably against investor interests they can, but in practice this means some sort of stealing. Crooked contracts with kickbacks, embezzlement. That sort of stuff. Apart from that it's 'normal' business. If investors don't like how the company is run they can replace him. Otherwise, sell.

LLWM 11y ago
It has nothing to do with that. It's obvious this company is privately owned by him and possibly his brother.

srtjstjsj 11y ago

Is it "finance"'s business what the CEO chooses to do with his compensation?