Thursday, April 16, 2015

Gravity means things fall back to earth

Happiness (at Gravity Payments, a credit card processor in Seattle) is a CEO named Dan;
Dan Price, chief executive of the company, stunned his 100-plus workers on Monday when he told them he was cutting his roughly $1 million salary to $70,000 and using company profits to ensure that everyone there would earn at least that much within three years.
For some workers, the increase will more than double their pay. One 21-year-old mother said she'll buy a house.
We hope she'll be able to make the payments if the experiment fails. Contrary to the naïveté in this story by AP's Gene Johnson;
He's already gained new customers, too.
"We've definitely gained a handful of customers in the last day or two," said Stefan Bennett, a customer relations manager at Gravity Payments, a credit card payment processing firm. "We're showing people you can run a good company, and you can pay people fairly, and it can be profitable."
That is a theory, not a fact. It is way too early in this game to claim that the increase in labor costs will translate to more customers. Economic theory tells us that it might be more likely that customers will flock to other credit card processors with lower costs, and lower fees.

We don't profess to know if this industry is truly competitive--financial services is a heavily regulated business, so entry of new competitors isn't guaranteed--but, according to the story, Dan Price started Gravity in his dorm room at college at the age of 19. Suggesting that competition isn't absent, and the race will go to the swiftest, most productive firms.

Profit is the way businesses keep score, just as the number of runs or points in baseball and football show who is (and is not) doing things right. If, some day, Gravity comes under pressure to expand it will need to attract capital. Without profits to show investors, that won't happen. And the now overjoyed employees might find themselves losing their jobs to more profitable firms.

At the very least, we predict, Gravity's employees will find themselves more stressed than they are now. Productivity must rise for those getting more dollars; they'll have to justify their new affluence. Which also brings up the question of those employees who now make at or more than the new minimum of $70,000. What happens to their productivity, when they see less qualified/valuable co-workers earning the same money they do?

The opera isn't over until the fat lady sings.

Read more here:

Read more here:

No comments:

Post a Comment