Seems like all the proponents of a certain worldview are applauding the Seattle company CEO’s decision to pay his employees a $70,000 “minimum wage,” declaring it wonderful “gift” to his employees — and with wagging fingers demanding that all entrepreneurs and CEOs should follow suit. But this gift horse doesn’t hold up well to even a cursory oral examination.
It appears to me that Gravity Payments Co-Founder and CEO Dan Price has performed a truly magnificent PR trick, but it’s a trick that falls far short of being the redistributionist magic it purports to be.
In case you weren’t aware, this isn’t Price’s first trip to the generous employer PR rodeo. Back in 2013, Price figured out that the press loves a good generous boss story when he very publicly announced he’d increase his employee’s wages by 2 percent to cover the cost of a newly imposed Seattle payroll tax.
This time through, Price told the Times that he “read an article on happiness” and it convinced him that he needed to raise the salary of even the lowest-paid clerk at Gravity to $70,000 a year. Further, he vowed to reduce his own salary from the $1 million he paid himself last year to just an egalitarian $70,000 this year.
A remarkable round of huzzahs quickly followed from the magical-thinking, hike-the-minimum-wage-to-achieve-prosperity crowd. “What a guy!” said one commenter on the Huffington Post’s Price hagiography. “Dan Price may just be the smartest CEO in the country,” said another.
Thanks for the horse, Dan!
Now lest you think I’m a cranky sweatshop operator, let me just say that, in a weird twist of irony, the lowest paid member of my 2013-vintage startup’s staff, my Chief Technology Officer, is also paid $70,000 per year, and unlike Dan, my salary at my company last year was zero. I didn’t think to put out a press release about it, in part because I’m not thrilled we hadn’t hit pay-myself revenue levels last year. But that only makes me admire Price’s magic more.
Page 1 / 3 Continue
(By the way, Warren Buffett only made $100,000 in salary last year, but since he’s making thirty grand more than Price and a hundred grand more than I am, I think we still can ask him to pick up the lunch tab next time we go out.)
But Warren, Dan, my CTO and I all know that the big prize is enterprise value – what our companies are worth, as opposed to cash they might throw off today. We forego current income to pursue greater rewards for our work and success in the long run.
And on that topic, take a guess how payment processing gateway companies like Gravity are most commonly valued? Not based on current operating earnings – EBITDA, in dealmaker shorthand – as most kinds of companies are.
Instead, because major players in the industry like FirstData (NYSE: FDC) and US Bancorp (NYSE: USB) can simply plug aggregated blocs of customers into their already existing payment processing networks while lopping off almost all the headcount at the acquired company, firms like Gravity are typically valued as a multiple of their revenue. The current state of valuation in the payment processing world is approximately two to three times annual revenue, according to one industry expert, regardless of whether the company’s telemarketers are being paid $40,000 or $70,000 a year.
So while Price may in fact be foregoing the lion’s share of his current salary, he’s not moving the needle an inch on his real net worth. Further, I don’t recall hearing any suggestions that Price would be either restricting any dividends he might pay himself out of profits, or that he was feeling as similarly generous with his equity ownership in the company as he is with his salary dollars.
But it’s a PR masterstroke. I deconstruct the $70,000 minimum wage story like this — and in doing so, I’m not suggesting that Dan Price has any kind of bad motives whatsoever. I just think that the Gravity tale is not quite the heartwarming, selfless story of the uber-generous CEO with a deep social conscience that so many media outlets seem to want to make of it.
- Dan Price is a significant Democratic Party and related liberal cause donor, having given $10,000 to Actblue, the online Democrat fundraising site and $10,000 to Senator Patricia Murray in 2010, and $10,000 to the Obama Victory Fund in 2012. He was honored by President Obama in 2010 for his entrepreneurial achievements. (The contributions to ActBlue and Murray appear to have been made sixty days after the Obama meeting.)
- The story of the new Gravity “minimum wage” appeared first in a newspaper 2,800 miles away from Gravity’s Seattle headquarters. It doesn’t appear to have spread organically from the sheer joy of the workers — someone planted it at the Times, the U.S.’s leading liberal newspaper.
- Given the payment processing industry’s current valuation metrics, Gravity’s $13.1 million 2013 revenues would value it at roughly $26.2 million to $39.3 million before his announcement. After his announcement: Same.
- There appear to be no other shareholders in the company than Dan Price and his co-founder brother.
- Gravity Payments is located, as previously noted, in Seattle, home of the $15-an-hour minimum wage. Its service territories of Washington, Hawaii and Oregon encompass some of the most politically liberal cities in the nation. Gaining new retail clients with a brand that encourages worker equality wouldn’t be the worst market share strategy in the world.
- Credit card processing, Gravity’s core business, is increasingly commoditized and is under further pressure from crypto-currencies like Bitcoin. It’s a sales-driven, hand-to-hand combat business that may well not be hospitable toward smaller regional players like Gravity over the next several years, making it more and more likely that such companies will seek to sell out to larger, better capitalized providers.
Logically, if I were in Price’s shoes, I’d focus on driving revenue, maintaining customer loyalty, and building the highest brand profile I could, all while not worrying about the bottom line, since the bottom line would be anomalously irrelevant to my net worth.
Dan Price is doing a great thing for his low-paid employees – at least until he decides to sell his company, which could well become a necessity for survival in his industry. At which point, his customer service folks will more likely than not be out looking for a job, and probably not one that pays $70,000 for the same work. No harm no foul there – unless someone who’s fundamentally a $40,000 a year employee to the job market builds themself a $70,000 a year lifestyle.
Page 2 / 3 Continue
My hat’s off to Dan Price. He just did an astonishingly brilliant thing for himself and gave his Democratic pals a hero that they’ll claim all CEOs should emulate. It’s too bad, though, that a fawning, remarkably un-skeptical business media won’t be focusing on the fundamental economics and circumstances of the company, which suggest that what’s going on is a horse of a different color.
Dave Maney (@DaveManey) is the Founder/CEO of Deke Digital LLC, which provides content-driven digital marketing and media services to financial services and healthcare companies.
It appears to me that Gravity Payments Co-Founder and CEO Dan Price has performed a truly […]