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Image Credit: Screengrab via New York Times

Published by: Dan Calabrese on Monday August 3rd, 2015

Smacked by reality.
In a way, I have to admit, I have some sympathy for Dan Price and his quixotic quest to battle "income inequality" by instituting a minimum salary of $70,000 for all employees of his company. Not for the cause itself, which is merely the latest trend in left-wing economic illiteracy, but I too once ran a business in which I thought I could do amazing things by paying people way more than their experience levels or qualifications would earn them anywhere else.

It didn't work for two reasons. First, a business can't survive when employees can't generate enough value to give you a big enough return on what you pay them. And if they can't do that because you paid them too much, that's not on them. It's on you. Second, people don't appreciate what they haven't really earned. You think they're going to be grateful and loyal to you because you were so good to them. It doesn't work that way.

So as soon as I heard some months back that Price was going to wage his own one-man war against "income inequality" by paying everyone at Gravity Payments a minimum of $70,000 - and would even cut his own pay to help the company swing it - it wasn't hard to see this coming:

What few outsiders realized, however, was how much turmoil all the hoopla was causing at the company itself. To begin with, Gravity was simply 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 Mr. Price's announcement, were signing up, those accounts will not start paying off for at least another year. To handle the flood, he has already had to hire a dozen additional employees - now at a significantly higher cost - and is struggling to figure out whether more are needed without knowing for certain how long the bonanza will last.

Two of Mr. 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 Mr. Price's action made them look stingy in front of their own employees.

Then potentially the worst blow of all: Less than two weeks after the announcement, Mr. Price's older brother and Gravity co-founder, Lucas Price, citing longstanding differences, filed a lawsuit that potentially threatened the company's very 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."

It wasn't just good, experienced employees who had a problem with the plan. So did at least one employee who was a recipient of a huge raise:

Several employees who stayed, while exhilarated by the raises, say they now 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."

Ms. Brooks's concern is a bigger problem than you might think, especially in a small company. Whether you like it or not, when you earn that kind of money, you have to produce. The company can't afford you if you don't. And how exactly is a 23-year-old administrative assistant suppose to produce enough to justify a $70,000 salary? Is it even possible?

The problems at Gravity Payments are the perfect demonstration of how liberals get this whole "income inequality" thing wrong. They think, as Dan Price did, that people don't earn enough money simply because mean bosses don't want to pay it to them. Wrong. Everyone in America has the opportunity to earn more, but they have to do certain things. Obviously they have to work hard at it. They have to develop their skills. They have to gain experience. And they have to form the right business relationships with people who can connect them to those opportunities. That takes time, patience and effort. And it requires you to make a lot of good decisions along the way.

You don't just get rewarded one day in your early 20s with a $70,000 salary. It doesn't work that way and it shouldn't work that way. Anyone who's going to pay you that kind of money needs to get a lot back in return, and it takes time to develop the ability to deliver that kind of value. Where liberals really mess a lot of people up is by telling them this opportunity isn't there for them because "the system is rigged" in favor of the rich. That's the biggest bunch of crap I've ever heard. The "system" such that it is wants to find people who can produce. Anyone who can is welcome, and will do just fine. But liberals aren't encouraging struggling people to learn how to produce. They're encouraging them to hate on CEOs, with the exception of people like Dan Price who are willing to just give them money they haven't earned.

By the way, since I know some of you will jump all over me for brushing off Price's citation of the Gospel of Matthew in justifying his policy . . . um, yeah, let's just say Price (who according to the Times was raised Christian but "is no longer so religious," which explains a lot) totally misunderstands the parable. It's Matthew 20:1-16, and it reads as follows:

"For the kingdom of heaven is like a landowner who went out early in the morning to hire laborers for his vineyard. 2 Now when he had agreed with the laborers for a denarius a day, he sent them into his vineyard. 3 And he went out about the third hour and saw others standing idle in the marketplace, 4 and said to them, 'You also go into the vineyard, and whatever is right I will give you.' So they went. 5 Again he went out about the sixth and the ninth hour, and did likewise. 6 And about the eleventh hour he went out and found others standing idle, and said to them, 'Why have you been standing here idle all day?' 7 They said to him, 'Because no one hired us.' He said to them, 'You also go into the vineyard, and whatever is right you will receive.'

8 "So when evening had come, the owner of the vineyard said to his steward, 'Call the laborers and give them their wages, beginning with the last to the first.' 9 And when those came who were hired about the eleventh hour, they each received a denarius. 10 But when the first came, they supposed that they would receive more; and they likewise received each a denarius. 11 And when they had received it, they complained against the landowner, 12 saying, 'These last men have worked only one hour, and you made them equal to us who have borne the burden and the heat of the day.' 13 But he answered one of them and said, 'Friend, I am doing you no wrong. Did you not agree with me for a denarius? 14 Take what is yours and go your way. I wish to give to this last man the same as to you. 15 Is it not lawful for me to do what I wish with my own things? Or is your eye evil because I am good?' 16 So the last will be first, and the first last. For many are called, but few chosen."

The parable is about two things, neither of which has to do with "income inequality." First, Jesus is preaching that salvation is equally available even to those who repent and come to Him late in their lives. That's because salvation, unlike your wage, is not earned. It's a free gift and it has nothing to do with your merit. No one deserves it so no one is in a position to complain that someone else deserved it less than they did. Second, Jesus is warning people not to compare their own blessings to those others receive. This is about envy, the very thing that fuels so much of the left's "income inequality" talk. If you agreed to work for a denarius, Jesus says, then you agreed. Why are you now unhappy because of a deal someone else made that has nothing to do with you?

Price thinks this is an indictment of his employees who have a problem with others getting the raises. And if their concern was strictly steeped in envy, he would have a point. But it sounds like a lot of his employees are considerably smarter than he is. Their concern is about whether the company can still make a profit when he's plowed so much of their capital reserves into enormous raises for people who might not be able to produce enough to keep the company in the black with such a high payroll.

Dan Price sounds like a lot of younger CEOs who think they know more than their counterparts who've been at it for decades, and is finding out the hard way that when you choose a radical method of running your company, there might be a reason the more experienced corporate leader tends not to do it that way. I wonder how long it will take him to end up as a Democrat politician. He seems better suited for the public sector, where institutions survive forever even if they operate in an economically insane manner.
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