Back in April 2015, a Seattle credit card processing company made headlines — and triggered a tsunami of job applications — when its CEO announced a new minimum base pay for all employees: $70,000.
Dan Price, the 31-year-old CEO of Gravity Payments, came up with the number after reading a famous report from the Nobel Prize-winning economist Daniel Kahneman that discussed how households experience peak happiness when making $75,000 a year.
Sounds great, right? More than half of Gravity's 120 employees received a crazy big raise. That must have been amazing for office morale. Unless, of course, you were one of the people who didn't get a raise.
Think about it. You've been at the company for years longer than the new guy. You've worked hard to demonstrate your loyalty and value as a worker. Maybe you've even passed up more lucrative job offers to stick around. And now your do-gooder boss wants to pay everyone the same amount that you've worked so hard to earn? Is that fair?
Two of Gravity's top employees didn't think so. They quit. “Now the people who were just clocking in and out were making the same as me,” said a Web developer to The New York Times, giving his reason for leaving.
There was a similar reaction when retail Goliath Wal-Mart announced in February 2015 that it would be raising wages for its lowest-paid workers to $9 an hour. Like Gravity, the big box store experienced a backlash from veteran workers who were passed up for a wage hike. Was it also unfair?
“Part of that is the normal noise that comes when some people get a pay raise and others don't,” says Gerry Ledford. He's a senior research scientist at the Center for Effective Organizations at the University of Southern California Marshall School of Business. “One thing that's guaranteed in pay systems is that almost no company is rich enough to make everybody happy. It's a question of, how do you meet business needs on one hand and deal with the noise?”
The issue at Wal-Mart, Ledford says, is that there's no significant talent gap or skill gap between new and veteran cashiers and shelf stockers. Fair or unfair, Wal-Mart doesn't have much incentive to pay experienced employees more.
“Why Wal-Mart did this is pretty obvious,” says Ledford. “The labor market is tightening, and Wal-Mart needs to reverse the view of itself in the labor market as not being a ‘prime employer.' Raising wages has a lot of PR benefits as well as potential benefits in attracting more and better people.”
Raising the federal minimum wage is a good place to start, but “pushing up from the bottom” isn't enough, says Josh Bivens, research and policy director at the Economic Policy Institute. His organization advocates for policies like raising the salary threshold for overtime pay. Right now, if you're a non-hourly worker making more than $23,000 a year, you're not eligible for overtime pay. Bivens wants to raise that number — which has remained nearly unchanged since 1975 — to at least $50,000.
“I don't think we're going to be able to just wait for individual companies to ‘see the light' and do it on fairness grounds,” he says. “I think we need a more systematic approach.”