CEO Dan Price and Breaking The Ceilings Of American Economic Stigmas-Part 4-
In 2011, Jason Haley worked as a phone jockey for a credit card company. It was long hours, confused customers, and garbage pay for anyone working the phones. Jason and his co-workers made 35k a year, which was lower than the living wage in every state. To add insult to injury, Jason's company was located in Seattle, where the cost of living is 50% higher than the national average. For Jason, it wasn't enough that ends didn't meet; they never saw each other cross the wage golf.
Jason was taking a smoke break, trying to de-stress, when his hipster boss saw the sour look on his face. The boss man, Dan Price, was in a Christian rock band before settling down to Found his company, Gravity Credit Card Processing. Dan is relentlessly positive, cuts his hair like Jesus, and smiles in every picture he takes. Dan treated every employee like they should feel as excited to work at his company as he was. “Seems like something's bothering you," Dan said to Jason, finishing the cigarette. “What's on your mind?” Jason didn't miss a beat, “You're ripping me off.” He told the boss. Dan Price smiled, took a slow breath, and explained that the employee compensation was based on market rates, which meant paying the phone jockeys just enough to stay competitive. Paying them more would be irresponsible for the company, and the shareholders would get concerned.
Jason wasn't having it, especially since it's the wage workers who end up bearing the brunt of all that corporate responsibility. “I know your intentions are bad," Jason told his boss. “You brag about how financially disciplined you are, but that just translates to me not making enough money to lead a decent life.” This left Dan Price with a pretty big decision: shrug it off and replace the outspoken employee or restructure his entire company, risk millions of dollars, and scare the hell out of the shareholders so his grunts on the phone could earn a living wage. If you think Dan shows the ladder choice, there's a reason we're talking about Dan's company today.
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In the last few weeks, we have looked at high-power CEOs. Every self-help book that promises to make you rich and successful uses tycoons like Steve Jobs, Mark Cuban, and Jeff Benzos as their blueprint. We've already talked about what the economy would look like if we all became fabulously wealthy. We've covered what separates these elite achievers from average thinkers like us. And we discussed the corporate economics sandbag known as corporate stock buyback, which is partially why some CEOs make so much money. Bosses like Bob Iger of Disney who make more than 1,000 times the income of their typical employee.
Joe: For context, The University of Warwick economists found that the per capita income of the 1300s was more than double what's considered bare bones and today's poorest countries. So, not even Kings like William The Conqueror would ask for a thousand times the pay of their subjects.
Todd: Joe may never get tired of shared grip statistics. But today, we want to focus on the bright side. We want to ask if there's a better way to do business - one where we pay employees enough to not have to scrape by and where companies still make enough profit to satisfy shareholders. In other words, we want to talk about opportunity sharing and what a world full of Dan Prices would look like. But first, I want to tell Joe about Dan’s soul-searching moment.
Joe: We want to give a special shout-out to Adam and Kathleen, friends of the podcast and lifelong learners who brought this article to our attention. We are going to address the criticism of Dan Price’s business model, which has been thrown about saying that it is darn near socialism paying workers the happiness index.
Todd: Thanks, Adam and Kathleen. This is a phenomenal story. I'm embarrassed; I lived in Seattle during this, and I didn't even know it. I must have forgotten how to read there for a couple of years.
Joe: What pushed him into doing this? Because obviously, Dan wasn't doing this before and thought things were fine. He was operating business as normal. I mean, you've operated a business, Todd and done the math on being competitive.
Todd: Yeah, and laborers are the number one expense. If you raise labor, a lot of times, you can go right out of business. And we haven't said yet, but they were being paid $35,000, and the happiness index is $70,000. I mean, what do raises look like for people in your circle?
Joe: Like 5%. It’s a raise but it doesn't keep up with inflation. So many companies only raise wages a tiny percentage, like 50 cents or a dollar. And yet it frequently doesn't even keep up with inflation.
Todd: Yeah, and we studied this - there really aren’t raises anymore. Your only real chance of getting a solid raise is changing companies and positions to get more pay. Most companies are not going to pay you more to do what you're doing right now. It's just it doesn't happen. So he went from $35,000 to a minimum wage of $70,000. Imagine reading that email at work. I bet people were singing and dancing around the office when that happened.
Joe: I mean, it must have looked like a party every day, maybe a few days of disbelief. And I mean, they had to have also thought they were going to go out of business, right? My first thought is this is when the boss goes crazy, and then we're all out of a job next month.
Todd: I think most people who make $35K think the company they work for is making millions and millions. I think that's the general consensus, but I could be wrong. For Dan, Jason's conversation really punched him in the face. He felt absolutely horrible. It was a new low for him, and he was just shocked, and he was hurt. And it took him about three days to come up with this plan. And he decided that he was going to cut his own salary from 1.1M down to $70,000 to make this work. He was going to be making as much as everybody else.
Joe: Do you think that he was doing that but was also doing stock buybacks and making all of his money back in stocks or something?
Todd: I think it's safe to say that, after what we studied and what we heard in the last few episodes. There were a lot of fringe benefits, so he probably doesn't even need $70,000 to get by. But the fact is he did, and a lot of companies didn't do it. Now, his brother Lucas wanted out and sued him. Like, what the hell are you doing with our company?
Joe: Do you think his brother had a point? We won't get into yet what the outcome of that was, but I mean, if you were a 50-50 partner with somebody, you started a business with them and then suddenly they started paying the employees more than anyone's ever heard of…the shareholders and his partners must have been losing their damn minds.
Todd: As a business owner and 50/50 partner, yeah, I would be seriously concerned. On paper, it just doesn't work.
Joe: So this kind of brings us neatly to our first, I would say, science point, but honestly, it's more like taking other science points we've talked about before and trying to find a summary. Productivity in America goes up while wages stay the same because if all businesses quietly just don't pay more than their neighbor, then you can do that indefinitely until there are wage strikes. So I guess my question is, how much does that break this mold? Maybe that's why Dan is getting so much hate, because he's actually saying, hey, I'll pay not just minimum wage and not just what my competitors are expecting me to pay; I will not just go along with what makes me look good in the eyes of other companies. But he's raising it to a degree where it’s unreasonable to expect another company to do that.
Todd: I've been in the workforce for 30 years, and a manager has been in front of my title for almost that whole time. I have always preached that if you pay people more, they're not going to do more. You’re just paying them more. I totally believe that you can't pay someone to be a good employee. This kind of blows up that theory because all these people started producing way more than they were. And I know morale is important, but I didn't realize that they would have this boom in business.
Joe: Right. We had a couple of episodes about workplace stress, and in one of our speeches, we talked about how burnout and stress accounted for almost a third of all turnover. And not just turnover but work efficiency too.
Todd: This reminds me of a high school in New York, where they decide to pay all the teachers $120,000 dollars. And by doing that, they got the best of the best teachers. What they found was they got the best, superstar teachers in the world. But then, they also found that some people didn't want to work that hard. The amount of work and to compete with those other teachers because it's a competitive place, they said I want to go back to my 30-40K job where the expectations are much lower.
Joe: Now that you say it, that makes perfect sense to me. We talked about how the thing that really separates a CEO from a normal thinker is their work ethic; it's how much they work and how much of their life they're willing to devote to what they're doing. If you pay somebody such a vast amount, maybe that's why Dan got so much for his dollar out of this. When he started paying $70K to these phone jockeys, maybe he instilled in them the expectation that you're going to have to give me the most efficiency of anybody doing your job. Maybe your teacher theory is actually pretty accurate. When you look at the CEOs who refused to pay more, that might be it. My big question is, is it fair to do that to other businesses? Is Dan being fair to other businesses around him by raising his rates that high that quickly?
Todd: Well, in Seattle during this time, they raised the minimum wage for food workers from 10.75 to 17.75 - it was substantial, and people were losing their minds. They were like, these restaurants can't make a profit, and I was laughing because they don't realize how much these Taco Bells make. All those people who are yelling and screaming, not a single one of those restaurants has gone out of business. And no one's come back and apologized.
Joe: Do you think it's not about what's fair or what is a livable wage? Do you think it's just we don't want to see somebody who makes tacos make as much money as we do?
Todd: I know exactly what you're saying. Yeah, they want to keep those people where they belong, right? And it's terrible. Yeah, I think you're dead on. I don't think that's everybody, though; I think people who are higher earners or of a higher social class don't really know what it's like to not be able to afford a car or an apartment. I just think they don't have an idea, so they should probably keep that to themselves unless they've been there. And that doesn't mean living with your parents and working a job when you're 16 at a car wash for a few months. It's not the same thing.
Joe: It very quickly turns to hatred toward people who are doing what we don't think of as adult jobs. Dan’s phone jockeys, do they fall under this category?
Todd: I think you're right. I think anybody who says these things shouldn't be forced to work at Taco Bell at the drive-through for half a day.
Joe: I consider myself a very hard worker. I write and edit all the hours of the day, and I still can't do public-facing jobs like that. I'd kill myself. People beating the objectivist drum are saying that it's okay for CEOs to pay an extraordinarily competitive, aka a very cheap, rate to their employers because they're building jobs and driving society. But after reading so much about CEOs and the way they operate with taxes and the way they operate with stock buybacks…reading about Enron’s tax division…I'm starting to not think of companies and CEOs in such a rosy way. So the myth that the worst of these CEOs are participating in the American economy; that's the dream of an unregulated market where competition acts like evolution. But they aren't participating in the free market, like tax loopholes, lobbying and changing laws to favor is oligarchy.
Todd: People who drive trucks for FedEx or UPS have a really good pay rate. How do you think they feel when they see people in Amazon making 15-16 dollars an hour doing the exact same job?
Joe: Judgmental, maybe. But if you see somebody doing the exact same job you're doing and they're being paid a fraction of what you get, the first thing I would think of is somebody's got to go talk to them about forming a union.
Todd: I think about when I do my construction business; when I see bids or solo, I shudder a little bit.
Joe: We pull out our hair whenever there is a difference in what people are making in labor, but it will eventually write itself just by people deciding it's not worth it versus people who have been getting way too much money for it. I believe there will be a natural equilibrium. It's just that we need to stop attacking people for trying things. I think that's really my point. I can't believe Dan got so much heat for paying his people more. I get the people who are angry because they think it's a political stunt. I don't want to make it seem like I'm anti-CEO; I believe there are many good ones out there. But to be very blunt, we need these sociopaths because, for every Richard Sackler who killed so many people on OxyContin, we sometimes get an Elon Musk or a Dan Price - somebody who actually invents something and pushes us forward.
Todd: Something that just wasn't there before, which is very admirable, very expensive, and very difficult.
Joe: We do get the progress we want, and we do get the capitalism dream we want, but we also get so many of them who see more and more of these tax loops and these ways to buy their stocks in a certain way. Then we stopped making progress. We'd start getting stagnation, and extraordinary inequality in wages and nothing illustrates that better than Dan raising wages and being lambasted online for it.
Todd: I want to talk about the morale boost it did to the company. It’s been over six years, and it's had amazing yearly results. Each year, they've had a 10 times increase in people buying their first home, and 70% of them were able to pay down their debt. So, these are people; this is life-changing money for people. This goes from barely getting by to buying a house in Seattle, which is an expensive market and about a third of his people reported that they have no debt now. I see this hope and it just makes me happy. But you know, another sign of people being happy is having babies, and this company went from having two babies born per year for the whole team to over 65. It's literally a baby boom.
Joe: That is so crazy, and this sounds like the prosperity of the baby boomer era. Like, this sounds like the prosperity after the second world war. This is what it looks like when people, you know, have the happiness index and when they have enough to safely do these things. Dan’s business model has certainly validated itself. And like Dan, every CEO has some sandal involved.
Todd: The big one for Dan, aside the sexual assault charge, was his brother. They have been in the ongoing litigation over the way the business is run, and Dan's been accused of doing certain things. When they ask Dan about it, he is still grateful, and he is still upbeat, and this is how he talks about his brother. He said, “We're just in such a great place with this company and my brother Lucas helped get here. Whatever he wins in all of this, I think he deserves it.” So that's how he is with his own brother suing him.
Joe: That is way too upbeat for me.
Todd: Lucas didn't take the 45 million dollars to get out, which means to me they probably wanted something like 10 billion. And even with all that family friction, Lucas, the brother who's suing his older brother Dan, was his best man at his wedding.
Joe: No! Where is their family dysfunction? This is disappointing to me, as somebody who came from a dysfunctional family. Freaking rich people and their awesome relationships.
Final Thoughts
If you're pro-capitalism, you might argue that CEOs making a thousand times the amount of their employees is fair with their irreplaceable CEO skills. You might argue that tying health care to full-time jobs is good for the economy because if you don't work, you literally die. But if you have to keep breathing and you work under a CEO who makes more than a medieval King, and your job comes with a non-compete clause, your life starts to look suspiciously like feudalism.
Oh, and if you're wondering which political party these kings of America lean toward, you might be pleased to know that 58% of all CEOs are Republican, while 24% are neutral, according to Harvard Law. As automation, robots, and AI become bigger drivers in the workforce, companies rely less on human labor. In a utopian future, we might all receive 40 acres and a robot to farm for us - freeing us to master the violin or write a great American novel.
Until then, we must rely on CEOs and their lobbyists to set fair policies since Congress sizes with wealthy interests more often than public demand. According to a Princeton Study, “The preferences of the average American appear to have only a minuscule near-zero statistically nonsignificant impact upon public policy, whereas companies generally get their way.”