This CEO gave his lowest-paid employees huge raises, and it made some people angry

Three months ago, a Seattle businessman had an epiphany. Dan Price, the CEO and co-owner of Gravity Payments, concluded that everyone in the company — including him — would be happier if he took a big pay cut and used the money to give his lowest-paid employees big raises. So he instituted a new policy where within three years, every employee in the company would make at least $70,000 per year. For some employees, that meant tens of thousands of dollars in raises.

You might think this was a win-win situation for everyone. A bunch of employees got raises. Price thought he’d get more satisfaction from helping his employees than from making more money himself. No one else’s salary went down.

But as the New York Times reports, the plan made a lot of people upset. Most upset were employees who were already making salaries near the new $70,000 minimum. They felt that giving formerly much lower-paid employees the same salary as them deprived them of their status as highly paid employees. Two employees even quit in protest after the raises were announced.

Also upset were some of Price’s peers in the business community. They felt the $70,000 salary minimum was unrealistic, and they worried that they’d now face pressures for higher wages from their own employees.

The lesson here is that employee compensation is a lot more than a coldly rational calculation of costs and benefits. Financially speaking, it doesn’t hurt one worker when another worker gets a raise. But in practice, people’s salaries are seen as a key way employers communicate approval of their subordinates. It doesn’t feel good if your co-worker gets a raise and you don’t.

And that’s especially true if employees feel the pay structure doesn’t recognize the contributions of a company’s longest-serving and hardest-working employees. One person who felt this way at Gravity Payments was Maisey McMaster, a 26-year-old who “joined the company five years ago and worked her way up to financial manager, putting in long hours that left little time for her husband and extended family.”

McMaster feels that by only raising salaries for workers at the bottom of the pay scale, Price failed to properly recognize workers like her who had devoted years to building the company. She left after the raises were announced. She told the Times that Price “gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump.”