retail news in context, analysis with attitude

The New York Times has a story about Dan Price, the CEO of credit card processor Gravity Payments, who made news last week when he decided to cut his million-dollar salary to $70,000 a year so he could give raises to a number of his employees that would, in essence, make $70,000 a year the minimum wage at Gravity.
A number of compensation experts suggested that the decision was misguided since it was arbitrary and not created by market conditions, also suggesting that there is no correlation between having happy, well-paid workers and having productive, efficient and effective workers. And no less an economics expert than Rush Limbaugh described the move as " “pure, unadulterated socialism, which has never worked.”

In addition, expert observers suggested that this was the kind of decision that only the founder/CEO of a private company could make ... that it any company of greater size with greater board oversight, it would be almost impossible.

Price, for his part, "dismissed the back-seat business advice as misguided," the Times writes. "Proudly calling himself a capitalist, Mr. Price, the founder and chief executive of Gravity, argued that the new salary structure would benefit his firm in the long run even as it would help, more broadly, to highlight the corrosive effects of income inequality in American society. At the same time, he criticized some established business practices, like basing chief executive pay on what other chief executives earn."
KC's View:
I don't think that there is much argument with the notion that such a move would have been impossible at a public company, or one less controlled by a founder/CEO. I'm not sure that I buy the "this is socialism" argument, though ... at least not if you accept the definition of socialism as "a political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole."

Price isn't giving up control. He's just making a statement - and make no mistake about it, this is a political statement as much as an economic one - that the wage differential between leadership and the people on the front lines is out of proportion and needs to be addressed.

Is his solution a little extreme? Sure. But no less extreme than the economic realities that have created such an enormous chasm to begin with. This sounds pretty market-driven to me ... and people who don't think so simply don't want to acknowledge that wage disparity creates all sorts of market problems.

We'll see, in the end, if it works. I hope it does.