3 Reasons Why One Company’s $70,000 Minimum Wage Hurt Everyone Who Got It

At Payment Systems, Inc., everyone now gets $70,000 a year minimum. But people are quitting, and others are sharing complaints heard in factories a hundred years ago. Shouldn’t everyone be thrilled?

There are three big reasons why this is destructive, and such a bad idea for the people who work there.

Dan Price, the CEO, thought he was giving everybody a great gift great four months ago. Everybody loved it up front. But big cracks are appearing in the idea, because giving everyone a $70,000 minimum wage simply continues the archaic wage practices of the Industrial Age. And it has the same effect—destroying the human spirit. Here’s why.

Reason #1—People Want to Make Meaning, Not Money
In her research on Generational Differences in Work Values, Jean Twenge found that Millennials to Baby Boomers are all motivated by the same thing—Making Meaning. A recent Salary.com survey also found that people who are focused on the size of the paycheck are less motivated.

Semco is a billion dollar company with 3,000 Stakeholders. They require people to determine their own pay. Every six months you go to a computer and plug it in. You would think chaos would ensue. But the company regularly has to adjust pay UP as people fall behind the industry average. Why? Because Semco leadership is focused on ensuring everyone finds their work extremely meaningful. For the last 30 years, Semco’s retention has hovered around an unheard of 99% per year. And almost no one makes more than the industry average. Meaning trumps money every time.

Another study by Sylvia Ann Hewlett, on attracting and keeping the best people, shows that at least three things motivate people more than money; flexible work schedules, praise and recognition, and breaking up the work day with walks, bike rides, swims or other non-work activities. A simplistic $70,000 pay raise addresses none of these more important meaning-oriented motivations.

Reason #2—Meaningful Work is Results-Based, not Time-based
This $70k minimum wage is a throwback to an archaic system.

For thousands of years people got paid for how many shoes they made, and how well they were made. The better the shoe, and the faster they made it, the more money they made. They were solving problems and Making Meaning, and money came to them as proof.

Along came the Industrial Age Factory System and all that changed. For the last 175 years, and for the first time in human history, we have paid people simply for time spent working. How dumb is that? Gravity Payments fell victim to the Industrialist’s mindset—paying people without regard to production.

In an interview with the New York Times, Price said, “I want to fight for the idea that if someone is intelligent, hard-working and does a good job, then they are entitled to live a middle-class lifestyle.” Interesting quote, because his solution does not reward people for that hard work or for doing a good job.

Alan Wyngarden owns a mortgage company and went results-based. He reduced his loan processor’s base pay from $55,000 to $24,000, then incentivized her for how many high-quality mortgages she produced each month. Within a year she was producing three times as many mortgages at a higher quality, and making $135,000 or more per year. When pay is disconnected from results, people find it hard to be motivated to do great work. It’s basic capitalism.

You can see the angst creeping in. People know that getting paid without regard to performance is a bad idea. Stephanie Brooks, an administrative assistant, said, “Am I doing my job well enough to deserve this? I didn’t earn it.”

Reason #3—Raising Everyone’s Pay to $70,000 is LCD Management
Lowest Common Denominator Management levels everyone with broad, sweeping policies that ignore individual performance and team contributions. Everyone “gets an A” (or an F) no matter how they perform.

Marisa Mayer, CEO of Yahoo, found some people not working well from home. So she just herded everyone back into the office day care center to be supervised. In this case, she gave everyone an “F”, even those who deserved an “A”. Motivated people got the same “reward” as the lowest common denominator.

Dan Price at Payment Systems has given everyone a de facto “A”, which treats lazy people the same as top performers. Grant Moran, a web developer who got a $20,000 pay raise but quit after the $70k minimum wage was enacted said, “Now the people who are just clocking in and out are making the same as me, It shackles high performers to less motivated team members.” LCD Management—the great leveler.

Maisey McMaster quit because, as she put it, “He 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.” Everyone gets an “A”.

How to Fix This
People are motivated differently, and one size does not fit all. Great incentives include a variety of rewards and take into account individual motivations. Bad incentives are simplistic, focused solely on money, and imposed by a top-down hierarchy (Industrial Age LCD management) which assumes it knows better what you need, without including you in the solution.

Tying income directly to production helps people love their jobs. At our company, nobody will ever get a pay raise because they hung around another year. They get them because they add more value than they used to—a very capitalist idea. As a result, people are more motivated to work, create, solve, and innovate, and get pay raises that reflect those results. We’ve had zero voluntary turnover in nine years. Why would people leave a results-based system that focuses on making meaning, and doesn’t shackle them to people who aren’t as motivated?

Great companies focus first on:

a) building meaning into their work,

b) tying pay to results, and

c) creating a Highest Common Denominator workplace that celebrates great contributions and reaching for the stars.

People will raise themselves to our lowest expectation of them. The most motivated achievers with brains are leaving Price’s company, and over time, only the least motivated will stay. Play a game that motivated adults want to play, and great achievers will rise to your greatest expectations of them.

Making meaning, and results-based incentives always attract great people. LCD Management makes them leave. Your choice.

Article as seen on Inc.com