This it the time of year for a nice, heartwarming Christmas story. Perhaps one about a miser who has an epiphany brought on by a glimpse of his own life and mortality. Right on time Bloomberg Business delivers.
Remember Dan Price. The Seattle (where else) CEO that raised the minimum pay in his company to $70,000 per year?
The idea began percolating, said Dan Price, the founder of Gravity Payments, after he read an article on happiness. It showed that, for people who earn less than about $70,000, extra money makes a big difference in their lives.
His idea bubbled into reality on Monday afternoon, when Mr. Price surprised his 120-person staff by announcing that he planned over the next three years to raise the salary of even the lowest-paid clerk, customer service representative and salesman to a minimum of $70,000.
And his evil Grinch-like brother:
A Seattle CEO who set a $70,000 minimum wage for all his employees is now being sued by his brother.
The Seattle Times reports Lucas Price accuses his brother and co-founder, Dan Price, in court documents of violating his rights as minority shareholder in Gravity Payments and breaching duties and contracts.
Like much else on the liberal side of the political spectrum, Dan Price’s actions seem to be equal parts fairy tale and fraud. In other words, it is a lot like ObamaCare and any other Democrat program.
To fully understand the whole set up, you have to understand that the company was owned by just two brothers: Dan and Lucas Price. Dan, the majority shareholder, was paid salary plus bonus. Lucas was paid dividends. Dan had the most votes and, like any liberal in a similar position, voted to raise his salary and bonus to the detriment of his brother’s dividend payment.
In 2013, Price says, Gravity hired compensation consultant Towers Watson to look at his salary. “The Towers Watson recommendation allowed for significant raises over the $1.1 million, but I elected to not raise my pay,” he says. Hollon, Lucas’s attorney, says Price is “mischaracterizing” the findings.
Whether judged by gross or net revenue, Price’s pay was atypical for a company its size. Gravity’s finances aren’t public, but Price says gross revenue was $150 million in 2014 and will rise to an estimated $200 million in 2015. But Gravity doesn’t get to keep the bulk of that revenue; it must automatically pass most of it on to credit card networks and issuers. The amount the company retains—net revenue, which Price calls “probably a more relevant figure”—was $16 million in 2014, he says. Gravity’s 2014 profit was $2.2 million, Price adds.
At private companies with sales like Gravity’s total revenue, salary and bonus for the top quartile of CEOs is $710,000, according to Chief Executive magazine’s annual compensation survey. At companies with sales like Gravity’s net revenue, the top quartile pay falls to about $373,000. At companies with a similar number of employees as Gravity, the top quartile of CEOs makes $470,000 in salary and bonus. The CEO of JetPay, a publicly traded competitor that processes a similar volume as Gravity, received $355,000 in 2014.
After meeting Price and researching the figures, I called to ask if he thought his $1.1 million pay was fair, given those benchmarks. He replied: “I appreciate you asking the question. I’m happy to answer any other questions you might have. I’m way over time, and there’s a bunch of people waiting for me.”
The lawsuit was not a result of the pay raise.
The possible retaliatory nature of the suit only adds to the drama of Price’s wage hike. “This is all speculation on my part,” [Dan Price’s communications guy Ryan] Pirkle said in late September, before explaining how, as minority shareholder, Lucas gets paid dividends from Gravity’s profits. “Those profits are obsolete when you raise the wages. His brother’s, like, ‘That’s my money.’ ”
Pirkle suggested to me that the lawsuit could be part of a broader narrative about the purpose of business: “Is it to maximize shareholder returns? Or is it to best serve the customers and provide for employees?” Inc. hypothesized that Lucas filed the lawsuit after the pay increase “perhaps to pressure Dan to sell when Gravity was in the limelight, thus maximizing the value of Lucas’s share.”
But there’s a problem with all those scenarios: The lawsuit predates the raise. Lucas did file the case two weeks after Price’s announcement, but according to court records, Price was served with the suit at his house on the afternoon of March 16—about two weeks before the fabled hike with his friend and almost a month before the wage increase announcement.
The wage increase? Well it seems that it might be a ploy to reduce, probably temporarily, Dan Price’s income as a negotiating strategy for the lawsuit:
The lawsuit is light on details, but it claims that Price “improperly used his majority control of the company” to overpay himself, in the process reducing what Lucas was due. “Daniel’s actions have been burdensome, harsh and wrongful, and have shown a lack of fair dealing toward Lucas,” the suit alleges. It asks for unspecified damages and that Price buy out Lucas’s interest in Gravity. Hollon said the lawsuit was the culmination of “years” of efforts to resolve Lucas’s concerns. Price “on several occasions suggested to Lucas that if Lucas didn’t like Dan’s actions regarding Lucas’s rights as a shareholder, Lucas should seek legal remedies,” Hollon wrote in an e-mail. “Prior to the lawsuit, Dan had made clear that he would only engage with Lucas through Lucas’s counsel.”
If the lawsuit wasn’t a reaction to the wage hike, could it have been the other way around? After all, Price announced his magnanimous act a month after his brother sued him for, in essence, being greedy. Lowering his pay could give Price negotiating leverage, too. “With profits, at least in the short term, shifted to salaries, there is little left over to buy out his brother,” the New York Times reported Price said.
In addition to ramming ol’ Porky home with his brother and partner, Dan Price seems to be an all around charmer.
In 2003, Price started college in Seattle, and he and Lucas founded Gravity the next year. The brothers initially split the company evenly. In 2005, at 21, Price married Kristie Lewellyn, and the next year he became Gravity’s CEO.
In February 2012, he and Lewellyn divorced, “amicably,” the New York Times and Inc. wrote.
Price’s life may get more complicated the week of Dec. 7, when TEDx plans to post online a public talk by his former wife, who changed her last name to Colón. She spoke on Oct. 28 at the University of Kentucky about the power of writing to overcome trauma. Colón stood on stage wearing cerulean blue and, without naming Price, read from a journal entry she says she wrote in May 2006 about her then-husband. “He got mad at me for ignoring him and grabbed me and shook me again,” she read. “He also threw me to the ground and got on top of me. He started punching me in the stomach and slapped me across the face. I was shaking so bad.” Later in the talk, Colón recalled once locking herself in a car, “afraid he was going to body-slam me into the ground again or waterboard me in our upstairs bathroom like he had done before.”
It seems like he treated his wife and his brother very much alike. In the meantime, Dan Price has landed a book deal, is a hero of the SmartSet and is giving speeches on how to
screw your brother raise wages at $20,000 a pop.