The only true tragedy here is that the relationship between two financially-sound brothers was soured by a dispute about how to get more money.
Sometimes I think to myself that if I got into business with members of my family, things would somehow be different for us. Stories like this at least have the silver lining of an unambiguous answer: no.
Depends on what everybody loves most. If it's money, forget about it. If it's something higher (other people, God, etc.) then I think it can really work well. I previously worked at a startup with my brother. We both had roughly 10% equity stakes and it never jeopardized our relationship, even when the company went through some tough times.
True, but the trick is accurately determining up front "what everybody loves most". Oftentimes people don't really know the answer to that for themselves, let alone for anyone else.
Totally agree. However, in the context of whether you can do business with your family members, you probably already know them well enough to make that assessment.
I'm not entirely sure it really had anything to do with money between the brothers. The details seem to be nebulous but I think it was a matter of "you made a massive decision with out me" process. Growing up with a brother I can attest to brotherly competition.
That's common, and it's usually capped the ruling would have the amount of legal fees to be paid this doesn't mean that it covers the legal costs of the winning party, it hardly comes close in most cases unless it was really a uneven match to begin with (e.g. huge corporation vs an individual).
In washington state fee shifting is very uncommon, actually. Unless the shareholder agreement provided for it, this should be interpreted as a real slap on the wrist -- essentially a sign the judge thought the suit was frivolous.
I'm all in favor for workers getting paid more, but I can understand the brother's perspective. Shareholders, especially ones who own 40% of the company, have a reasonable expectation that the company CEO will be acting in their financial interests. In this case, the CEO was acting in a way that is favorable to his employees' interests, but detrimental to the interests of the shareholders. Given that the CEO legally has a Fiduciary duty to the shareholders to protect their best interests, I can understand the brother filing suit.
If the CEO also owned 100% of the company, or if the CEO was helping the employees with his own personal money, and not the company's money, there's no problem of course. But that isn't what he's doing. A cynical interpretation would be that the CEO is giving up 60% of the profits, in return for national fame and glory, while the brother is forced to give up 40% of the profits and gets nothing at all.
I don't understand why the idea of employee interests and shareholder interest can't be aligned? If the shareholders are invested for the long haul, surely they are one in the same.
Obviously this is a simplification / wishful thinking. But maybe it's what we should strive towards :)
Let's be straightforward about this in asserting ourselves as employees; They already ARE aligned. If you're (my employer) not paying me well compared to competitors, I will absolutely walk, and you will be saddled with finding and training/ramping up a replacement. That is a direct cost to shareholders. It is in their best interest to ensure a reasonable continuity within their workforce both from a work output standpoint and a morale/culture standpoint, as teams I've been on which have had time to establish trust and understanding for each other have been remarkably more effective than those that did not. As such, pay is one of the "easiest to pull" strings to this end.
There is some mental dissonance however, as I imagine this train of thought would be "obvious" to those in power, yet we see regular evidence of wage stagnation/suppression. If we don't assume incompetence, some optimum of balancing pay and churn has been found and accepted, and if I trust that they are making a self interested decision, there may NOT be a benefit to paying more. However, I'd really like to see the numbers, because my following intuition from a long time of watching the best engineers hop from job to job is that I probably wouldn't agree with their choice of calculations.
I agree. I imagine arguments about misalignment can be made whe you vouch to pay a 2x market rate multiple to office admins, janitors, etc.
However, like you say, it has to do wonders for corporate culture! (ignoring the jealous folks who think they deserve to be paid more than a janitor. I believe I remember a few such people when I originally read this announcement)
> If you're (my employer) not paying me well compared to competitors, I will absolutely walk, and you will be saddled with finding and training/ramping up a replacement
You are lucky to be working in an industry with a position and skillset that allows you that luxury. And yes it is a luxury, and one that many employees don't have.
I absolutely appreciate that; it's a constant effort to reskill myself to stay relevant and I may not always be able to keep up; do not mistake my comments as ignoring that. It was primarily intended to realize that while we have this advantage, if we let our employers leverage us and do not leverage them in return, we would be letting as you say, a rare opportunity, go to waste, and in many cases result in undervaluing ourselves. I do not believe we owe companies undue charity in that respect, when it is very often not shown in return.
You could view it a different way. You could view that he did act in the best interests of his shareholders; if you pay your employees poorly they aren't as effective which hurts profits.
Paying over the market value for the employees is a pretty powerful motivator for them. If they're in a job that normally gets $30k/year, and now they're recieving an extra $40k, they don't want to risk going back out in the job market.
If you really want to keep your employees stuck, the key is to over-pay them. The vast majority of people immediately scale up their obligations to maximize the entire breadth of their paycheck (or at the very least, they become accustomed to having a large amount of disposable income). If they'd have to take a 30%+ pay cut to get employed by another company, most employees literally can't leave without risking financial ruination, and it's certainly not a pleasant prospect in any case.
Over my career, the saddest, most stuck employees have been those whose salaries outstrip anything they could get if they go back on the market. It's wise to think carefully before accepting a salary that is much higher than normal, because it's likely that you'll have a very difficult time leaving.
Am I the only one thinking "serves them right"? I have never understood people aligning their lifestyle to their limits. Find a lifestyle and hobbies and people you enjoy. If that is dependent on a lot more money than other people can get by on just fine... Suit yourself.
Otherwise you should have a huge safety net when you finally decide to switch jobs to something that makes you happier.
Stinting yourself and wasting money aren't the only two options; look up The Old Money Book for a third. If your purchases are timeless and long-lasting -- if your durable goods are genuinely durable -- you can live surprisingly well while spending surprisingly little.
Obviously you can and should spend you money wisely. You should not live paycheck to paycheck if you can avoid it. You also should not hoard all of your money and live a miserable penny pinching life unless that somehow makes you happy. But this is boring advice that everyone knows. The reality is that people tend to spend most or all of what they earn. People like to own nice homes and nice vehicles and take nice vacations etc etc.
When someone says something like "I don't understand why people spend all their money", it's just pretension. They know exactly why people spend all their money. Money buys nice things and nice experiences. It's a good idea to live beneath your means, but it's a different thing to pretend that typical behavior is somehow incomprehensible.
Also, buying quality doesn't stop you from spending all your money. It is extremely easy to spend all your money on quality stuff that you don't really need and justify it as "buying quality" or "buying once".
> Obviously you can and should spend you money wisely. You should not live paycheck to paycheck if you can avoid it. You also should not hoard all of your money and live a miserable penny pinching life unless that somehow makes you happy. But this is boring advice that everyone knows.
> The reality is that people tend to spend most or all of what they earn. People like to own nice homes and nice vehicles and take nice vacations etc etc.
Aren't these statements contradictory? My point was that it's obvious that a lot of people don't know this, and you CAN avoid living from paycheck to paycheck.
I did it when I was a student (with no help from parents) and had at most $400 a month after rent, and I do it now that I make a lot more. I however still don't go out a ton, and I don't have a fancy car, or purchase anything on a contract, because the luxury part doesn't give me any happiness. I still eat great food and have people over and travel as much as I can.
I find this obvious. You do to. My OP was about people not.
The fact that people don't do what they should doesn't mean they don't know. People know they shouldn't eat tons of food and gain unhealthy amounts of weight. People know they shouldn't smoke. People know they shouldn't drink to excess regularly. Still people do these things pretty frequently. It's not a question of ignorance but a question of will, or priorities, or maybe ability.
Go ask any general practice doctor whether people do what they "should" and whether the reason when they don't is actually ignorance. People have lots of trouble prioritizing long term benefits over immediate pleasures.
> You also should not hoard all of your money and live a miserable penny pinching life unless that somehow makes you happy.
It does: it means financial independence -- and the freedom to work on what I really want to do -- comes quickly as opposed to never coming at all.
> The reality is that people tend to spend most or all of what they earn.
Read Amy Chua's _World on Fire_, on the question of market-dominant minorities -- i.e., peoples who have too much sense to waste their money like this.
> quality stuff that you don't really need
The difference between old money and the rest of the US is the difference between checking the time on your cellphone (the old-money way) and buying, or wanting to buy, a $20,000 Patek Philippe mechanical watch.
"Market equilibrium" seems like a great place to be if you want to cultivate no employee loyalty. "How are your pay and benefits?" "Definitely not better than any of our competitors'!"
CEOs have way more latitude than most think. There is an incredibly easy argument to make in this case: paying employees more means you get better employees, and more productive employees, thus you drive more shareholder value.
We live in a system that allows (afaik, IANAL) a law suit for anything. Afterall, if you have a complaint you need to be heard and due process needs to explore the legitimacy of your complaint.
What's insane is some of the lawsuits that succeed.
If you paid employees all of the companies earnings you wouldn't make any money. If you paid employees nothing, you wouldn't be making any money as they would stop working. If you pay somewhere in the middle, you would likely make money. So there exists a point where paying workers more will result in less money.
If he made a change on compensation not based on the interest of the company, then the other shareholders should be allowed a say.
Nothing you said is entirely true. It's certainly true if you look at it from a quarterly-earnings perspective. But there's no reason that a company paying out 100% of earnings to its employees can't outperform a company paying out less year-over-year.
You do need committed investors, but even if you have investors cashing out it may be better for the company that they leave when you look at things on a 5-year or longer timescale.
I can rephrase that there is some point X where X is the amount you pay employees, such that you don't make any money on T time scale. You can't say that you always get better productivity as you pay more and more. There comes a point where paying them more does not improve their efficiency or your business enough to justify the higher salaries being paid out.
I'm not saying that paying min 70k is beyond this point where paying them won't help you on T time scale, but it needs to be evaluated. You can't just assume that paying someone more will be more than made up for in increased long term efficiency.
It's interesting that you critique gp's comment for being binary, but you also make an absolutist comment yourself by stating "there's no reason" in:
>But there's no reason that a company paying out 100% of earnings to its employees can't outperform a company paying out less year-over-year. ... it may be better for the company that they leave when you look at things on a 5-year or longer timescale.
Instead of "no reasons", there are several reasons why a company paying out 100% of the profits to employees for 60 months will make it underperform another company that retains some of its earnings. A company can use its retained profits to spend on future expansion, speculative research & development, acquiring a company, etc. In many industry segments, if the company doesn't grow, it becomes irrelevant and dies. (At that point, the jobless employees get 100% of $0 profits.)
I can't think of any example in business history of a company that paid 100% profits to employees and therefore had $0 in retained earnings year-after-year ... outperform its competition.
What boggles my mind is that this is just one of many cases of provable long-term return. It's trickier for HR type investments (measuring the ROI on increases wages, or putting a pool table in the break room), but another example is most governments' refusal to believe that education has a massive ROI. Despite the fact that we have economic scientists repeatedly demonstrating with overwhelming evidence that these types of long-term investments have massive ROI, people can't overcome their natural short sightedness.
As far as ANY education goes, successfully providing children with a means of being a productive member of society provides them with 'things to loose' and thus they are far less likely to be a 'non-productive' as either a flat resource drain, or worse, as someone forced to find methods of employment that drain resources from others (such as crime).
I suspect you'd get the most RoI on education related to what the economy needed at the time. However if the market is compensating employees fairly* then students will likely pick what enjoy doing which also best fits the needs of the economy (as dictated by the benefits of the job).
*For example, when you have to hire employees from out of nation requiring that they make 2X or more of the median pay for the job in that area, and also allowing this valued employee to freely take any other similar offer (2X median pay in the area of the job) as well as have a fast track to citizenship.
"I suspect you'd get the most RoI on education related to what the economy needed at the time. However if the market is compensating employees fairly* then students will likely pick what enjoy doing which also best fits the needs of the economy (as dictated by the benefits of the job)."
The problem being that much education has a minimum of 4 year lag time. So one could go into a degree program when the market is hot, only to see it cool off by the time they graduate.
Citation? As I understand it this company is not doing specactularly (revenue up, but profit down a bit), but, more important, employee happiness is down to pre-$70K levels.
The article you linked provides the apt justification of the happiness survey. The very next paragraph gives many examples that show that the employees are living arguably better lives.
So, at the cost of growing a little less quickly than they might have, the employees that are building the company up are enjoying a drastically improved quality of life.
The company isn't failing, the investors aren't losing their shirts, and the human beings who are making the day-to-day operation of the company possible, are better off. Sounds like a win-fucking-win to me.
> Employee turnover fell 19% last year compared to the average of the past six years. Gravity has been flooded with 30,000 applications, up from an average 3,000 or so a year. A monthly company survey that gauges employee happiness found a bump just after the announcement but then a drop to pre-$70,000 levels – consistent with a widely-held theory that people return to a baseline level of happiness despite positive or negative life events.
Still, Pirkle says the raises have allowed employees to move closer to the office and cut commute times, and plan for the future without living paycheck to paycheck. Retirement account contributions are up 130%, more employees are buying first homes and 10 are expecting, up from a typical zero to two each year.
> paying employees more means you get better employees, and more productive employees, thus you drive more shareholder value
Except in this case, quite the opposite happened. All of the company's best employees quit and walked away within a few month's time.
This left only the newest hires running the ship - collecting, in some cases, more salary than the seasoned crew that had been there from the start and had to work their way up the pay ladder.
That's not what they were doing, though. It absolutely is petty and jealous to quit because someone else got a raise, and now you're not making more than them.
The folks that left were the folks that built the company. The new hires came in, and promptly got a massive pay raise to match the most senior employees, even though their contributions were non existent at that time.
The CEO got really good personal PR. The new hires got huge raises. The employees that had toiled long hours and built the platform got nothing.
That's not somehow petty, nor jealous. Let's not demonize the employees that decided they were not going to be part of that company anymore - a company that showed it wasn't going to reward hard work and dedication. Most of us would have made the same choice.
You got all of this from that same article? It doesn't mention anything about long hours or toiling. All it says is they were there for a while and were mad that new hires were getting the same pay.
No one bats an eyelid when a company hires a new unicorn, 10x developer. It's equally possible that raising the salary also allowed them to hire 10x employees and the old hires were feeling threatened so left.
We work with data, if I don't feel I'm compensated fairly I write a letter complete with numbers saying what my renumeration should be. And forward that to the manager and HR.
We're discussing previous articles about this company.
> No one bats an eyelid when a company hires a new unicorn, 10x developer. It's equally possible that raising the salary also allowed them to hire 10x employees and the old hires were feeling threatened so left.
That's not what happened here. No "10x developer" was hired. It was literally just a huge pay raise for the newest employees, and shafting the ones that had been there for years.
It turned from a merit-based system into one that valued everyone equally - and while this sounds great on the surface, not everyone contributes equally. Those that built the platform really felt like they got the short end of the stick. New hires, who put in none of the effort to get the startup up and running, had none of the knowledge nor domain expertise, suddenly were earning as much as the most senior engineers.
Not to mention the entire thing reeked at the time as one big PR stunt, since it didn't "just happen" one day, but rather the media was notified and it turned into a big fuss. It seems the stench had some credence given this lawsuit.
> We work with data, if I don't feel I'm compensated fairly I write a letter complete with numbers saying what my renumeration should be. And forward that to the manager and HR
This statement seems like hyperbole to me. I imagine few managers respond well to threats or begging via email about salary. Nevermind pointing to what other people get in a market for compensation is a terrible way to value yourself. You should start these discussions with how much value you bring to the table, not what others at other companies may or may not bring to theirs.
"That's not what happened here. No "10x developer" was hired. It was literally just a huge pay raise for the newest employees, and shafting the ones that had been there for years."
No, it wasn't. There was no "shafting" involved. Phrasing it that way shows that you're just as petty and jealous as those others. Someone else getting paid well does not take away from your worth.
"It turned from a merit-based system"
Payroll has almost never been a merit-based system, so any arguments about that are deeply flawed.
It is petty. If you've worked somewhere for ten years, you've already made 10 times what the new hires will have made in their first year. So for your ten years of contributions, you have ten years of back-pay that the new hires don't have a dime of.
It is entirely petty, and I will demonize those who are so caught up in what others are making to the point where they'd rather quit than work for a company where everyone is being paid well.
An employee that quits is clearly not the best employee. They were incapable of changing directions with the company.
If "the best" employee in a company quit because they were philosophically opposed to a new client's business, most would cock an eyebrow, think they were inflexible or committed, and move on. I find it extremely interesting that instead, a philosophical disagreement about cow-orkers' salaries is apparently considered very differently by some.
I would imagine the best employees quit because they thought it was unfair to be paid the same or almost the same as people who know and contribute a lot less. It would have been better to just pay everyone above the market by some percentage but this would not make for a sexy headline.
I imagine you're correct about why they quit. I don't see why that has anything to do with what I wrote, any more than I understand the dig at companies seeking publicity. (What could possibly be next? A pop star doing drugs?)
The best employees wouldn't give a shit what someone else is getting paid as long as they are being fairly compensated. You can always ask for more money, if you're as good as you claim you are you will definitely get it. I'm going to go with my gut and say this is just crabby, bitter griping from a few ex-employees.
Both the BI article and the NYT article it cites appears to be only able to quote the same 2 people. Now I know BI has a pro company/anti-worker agenda and I know NYT can be neutral on these matters. What I can't find in either are any numbers.
So I looked at Glassdoor[0] and the trend looks like after 8/2015, when this article was published, there is a sharp uptick in employee reviews. So far it appears almost everyone is happy with the change (customers, employees, and management).
> paying employees more means you get better employees, and more productive employees, thus you drive more shareholder value.
Isn't more driven by market forces of supply and demand. Why should CEO make his business to interfere with systems that are in place to deal with this.
Yep, "shareholder value" can be taken to mean all kinds of things-- long and short term.
The CEO may very well be able to make a case for higher wage workers even in the "greed-above-all" context of shareholders.
FWIW, 70K "min wage" might not mean so much if most employees are line workers and there are contractors for the support jobs (eg IT-dept, janitorial, secretarial, etc).
Time scale is worth considering here. Certainly over the short term this is a bad move for the company. What remains to be seen is how it will affect the company long term.
The company in this case also generated a lot of good will, something that is hard to get, hard to value, but very important none the less.
Too many corporations are so focused on quarterly performance they fail to account for the long term.
In this case we really aren't talking about a cut and dry example of putting workers over shareholders. The company has seen significant increases in value over time. It's a pretty difficult sell to say a CEO is hurting the company while also creating as much value as he was for the shareholders. These are boardroom disputes not courtroom disputes.
> Given that the CEO legally has a Fiduciary duty to the shareholders to protect their best interests
No such duty exists. What does is the annual general meeting where shareholders vote on proposals put forward by the board, such as the mission statement and a company vision.
If these state "we aim to remunerate employees on a flat rate equal to the highest current salary" then you can't cry later.
I've read, similarly, that the CEO is not bound legally to protect shareholder's best interests ahead of everything else, article linked here [1].
Quoting: "If you review any of the numerous guides prepared for directors of corporations prepared by law firms and other experts, you won’t find a stipulation for them to maximize shareholder value on the list of things they are supposed to do. It’s not a legal requirement. And there is a good reason for that.
Directors and officers, broadly speaking, have a duty of care and duty of loyalty to the corporation. From that flow more specific obligations under Federal and state law. But notice: those responsibilities are to the corporation, not to shareholders in particular."
A less cynical interpretation would be that Dan expected the $70k to attract top people and inspire a great deal of loyalty and that the publicity from announcing this radical approach would more than make up for the extra cost in new business. In other words, cheap advertising.
Oh and Dan has 60% ownership so he makes that call and every other. Sounds open and shut to me.
> Oh and Dan has 60% ownership so he makes that call and every other. Sounds open and shut to me.
Umm....I'm a little shocked you're not aware of this but 60% ownership doesn't give you the right to use the corporate credit card for personal expenses (which is what the suit is about[1]). How on earth is that open-and-shut just because he has 60% ownership?
[1]From the article: "On Friday, Judge Theresa B. Doyle of Superior Court in King County, in Washington State, ruled that Dan’s brother, Lucas, had failed to prove his claims that Dan had overpaid himself and inappropriately used a corporate credit card for personal expenses."
> In this case, the CEO was acting in a way that is favorable to his employees' interests, but detrimental to the interests of the shareholders.
That's an iffy assertion. You could argue that no corporation should pay above minimum wage for any position because to do otherwise is to eat into profits unnecessarily. But the reality is that for many positions you cannot attract or retain employees without paying them far above minimum wage.
It's not hard to argue that it's in the best long-term interests of the company to pay wages that make it easier to attract the best employees and that make its employees very loyal. Whether those wages are $40k/year, $70k/year, or $200k/year is not objectively very clear.
It's all academic until you have a few years of real world results to see how this pay raise will affect people.
Roughly 130 people - let's assume 100 of those people got a $30k raise - this is ~$3m more per year. The CEO went from $1m/year down to $70k, so... approximately $2m/more per year invested in paying people a decent wage.
What affect will this have on retention, employee commitment, training costs, better focus at work by not having to look for a second job, etc.? I would think at least some of the $2m diff would be made up just by reduced hiring/training costs, though it's probably hard to measure that accurately.
These numbers are not much more than a WAG, so perhaps I'm WAY off here...
And... from an article last year
=================
Gravity had about 120 employees, and they earned a little less than $50,000 on average. He found it would cost about $1.8 million to increase wages to $70,000 in steps over three years. Cutting his own pay would cover much of that, and if the wage hikes made his staff more productive, he figured, the whole move just might work.
=================
So that seemed to be the plan (well, the plan that's made its way in to the media stories)
In the UK a director's responsibilities are set out in the Companies Act:
A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—
(a)the likely consequences of any decision in the long term,
(b)the interests of the company's employees,
(c)the need to foster the company's business relationships with suppliers, customers and others,
(d)the impact of the company's operations on the community and the environment,
(e)the desirability of the company maintaining a reputation for high standards of business conduct, and
(f)the need to act fairly as between members of the company.
And that's pretty much it. This gives directors massive wide ranging latitude to act. Delaware's duties are similar, they give the directors huge latitude - companies are not legally mandated to e amoral profit machines.
Thank you for pointing this out... I would think the long term stability and/or growth of the company should be the paramount concern... that would include the employees and community(ies) that a company has presence or operates in. Beyond that growth for investors would naturally follow, but maximizing short term profits is short sighted to say the least.
"Most large businesses buy their corporate charters from the state of Delaware. And the law of Delaware is clear about corporate purpose. The chief justice of the Delaware Supreme Court, Leo Strine, put it simply in a recent law review article: “Directors must make stockholder welfare their sole end.” In cases where directors have acknowledged sacrificing shareholder interests for other groups, Delaware courts have found those directors violated their fiduciary duties."
I've also read articles by "authors" arguing otherwise, so maybe the answer isn't all that clear. But my tendency is to believe what a legal professor says, and the above paragraph sounds pretty convincing.
This is not a disagreement between a law professor and a layman commenter; it is a disagreement between UK and Delaware law on corporations. You're making it sound like the former.
_would be most likely to promote the success of the company for the benefit of its members as a whole,_
In the UK law is basically exactly the same as the Delaware law. As long as the directors are acting in good faith they can do pretty much what they like. It is up to the shareholders to show bad faith/gross negligence on behalf of the directors
You would be very surprised at what constitutes the welfare of shareholders. Shareholders have sued corporations for failing to take advantage of tax avoidance strategies (i.e. the plaintiffs contended that the company paid too much tax thus diminishing the amount available to the shareholders). The palintiffs lost - I'm at my wrong computer so I don't have the cite handy.
As long as the directors can show they have made a "good faith" attempt to manage to the benefit of the shareholders then they are covered.
> In cases where directors have acknowledged sacrificing shareholder interests for other groups
This part is key. When the directors actually admit that they are harming shareholder interests, they are opening themselves to a lawsuit. When they make a plausible claim that their actions are in the shareholders' interest, even if some of the shareholders disagree, they are fine. Courts do not second-guess business judgement.
To overrule the directors in court, shareholders have to show that the directors are acting in bad faith, not just that the actions will seemingly harm the company.
I couldn't disagree more. With that kind of attitude, paying employees more than minimum wage would be "detrimental to the interests of the shareholders."
Hell, the exorbitant executive salaries are "detrimental to the interests of the shareholders". Where are the lawsuits against those companies?
Shareholders, especially ones who own 40% of the company, have a reasonable expectation that the company CEO will be acting in their financial interests.
And there's quite a strong argument that the CEO was acting in their financial interests, just on a longer time scale than many people today can be bothered with.
The issue here is largely attributable to statements from Milton Friedman and people who like to quote him, which leads to the mistaken belief that companies are legally obligated to provide blind, hell-bent, maximum short-term-return-no-matter-the-long-term cost "value" to shareholders. Which in turn has all but driven out the idea of providing consistent long-term profit to shareholders, and to "I bought a bunch of your stock Monday, gut your company to give me a payday Tuesday or I'll sue and overthrow your board on Wednesday" somehow being enshrined as a noble endeavor.
That's a good point. In a related point, people also forget that a corporation or LLC is a grant of limited liability the government allows in exchange for a public purpose otherwise the shareholders would be liable for all of the debts of their business activity. As such there is a reasonable argument that this right to limited liability should come with a duty of care to society at large (employees, customers, the environment).
The history of corporate charters provides an interesting context because the limited liability was initially reserved for very risky but important activities like exploration. The original corporate charters were grants of both monopoly and limited liability offered by a monarch or sovereign for a specific approved business activity. Overtime society has expanded these grants to any and all business activity so we forget the original rationale for allowing these privileges.
Event the LLC is a relatively new entity. Historically business was conducted by partnerships. The partners were on the hook for the debts and actions of their partners and often put a lot of effort into limiting the risk of their business activities.
There is a strong argument that allowing investment banks to shift from a partnership to corporate structure allowed them to pursue much riskier activity. Goldman Sachs went public in in 1999 but was a partnership for 130 years before that.
The same motive applies to shareholders, if we allow them to benefit from limited liability it should be with the understanding that the company and its management have a duty to act appropriately which means the interest of Soviety at large and related concerns balances against profit concerns.
If you dig into the story, Gravity claims that the payrate increase actually resulted in revenue growth, productivity growth and reduced churn. They did lose some senior staff but overall it was actually an improvement for the company.
> In this case, the CEO was acting in a way that is favorable to his employees' interests, but detrimental to the interests of the shareholders.
That's debatable. You'd have to set up a number of companies side-by-side in order to establish whether or not paying everybody such a high wage would lead to one or the other group of companies doing statistically better for their shareholder in the longer term.
I can see all kinds of reasons why paying employees more might actually work out to be a benefit in the longer term.
> Given that the CEO legally has a Fiduciary duty to the shareholders to protect their best interests, I can understand the brother filing suit.
It's not a myth, per se, that managers have a fiduciary duty to shareholders. They clearly do have such a duty.
The myth comes in where people believe that means the burden of proof is such that they have to blindly serve short term financial interests of shareholders. There is no such rule at all, in fact it's quite the opposite:
The business judgment rule is a case law-derived doctrine in corporations law that courts defer to the business judgment of corporate executives. It is rooted in the principle that the "directors of a corporation... are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge".[1] The rule exists in some form in most common law countries, including the United States,[1] Canada,[2] England and Wales,[3] and Australia.[4]
To challenge the actions of a corporation's board of directors, a plaintiff assumes "the burden of providing evidence that directors, in reaching their challenged decision, breached any one of the triads of their fiduciary duty — good faith, loyalty, or due care".[5] Failing to do so, a plaintiff "is not entitled to any remedy unless the transaction constitutes waste... [that is,] the exchange was so one-sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration".
Fair enough. The problem is that in the context of this particular article the CEO could easily make the case that he's doing just that so invoking this as a counter argument against what the CEO did makes no sense.
This particular argument is only in regards to Dan Price's pay as CEO and his use of company credit card. This suit was filed before his $70,000 pledge and according to his brother may have been done so in retaliation to the lawsuit to deplete the company of positive revenue which hurts the brother who filed the lawsuit
As your own citation points out, that duty belongs properly to the board of directors (the CEO is often also Chairman of the Board of Directors, and many of the CEO's initiatives may be either directed by the Board or require its approval, so in those senses the CEO's actions may be subject to the Board's duty, but the duty is the Board's, not the CEO's.)
The defendant in this case was 60% owner of the company and as such can be presumed to be one and the same as the board of directors for purposes of this discussion.
With that said, the basic principle is that managers are considered to have a presumption of good faith in their business judgement with regards to disputes with shareholders over business strategy.
The lawsuit is not about the $70,000 minimum salary.
>On Friday, Judge Theresa B. Doyle of Superior Court in King County, in Washington State, ruled that Dan’s brother, Lucas, had failed to prove his claims that Dan had overpaid himself and inappropriately used a corporate credit card for personal expenses. The judge also ordered Lucas to pay Dan’s legal fees.
I'm not interpreting this as any sort of issue with the pay increases.
This seemed like one way to "over compensate" one of the two partners in a business partnership and a cautionary tale. In a partnership, generally, all profits and distributions from the business pass through to the partners at the percentage of their ownership stake. Most partners (myself included) take minimal salaries in order to prevent extra taxation on payroll taxes and the bulk of the compensation comes in the form of partnership distributions. In this case IIRC the CEO became a 60% shareholder then started paying himself a salary of $1,000,000 a year. This is considered a business expense in this case and not part of the partnership distributions.
IE if the business was making 3M a year in profit and the brothers took no salary they'd split it 1.5M each (in this case 60/40 but lets say 50/50 for ease). In this case now the one brother takes 1M in salary and the profits are now $2M, split both ways and Dan gets 2M a year in salary and distributions and the brother gets $1M.
why is it reasonable to assume that a CEO that chooses to increase worker compensation is acting detrimentally to the interests of shareholders? that statements needs justification. A LOT of justification.
here is a basic argument in favor of it, from the fiduciary perspective: employee retention, loyalty, and morale are essential for the business to operate effectively.
I think you are mistaken to think there is no business case for good, stable salaries. Think motivation, employee retention, attractiveness to prospective employees, team spirit, ... you can easily argue that a good and happy team is worth more in the long term to shareholders than the cliché American hedge fund strategy of buying a company, reducing staff and staff salaries and cashing out. What's good for the employees need not be bad for business, certainly not in this case as it also happened to generate goodwill and attention/good press for the company, but there are also plenty of good reasons in other cases.
In the US, it is well established legal perspective that the CEO and the management can do pretty much anything they want if they can plausibly claim that it increases shareholder value. In this case, pushing higher employee salaries could plausibly lead to retaining more employees, attracting better talent, and so on - if the CEO had framed his arguments in this manner it would be open and shut.
> I can understand the brother's perspective. Shareholders, especially ones who own 40% of the company, have a reasonable expectation that the company CEO will be acting in their financial interests. In this case, the CEO was acting in a way that is favorable to his employees' interests, but detrimental to the interests of the shareholders. Given that the CEO legally has a Fiduciary duty to the shareholders to protect their best interests, I can understand the brother filing suit.
I'm not sure how you drew any conclusions about the lawsuit from the points you're trying to make in this paragraph; in fact I can't see how any of what you're saying has anything to do with the lawsuit? From TFA:
> On Friday, Judge Theresa B. Doyle of Superior Court in King County, in Washington State, ruled that Dan’s brother, Lucas, had failed to prove his claims that Dan had overpaid himself and inappropriately used a corporate credit card for personal expenses.
He wasn't getting sued for paying his employees $70k. It's a short article: you could have read the entire thing in less time than it took you to write an uninformed comment about it.
Yes, I did read the entire article and you could have made your point without having to insult me personally.
The following paragraph of the article hints strongly that the brother was upset by the 70k/year decision, and that it played some role in their conflict.
"When Dan announced his plan to pay everyone at Gravity Payments a minimum salary of $70,000, Lucas objected, saying he was not informed of the decision until shortly before it was made public. A company spokesman said the lawsuit was filed two weeks after Dan announced the salary plan, which brought the company an unexpected crush of attention."
> Yes, I did read the entire article and you could have made your point without having to insult me personally.
You asserted with great confidence that the lawsuit was about the $70K salary, when it wasn't at all, as even a cursory glance at the article would've told you. wutbrodo did not insult you personally; he called your comment uninformed, which is pretty indisputably true. You don't really have any grounds to be angry here.
> Yes, I did read the entire article and you could have made your point without having to insult me personally.
I didn't mean to "insult you personally": I did express that it seemed like you hadn't read the article but I tried to do so politely. The reason I assumed that it was likely you commented without reading the article is 1) it's hardly a rare behavior in Internet boards, HN included and 2) your comment pretty explicitly reads like someone who thinks that the lawsuit was about the pay raise, when none of the facts of the article support it (though the clickbait headline implies it).
> The following paragraph of the article hints strongly that the brother was upset by the 70k/year decision, and that it played some role in their conflict.
Given how incredibly unrelated the actual complaint in the suit is, it borders on conspiracy theory to assume that a fraudulent suit is being filed as a roundabout way to sue for the salary raise. Especially when the lawsuit would be purely vindictive, since even a legal victory wouldn't address the salary increase at all!! Just because the article is trying to grab clicks with a misleading headline and creating a weak "isn't this suspicious" justification for doing so[1] doesn't mean that I'd expect commenters here to blindly buy it. Thus, the most reasonable explanation for talking about something implied by the headline but completely unsupported in the article was that the headline was read and not the article.
At any rate, sorry for assuming that you didn't read the article, but frankly it seemed like the _less_ insulting assumption.
[1] "nudge nudge, hey he didn't like being kept out of the loop about the raise and he filed a not-remotely-related lawsuit soon after, something fishy is going on here...or at least something that gives us plausible deniability to misrepresent the story"
> In this case, the CEO was acting in a way that is favorable to his employees' interests, but detrimental to the interests of the shareholders.
I am surprised how many young CEOS themselves forget this. My friend is a VC who invests in startups in India. Recently he invested few million dollars in an Indian startup and then invited the founders to SF. Later he learned that both the founders traveled business class and stayed at a beachfront resort. While this VC himself has been traveling econ class to India and staying with friends and family.
> he learned that both the founders traveled business class and stayed at a beachfront resort.
My understanding is that the Indian startup space and VC ecosystem is pretty vindictive towards any founder who would have behaved that way and the rest of the world would have all heard about it if it were true. Care to name the startup and the founders so that we can verify that this story is true?
Losing brother: “I am shocked and disappointed with the decision and I will be considering my options.”
Winning brother: “My love for my brother is unconditional...I’m thankful for the opportunity to put this challenging time behind us,”.
One of my biggest concerns the past 10 years or so has been the difficult of technology's distinguishing between "building stuff to make the world better" and "chasing nickels". This is clearly an example of the latter. Brothers in court? Disgusting.
I have always been a big proponent of free markets and sure, everyone has a right (and responsibilty) to earn for their good work, but this is just beyond any of that. Stories like this one demonstrate the worst behavior in a world full of blessings.
Frankly, I would sooner give it all up and do volunteer work before I would go to court against my own brother. Obviously, not everyone feels this way. What a pity some of us have lost our way and in the name of "something else", forgot what's really important.
the difficult of technology's distinguishing between "building stuff to make the world better" and "chasing nickels".
I don't think it's super complicated. It just became complicated as people that were decidedly not making the world better wanted the cachet of doing so.
To me: unintentional positive externalities are still unintentional. Rationalizing profiting as a societal good basically makes someone the devil.
I don't see what's any more wrong about brothers facing off in court than two strangers. There's not some otherworldly, mystical bond between brothers that doesn't or can't exist between any two people.
I'd say it's pretty tough to approximate a sibling relationship. Now, I'm very close to my siblings, and we were raised extremely family-first, and my experience is entirely my own and not someone else's, but no, even my best life-long friendships that I cherish dearly cannot approximate my relationship and shared growing up with my siblings.
YMMV, I think that's the point. Sure, many siblings share very close relationships because they grew up together in a positive home environment. That's not always true. I'm not saying these two brothers must hate each other, but there's nothing inherently mystical about sibling relationships. Some people have truly terrible people as siblings.
There's undoubtedly a great many companies out there where everybody earns at least $70K. I have no idea how this guy managed to get himself in the news.
Remember, the lawsuit isn't over the plan to pay all employees $70,000. It's a dispute between two cofounders, one long-departed, over executive compensation and profit sharing. There's also a dispute over the timing: Gravity claims the suit was filed after the minimum-salary announcement, but Lucas claims the suit was known by all parties to be in the works before the plan was known.
I didn't think this was necessary at first, but looking at the rest of the comment threads, apparently it is. I don't see any indication that anybody on either side of this suit ever claimed or even implied that the employee salary policy and the wisdom thereof has anything to do with the suit.
That's because the suit was filed before Dan Price decided to raise employee salaries to $70,000. It is concerning so few people commenting on here are aware of this.
Edit: Dan Price made his announcement of the $70,000 pay plan a month after he was served, making matters even more troubling is his denial about the timing.
Sorry if I'm misunderstanding you, but are you implying that (a) the CEO announced this salary increase to deflect any negative reaction to this suit, and (b) that denying any ulterior motive supports that theory? Both points seem shaky to me, unless there's more compelling evidence than the circumstantial timing.
No you're not misunderstanding, aside from the puff pieces what do you know about Dan Price?
>When Lucas left the company, Dan raised his own salary (from $50,000 to $1 million in one year), causing a rift between the two. And so on March 16, one month before the famous $70,000 announcement was made, Dan was officially served a notice that Lucas was suing him. Court documents prove that Dan signed the papers and knew of the lawsuit. However, Dan claimed that he was being sued after the wage announcement because Lucas was jealous of the press.
>Price raised his employees’ wages to $70,000 so his brother wouldn’t receive his fair share of Gravity Payment’s dividends, not because he want to improve his employees’ lives
I think the general issue here is simply that it's very much in Dan Price's interests to frame this lawsuit as a dispute over paying minimum salaries, and for him to deflect Lucas Price's complaint that Dan was paying himself $1.1MM per year prior to the suit.
The facts seem to dispose completely of Dan Price's argument: the suit was prepared before Lucas Price even knew about the min-salary proposal.
Or maybe he's just trying to stick it to his brother - oh you don't like my large salary? Fine, I'll drop my salary, but don't think you'll see any of it in increased profit for the company because I'll increase employee salaries by the difference just to spite you.
Though if that was the case, it seems to have backfired spectacularly if the article is to be believed about increased profits.
A year ago or so, on the front page, there was a post saying that the minimum salary increase after the suit might be done so that there would be less liquid assets (cash in the bank) to split. Because, if I remember well, Lucas wanted to get a share of it. Or something similar, which would make the increase not such a philanthropic thing as it seems at first.
My memory might be failing, or the post back then might have been not based on facts (IANAL, nowhere near that). But that's what I remember :)
Reading through the lawsuit's lead-up, it's hard to believe that they are unrelated.
"When Dan announced his plan to pay everyone at Gravity Payments a minimum salary of $70,000, Lucas objected, saying he was not informed of the decision until shortly before it was made public. A company spokesman said the lawsuit was filed two weeks after Dan announced the salary plan, which brought the company an unexpected crush of attention."
That's what Gravity's spokesperson said, but documentation (provided elsewhere on the thread) suggests otherwise. To be charitable: it's possible that the spokesperson (and Dan Price himself) is simply confused: the suit precedes the 70k salary policy, but that policy was made an issue in the case subsequently.
It will surely be appealed. The 'feel good' story aside, this seems problematic. The brother owns 40% of the company and as such he can contest that the price (wages) that the majority shareholder is paying is greater than what the market commands.
On Friday, Judge Theresa B. Doyle of Superior Court in King County, in Washington State, ruled that Dan’s brother, Lucas, had failed to prove his claims that Dan had overpaid himself and inappropriately used a corporate credit card for personal expenses. The judge also ordered Lucas to pay Dan’s legal fees.
It seems strange that nobody has mentioned Dodge v. Ford Motor Company in this thread yet (except implicitly, by way of popular misconceptions about what the law does or doesn't require of executives.)
This lawsuit, even though it isn't explicitly about the well-above-market wages paid to the employees, seems like a century-later version of Dodge v. Ford, given that context.
It's not that strange. The lawsuit is about alleged abuse of corporate credit cards for personal expenses and overpaying (by whatever definition) oneself as the CEO. It's a basic good-of-the-company vs personal-enrichment-of-the-CEO lawsuit. The nuances of shareholders vs other stakeholders in cases like Dodge vs Ford couldn't be less relevant. Did you read the article?
137 comments
[ 3.5 ms ] story [ 220 ms ] threadSometimes I think to myself that if I got into business with members of my family, things would somehow be different for us. Stories like this at least have the silver lining of an unambiguous answer: no.
Ouch.
If the CEO also owned 100% of the company, or if the CEO was helping the employees with his own personal money, and not the company's money, there's no problem of course. But that isn't what he's doing. A cynical interpretation would be that the CEO is giving up 60% of the profits, in return for national fame and glory, while the brother is forced to give up 40% of the profits and gets nothing at all.
Obviously this is a simplification / wishful thinking. But maybe it's what we should strive towards :)
There is some mental dissonance however, as I imagine this train of thought would be "obvious" to those in power, yet we see regular evidence of wage stagnation/suppression. If we don't assume incompetence, some optimum of balancing pay and churn has been found and accepted, and if I trust that they are making a self interested decision, there may NOT be a benefit to paying more. However, I'd really like to see the numbers, because my following intuition from a long time of watching the best engineers hop from job to job is that I probably wouldn't agree with their choice of calculations.
However, like you say, it has to do wonders for corporate culture! (ignoring the jealous folks who think they deserve to be paid more than a janitor. I believe I remember a few such people when I originally read this announcement)
You are lucky to be working in an industry with a position and skillset that allows you that luxury. And yes it is a luxury, and one that many employees don't have.
Two sides of the same coin.
Over my career, the saddest, most stuck employees have been those whose salaries outstrip anything they could get if they go back on the market. It's wise to think carefully before accepting a salary that is much higher than normal, because it's likely that you'll have a very difficult time leaving.
Otherwise you should have a huge safety net when you finally decide to switch jobs to something that makes you happier.
It's almost as if people enjoy luxuries.
I assume you live in a rented bedroom and eat mostly packaged ramen while saving 90% of your take-home pay?
When someone says something like "I don't understand why people spend all their money", it's just pretension. They know exactly why people spend all their money. Money buys nice things and nice experiences. It's a good idea to live beneath your means, but it's a different thing to pretend that typical behavior is somehow incomprehensible.
Also, buying quality doesn't stop you from spending all your money. It is extremely easy to spend all your money on quality stuff that you don't really need and justify it as "buying quality" or "buying once".
> The reality is that people tend to spend most or all of what they earn. People like to own nice homes and nice vehicles and take nice vacations etc etc.
Aren't these statements contradictory? My point was that it's obvious that a lot of people don't know this, and you CAN avoid living from paycheck to paycheck.
I did it when I was a student (with no help from parents) and had at most $400 a month after rent, and I do it now that I make a lot more. I however still don't go out a ton, and I don't have a fancy car, or purchase anything on a contract, because the luxury part doesn't give me any happiness. I still eat great food and have people over and travel as much as I can.
I find this obvious. You do to. My OP was about people not.
Go ask any general practice doctor whether people do what they "should" and whether the reason when they don't is actually ignorance. People have lots of trouble prioritizing long term benefits over immediate pleasures.
It does: it means financial independence -- and the freedom to work on what I really want to do -- comes quickly as opposed to never coming at all.
> The reality is that people tend to spend most or all of what they earn.
Read Amy Chua's _World on Fire_, on the question of market-dominant minorities -- i.e., peoples who have too much sense to waste their money like this.
> quality stuff that you don't really need
The difference between old money and the rest of the US is the difference between checking the time on your cellphone (the old-money way) and buying, or wanting to buy, a $20,000 Patek Philippe mechanical watch.
What's insane is some of the lawsuits that succeed.
If he made a change on compensation not based on the interest of the company, then the other shareholders should be allowed a say.
You do need committed investors, but even if you have investors cashing out it may be better for the company that they leave when you look at things on a 5-year or longer timescale.
I'm not saying that paying min 70k is beyond this point where paying them won't help you on T time scale, but it needs to be evaluated. You can't just assume that paying someone more will be more than made up for in increased long term efficiency.
It's interesting that you critique gp's comment for being binary, but you also make an absolutist comment yourself by stating "there's no reason" in:
>But there's no reason that a company paying out 100% of earnings to its employees can't outperform a company paying out less year-over-year. ... it may be better for the company that they leave when you look at things on a 5-year or longer timescale.
Instead of "no reasons", there are several reasons why a company paying out 100% of the profits to employees for 60 months will make it underperform another company that retains some of its earnings. A company can use its retained profits to spend on future expansion, speculative research & development, acquiring a company, etc. In many industry segments, if the company doesn't grow, it becomes irrelevant and dies. (At that point, the jobless employees get 100% of $0 profits.)
I can't think of any example in business history of a company that paid 100% profits to employees and therefore had $0 in retained earnings year-after-year ... outperform its competition.
Any education or education in specific fields or courses of study?
I suspect you'd get the most RoI on education related to what the economy needed at the time. However if the market is compensating employees fairly* then students will likely pick what enjoy doing which also best fits the needs of the economy (as dictated by the benefits of the job).
*For example, when you have to hire employees from out of nation requiring that they make 2X or more of the median pay for the job in that area, and also allowing this valued employee to freely take any other similar offer (2X median pay in the area of the job) as well as have a fast track to citizenship.
The problem being that much education has a minimum of 4 year lag time. So one could go into a degree program when the market is hot, only to see it cool off by the time they graduate.
Citation? As I understand it this company is not doing specactularly (revenue up, but profit down a bit), but, more important, employee happiness is down to pre-$70K levels.
http://www.usatoday.com/story/money/2016/05/26/does-70000-mi...
So, at the cost of growing a little less quickly than they might have, the employees that are building the company up are enjoying a drastically improved quality of life.
The company isn't failing, the investors aren't losing their shirts, and the human beings who are making the day-to-day operation of the company possible, are better off. Sounds like a win-fucking-win to me.
> Employee turnover fell 19% last year compared to the average of the past six years. Gravity has been flooded with 30,000 applications, up from an average 3,000 or so a year. A monthly company survey that gauges employee happiness found a bump just after the announcement but then a drop to pre-$70,000 levels – consistent with a widely-held theory that people return to a baseline level of happiness despite positive or negative life events.
Still, Pirkle says the raises have allowed employees to move closer to the office and cut commute times, and plan for the future without living paycheck to paycheck. Retirement account contributions are up 130%, more employees are buying first homes and 10 are expecting, up from a typical zero to two each year.
Except in this case, quite the opposite happened. All of the company's best employees quit and walked away within a few month's time.
This left only the newest hires running the ship - collecting, in some cases, more salary than the seasoned crew that had been there from the start and had to work their way up the pay ladder.
[1] http://www.businessinsider.com/dan-price-gravity-payments-em...
http://www.businessinsider.com/dan-price-gravity-payments-em...
The CEO got really good personal PR. The new hires got huge raises. The employees that had toiled long hours and built the platform got nothing.
That's not somehow petty, nor jealous. Let's not demonize the employees that decided they were not going to be part of that company anymore - a company that showed it wasn't going to reward hard work and dedication. Most of us would have made the same choice.
No one bats an eyelid when a company hires a new unicorn, 10x developer. It's equally possible that raising the salary also allowed them to hire 10x employees and the old hires were feeling threatened so left.
We work with data, if I don't feel I'm compensated fairly I write a letter complete with numbers saying what my renumeration should be. And forward that to the manager and HR.
We're discussing previous articles about this company.
> No one bats an eyelid when a company hires a new unicorn, 10x developer. It's equally possible that raising the salary also allowed them to hire 10x employees and the old hires were feeling threatened so left.
That's not what happened here. No "10x developer" was hired. It was literally just a huge pay raise for the newest employees, and shafting the ones that had been there for years.
It turned from a merit-based system into one that valued everyone equally - and while this sounds great on the surface, not everyone contributes equally. Those that built the platform really felt like they got the short end of the stick. New hires, who put in none of the effort to get the startup up and running, had none of the knowledge nor domain expertise, suddenly were earning as much as the most senior engineers.
Not to mention the entire thing reeked at the time as one big PR stunt, since it didn't "just happen" one day, but rather the media was notified and it turned into a big fuss. It seems the stench had some credence given this lawsuit.
> We work with data, if I don't feel I'm compensated fairly I write a letter complete with numbers saying what my renumeration should be. And forward that to the manager and HR
This statement seems like hyperbole to me. I imagine few managers respond well to threats or begging via email about salary. Nevermind pointing to what other people get in a market for compensation is a terrible way to value yourself. You should start these discussions with how much value you bring to the table, not what others at other companies may or may not bring to theirs.
No, it wasn't. There was no "shafting" involved. Phrasing it that way shows that you're just as petty and jealous as those others. Someone else getting paid well does not take away from your worth.
"It turned from a merit-based system"
Payroll has almost never been a merit-based system, so any arguments about that are deeply flawed.
If "the best" employee in a company quit because they were philosophically opposed to a new client's business, most would cock an eyebrow, think they were inflexible or committed, and move on. I find it extremely interesting that instead, a philosophical disagreement about cow-orkers' salaries is apparently considered very differently by some.
So I looked at Glassdoor[0] and the trend looks like after 8/2015, when this article was published, there is a sharp uptick in employee reviews. So far it appears almost everyone is happy with the change (customers, employees, and management).
[0] https://www.glassdoor.com/Reviews/Gravity-Payments-Reviews-E...
Isn't more driven by market forces of supply and demand. Why should CEO make his business to interfere with systems that are in place to deal with this.
A more convincing argument is 'publicity'.
The CEO may very well be able to make a case for higher wage workers even in the "greed-above-all" context of shareholders.
FWIW, 70K "min wage" might not mean so much if most employees are line workers and there are contractors for the support jobs (eg IT-dept, janitorial, secretarial, etc).
The company in this case also generated a lot of good will, something that is hard to get, hard to value, but very important none the less.
Too many corporations are so focused on quarterly performance they fail to account for the long term.
"Six months after Price's announcement, Gravity has defied doubters. Revenue is growing at double the previous rate. Profits have also doubled. " http://www.inc.com/magazine/201511/paul-keegan/does-more-pay...
No such duty exists. What does is the annual general meeting where shareholders vote on proposals put forward by the board, such as the mission statement and a company vision.
If these state "we aim to remunerate employees on a flat rate equal to the highest current salary" then you can't cry later.
Quoting: "If you review any of the numerous guides prepared for directors of corporations prepared by law firms and other experts, you won’t find a stipulation for them to maximize shareholder value on the list of things they are supposed to do. It’s not a legal requirement. And there is a good reason for that.
Directors and officers, broadly speaking, have a duty of care and duty of loyalty to the corporation. From that flow more specific obligations under Federal and state law. But notice: those responsibilities are to the corporation, not to shareholders in particular."
[1] http://www.nakedcapitalism.com/2013/10/why-the-maximizing-sh...
Oh and Dan has 60% ownership so he makes that call and every other. Sounds open and shut to me.
Umm....I'm a little shocked you're not aware of this but 60% ownership doesn't give you the right to use the corporate credit card for personal expenses (which is what the suit is about[1]). How on earth is that open-and-shut just because he has 60% ownership?
[1]From the article: "On Friday, Judge Theresa B. Doyle of Superior Court in King County, in Washington State, ruled that Dan’s brother, Lucas, had failed to prove his claims that Dan had overpaid himself and inappropriately used a corporate credit card for personal expenses."
That's an iffy assertion. You could argue that no corporation should pay above minimum wage for any position because to do otherwise is to eat into profits unnecessarily. But the reality is that for many positions you cannot attract or retain employees without paying them far above minimum wage.
It's not hard to argue that it's in the best long-term interests of the company to pay wages that make it easier to attract the best employees and that make its employees very loyal. Whether those wages are $40k/year, $70k/year, or $200k/year is not objectively very clear.
Roughly 130 people - let's assume 100 of those people got a $30k raise - this is ~$3m more per year. The CEO went from $1m/year down to $70k, so... approximately $2m/more per year invested in paying people a decent wage.
What affect will this have on retention, employee commitment, training costs, better focus at work by not having to look for a second job, etc.? I would think at least some of the $2m diff would be made up just by reduced hiring/training costs, though it's probably hard to measure that accurately.
These numbers are not much more than a WAG, so perhaps I'm WAY off here...
And... from an article last year
=================
Gravity had about 120 employees, and they earned a little less than $50,000 on average. He found it would cost about $1.8 million to increase wages to $70,000 in steps over three years. Cutting his own pay would cover much of that, and if the wage hikes made his staff more productive, he figured, the whole move just might work.
=================
So that seemed to be the plan (well, the plan that's made its way in to the media stories)
A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—
(a)the likely consequences of any decision in the long term, (b)the interests of the company's employees, (c)the need to foster the company's business relationships with suppliers, customers and others, (d)the impact of the company's operations on the community and the environment, (e)the desirability of the company maintaining a reputation for high standards of business conduct, and (f)the need to act fairly as between members of the company.
And that's pretty much it. This gives directors massive wide ranging latitude to act. Delaware's duties are similar, they give the directors huge latitude - companies are not legally mandated to e amoral profit machines.
Just my pov though.
"Most large businesses buy their corporate charters from the state of Delaware. And the law of Delaware is clear about corporate purpose. The chief justice of the Delaware Supreme Court, Leo Strine, put it simply in a recent law review article: “Directors must make stockholder welfare their sole end.” In cases where directors have acknowledged sacrificing shareholder interests for other groups, Delaware courts have found those directors violated their fiduciary duties."
http://www.nytimes.com/roomfordebate/2015/04/16/what-are-cor...
I've also read articles by "authors" arguing otherwise, so maybe the answer isn't all that clear. But my tendency is to believe what a legal professor says, and the above paragraph sounds pretty convincing.
"Delaware's duties are similar, they give the directors huge latitude"
In the UK law is basically exactly the same as the Delaware law. As long as the directors are acting in good faith they can do pretty much what they like. It is up to the shareholders to show bad faith/gross negligence on behalf of the directors
As long as the directors can show they have made a "good faith" attempt to manage to the benefit of the shareholders then they are covered.
This part is key. When the directors actually admit that they are harming shareholder interests, they are opening themselves to a lawsuit. When they make a plausible claim that their actions are in the shareholders' interest, even if some of the shareholders disagree, they are fine. Courts do not second-guess business judgement.
To overrule the directors in court, shareholders have to show that the directors are acting in bad faith, not just that the actions will seemingly harm the company.
Hell, the exorbitant executive salaries are "detrimental to the interests of the shareholders". Where are the lawsuits against those companies?
And there's quite a strong argument that the CEO was acting in their financial interests, just on a longer time scale than many people today can be bothered with.
The issue here is largely attributable to statements from Milton Friedman and people who like to quote him, which leads to the mistaken belief that companies are legally obligated to provide blind, hell-bent, maximum short-term-return-no-matter-the-long-term cost "value" to shareholders. Which in turn has all but driven out the idea of providing consistent long-term profit to shareholders, and to "I bought a bunch of your stock Monday, gut your company to give me a payday Tuesday or I'll sue and overthrow your board on Wednesday" somehow being enshrined as a noble endeavor.
The history of corporate charters provides an interesting context because the limited liability was initially reserved for very risky but important activities like exploration. The original corporate charters were grants of both monopoly and limited liability offered by a monarch or sovereign for a specific approved business activity. Overtime society has expanded these grants to any and all business activity so we forget the original rationale for allowing these privileges.
Event the LLC is a relatively new entity. Historically business was conducted by partnerships. The partners were on the hook for the debts and actions of their partners and often put a lot of effort into limiting the risk of their business activities.
There is a strong argument that allowing investment banks to shift from a partnership to corporate structure allowed them to pursue much riskier activity. Goldman Sachs went public in in 1999 but was a partnership for 130 years before that.
The same motive applies to shareholders, if we allow them to benefit from limited liability it should be with the understanding that the company and its management have a duty to act appropriately which means the interest of Soviety at large and related concerns balances against profit concerns.
That's debatable. You'd have to set up a number of companies side-by-side in order to establish whether or not paying everybody such a high wage would lead to one or the other group of companies doing statistically better for their shareholder in the longer term.
I can see all kinds of reasons why paying employees more might actually work out to be a benefit in the longer term.
> Given that the CEO legally has a Fiduciary duty to the shareholders to protect their best interests, I can understand the brother filing suit.
Can we please stop perpetrating that myth?
The myth comes in where people believe that means the burden of proof is such that they have to blindly serve short term financial interests of shareholders. There is no such rule at all, in fact it's quite the opposite:
https://en.wikipedia.org/wiki/Business_judgment_rule
The business judgment rule is a case law-derived doctrine in corporations law that courts defer to the business judgment of corporate executives. It is rooted in the principle that the "directors of a corporation... are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge".[1] The rule exists in some form in most common law countries, including the United States,[1] Canada,[2] England and Wales,[3] and Australia.[4]
To challenge the actions of a corporation's board of directors, a plaintiff assumes "the burden of providing evidence that directors, in reaching their challenged decision, breached any one of the triads of their fiduciary duty — good faith, loyalty, or due care".[5] Failing to do so, a plaintiff "is not entitled to any remedy unless the transaction constitutes waste... [that is,] the exchange was so one-sided that no business person of ordinary, sound judgment could conclude that the corporation has received adequate consideration".
With that said, the basic principle is that managers are considered to have a presumption of good faith in their business judgement with regards to disputes with shareholders over business strategy.
>On Friday, Judge Theresa B. Doyle of Superior Court in King County, in Washington State, ruled that Dan’s brother, Lucas, had failed to prove his claims that Dan had overpaid himself and inappropriately used a corporate credit card for personal expenses. The judge also ordered Lucas to pay Dan’s legal fees.
This seemed like one way to "over compensate" one of the two partners in a business partnership and a cautionary tale. In a partnership, generally, all profits and distributions from the business pass through to the partners at the percentage of their ownership stake. Most partners (myself included) take minimal salaries in order to prevent extra taxation on payroll taxes and the bulk of the compensation comes in the form of partnership distributions. In this case IIRC the CEO became a 60% shareholder then started paying himself a salary of $1,000,000 a year. This is considered a business expense in this case and not part of the partnership distributions.
IE if the business was making 3M a year in profit and the brothers took no salary they'd split it 1.5M each (in this case 60/40 but lets say 50/50 for ease). In this case now the one brother takes 1M in salary and the profits are now $2M, split both ways and Dan gets 2M a year in salary and distributions and the brother gets $1M.
Thats how I read the case anyway.
here is a basic argument in favor of it, from the fiduciary perspective: employee retention, loyalty, and morale are essential for the business to operate effectively.
https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.
I'm not sure how you drew any conclusions about the lawsuit from the points you're trying to make in this paragraph; in fact I can't see how any of what you're saying has anything to do with the lawsuit? From TFA:
> On Friday, Judge Theresa B. Doyle of Superior Court in King County, in Washington State, ruled that Dan’s brother, Lucas, had failed to prove his claims that Dan had overpaid himself and inappropriately used a corporate credit card for personal expenses.
He wasn't getting sued for paying his employees $70k. It's a short article: you could have read the entire thing in less time than it took you to write an uninformed comment about it.
The following paragraph of the article hints strongly that the brother was upset by the 70k/year decision, and that it played some role in their conflict.
"When Dan announced his plan to pay everyone at Gravity Payments a minimum salary of $70,000, Lucas objected, saying he was not informed of the decision until shortly before it was made public. A company spokesman said the lawsuit was filed two weeks after Dan announced the salary plan, which brought the company an unexpected crush of attention."
You asserted with great confidence that the lawsuit was about the $70K salary, when it wasn't at all, as even a cursory glance at the article would've told you. wutbrodo did not insult you personally; he called your comment uninformed, which is pretty indisputably true. You don't really have any grounds to be angry here.
I didn't mean to "insult you personally": I did express that it seemed like you hadn't read the article but I tried to do so politely. The reason I assumed that it was likely you commented without reading the article is 1) it's hardly a rare behavior in Internet boards, HN included and 2) your comment pretty explicitly reads like someone who thinks that the lawsuit was about the pay raise, when none of the facts of the article support it (though the clickbait headline implies it).
> The following paragraph of the article hints strongly that the brother was upset by the 70k/year decision, and that it played some role in their conflict.
Given how incredibly unrelated the actual complaint in the suit is, it borders on conspiracy theory to assume that a fraudulent suit is being filed as a roundabout way to sue for the salary raise. Especially when the lawsuit would be purely vindictive, since even a legal victory wouldn't address the salary increase at all!! Just because the article is trying to grab clicks with a misleading headline and creating a weak "isn't this suspicious" justification for doing so[1] doesn't mean that I'd expect commenters here to blindly buy it. Thus, the most reasonable explanation for talking about something implied by the headline but completely unsupported in the article was that the headline was read and not the article.
At any rate, sorry for assuming that you didn't read the article, but frankly it seemed like the _less_ insulting assumption.
[1] "nudge nudge, hey he didn't like being kept out of the loop about the raise and he filed a not-remotely-related lawsuit soon after, something fishy is going on here...or at least something that gives us plausible deniability to misrepresent the story"
I am surprised how many young CEOS themselves forget this. My friend is a VC who invests in startups in India. Recently he invested few million dollars in an Indian startup and then invited the founders to SF. Later he learned that both the founders traveled business class and stayed at a beachfront resort. While this VC himself has been traveling econ class to India and staying with friends and family.
My understanding is that the Indian startup space and VC ecosystem is pretty vindictive towards any founder who would have behaved that way and the rest of the world would have all heard about it if it were true. Care to name the startup and the founders so that we can verify that this story is true?
Losing brother: “I am shocked and disappointed with the decision and I will be considering my options.”
Winning brother: “My love for my brother is unconditional...I’m thankful for the opportunity to put this challenging time behind us,”.
One of my biggest concerns the past 10 years or so has been the difficult of technology's distinguishing between "building stuff to make the world better" and "chasing nickels". This is clearly an example of the latter. Brothers in court? Disgusting.
I have always been a big proponent of free markets and sure, everyone has a right (and responsibilty) to earn for their good work, but this is just beyond any of that. Stories like this one demonstrate the worst behavior in a world full of blessings.
Frankly, I would sooner give it all up and do volunteer work before I would go to court against my own brother. Obviously, not everyone feels this way. What a pity some of us have lost our way and in the name of "something else", forgot what's really important.
I don't think it's super complicated. It just became complicated as people that were decidedly not making the world better wanted the cachet of doing so.
To me: unintentional positive externalities are still unintentional. Rationalizing profiting as a societal good basically makes someone the devil.
YMMV I'm sure.
In 2014, the median per capita income in Seattle was $36,854[0] meaning that half those represented in this data earned less than that.
[0] http://www.deptofnumbers.com/income/washington/seattle/
I think we're in kind of a bubble on HN where we don't realize how much richer we are than the average person.
Edit: Dan Price made his announcement of the $70,000 pay plan a month after he was served, making matters even more troubling is his denial about the timing.
http://www.bloomberg.com/features/2015-gravity-ceo-dan-price...
>When Lucas left the company, Dan raised his own salary (from $50,000 to $1 million in one year), causing a rift between the two. And so on March 16, one month before the famous $70,000 announcement was made, Dan was officially served a notice that Lucas was suing him. Court documents prove that Dan signed the papers and knew of the lawsuit. However, Dan claimed that he was being sued after the wage announcement because Lucas was jealous of the press.
>Price raised his employees’ wages to $70,000 so his brother wouldn’t receive his fair share of Gravity Payment’s dividends, not because he want to improve his employees’ lives
http://thehustle.co/dan-price-the-ceo-paying-everyone-70000-...
The facts seem to dispose completely of Dan Price's argument: the suit was prepared before Lucas Price even knew about the min-salary proposal.
Though if that was the case, it seems to have backfired spectacularly if the article is to be believed about increased profits.
My memory might be failing, or the post back then might have been not based on facts (IANAL, nowhere near that). But that's what I remember :)
Maybe somebody can correct me?
"When Dan announced his plan to pay everyone at Gravity Payments a minimum salary of $70,000, Lucas objected, saying he was not informed of the decision until shortly before it was made public. A company spokesman said the lawsuit was filed two weeks after Dan announced the salary plan, which brought the company an unexpected crush of attention."
From the article:
On Friday, Judge Theresa B. Doyle of Superior Court in King County, in Washington State, ruled that Dan’s brother, Lucas, had failed to prove his claims that Dan had overpaid himself and inappropriately used a corporate credit card for personal expenses. The judge also ordered Lucas to pay Dan’s legal fees.
This lawsuit, even though it isn't explicitly about the well-above-market wages paid to the employees, seems like a century-later version of Dodge v. Ford, given that context.
https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.