photo of people arm wrestling over money in article by Paul Hebert on GravityPayments pay issue

“People are more focused on relative pay than absolute pay.” -Paul Hebert

Back in April CEO of Gravity Payments Dan Price, announced he was raising the minimum wage at his company to $70,000. The 12 year-old company has 120 employees and the raises were funded partially by Mr. Price taking a cut in his $1,000,000 salary. The raises affected about half the employees.

Huzzah! the world said. Good for you Danny boy! An enlightened CEO who cared about his employees and actually made something happen.

What could possibly go wrong?

Fast forward August 2015 – four months later and the headlines are: “Seattle CEO who set firm’s minimum wage to $70G says he has hit hard times.”

Wait. What? Yup. The bloom is definitely off that rose. According to the NY Times the move back in April cost the company some customers, and some employees weren’t happy with the raises. Not raises in particular – but raises to people THEY didn’t think deserved them. But now blood is in the water and the move is being dissected and discussed by everyone. And of course they all “knew” it would fail.

I’m one of them, but not for the reasons I’ve seen discussed. While many are focusing on the basic financial reasons of why it won’t work, I come down firmly on the side of human beings being completely and totally selfish and narcissistic.

It’s Not About Me

Paul Hebert, 2015

Paul Hebert | Founding Member, HRExaminer Editorial Advisory Board

First and foremost it was never about the money. We can rationalize all we want but wanting or even needing $70,000 was never the problem with this plan. The problem with the plan is two-fold.

One – what we make isn’t as important as how much we make in COMPARISON to others. We care how much more less we make than our peers or other social compatriots. In fact, we are extremely irrational about it. Jonah Berger in his book Contagious mentions the oft quoted Harvard study on income choice.

The study asked students to make a choice: Which you prefer, a job where you made $50,000 a year and everyone else made $25K or one where you made $100,000 a year but everyone else would get $200,000. First choice – you are the richest. Second choice you are the poorest.

Contrary to rationality – the majority chose to make $50K vs.$100K just so they could have the bigger salary. And these are Harvard students. So much for their tough entry standards no?

People are more focused on relative pay than absolute pay.

Dan Price removed relative pay. When everyone makes $70 there is no top or bottom. People need to be ranked. It is hard wired. In the old days it was who was the more physically impressive. It’s how we organized our tribes. But today it won’t do anyone any good to have to constantly deal with shows of dominance to assert our place in our social circles humans have found other ways of creating status – money/income is one of them.

Take away the possibility of relative differences in pay you make us all equal. And that isn’t in us. At a very primal level we need status differences.

The second issue that made this a bad idea from the start was the issue of fairness.

Fairness is another one of those things that is deeply ingrained in our psyche. We want things to be fair. Don’t get me wrong. I did not say equal. We already addressed how we don’t like equal.

We like fair. Heck – even monkeys like fair.

An experiment with capuchin monkeys was conducted where they pairs of monkeys were placed next to each other and trained to give the researcher a small granite rock within 60 seconds to receive a reward, in most cases, a piece of cucumber. But here’s the tricky part… partners of capuchins who made the swap either received the same reward (a cucumber slice), or a better reward (a grape, a more desirable food), for the same amount of work or, in some cases, for performing no work at all. In other words – the monkey that DID not do the behavior were rewarded either same as the one who made swap – or rewarded differently. According to the researches they were blown away by the responses.

The monkeys who witnessed unfair treatment and failed to benefit from it often refused to conduct future exchanges with human researchers, would not eat the cucumbers they received for their labors, and in some cases, hurled food rewards at human researchers.

Compare that response to some of the comments employees at Gravity Payments made when talking with Fox News:

“Now the people who were just clocking in and out were making the same as me.”

And… “It shackles high performers to less motivated team members.”

In the same Fox News article financial manager Maisey McMaster said: “He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump.”

Hmmmm…. Sounds a lot like monkeys threw the cucumber back at the researcher.

Managing Employees and HR – Is NOT a Rational Job

I’m not suggesting we’re monkeys, but I am saying that too often we look at employee relations through a rational lens. In fact we try to take HR and stuff it into the language of finance and marketing. We look for ROIs and we talk in terms of investments. I think HR does that to garner favor from the CFO and get some “biz cred.” But being great in HR is less about “biz cred” than it is “human cred.”

A well-educated HR person (meaning someone who has studied psychology, not spreadsheets and marketing plans) would have been able to see the real problem in Dan Price’s plan and helped him find a middle ground between paying a good wage – and maintaining fairness and status REQUIRED for humans to feel good.

Even if what we want and need isn’t rational. (Heck, sometimes ice cream for breakfast is just fine.)

If the situation at Gravity Payments teaches us anything it is that we need to really consider the emotional, the irrational, the non-business part of business.

So… while all the gurus run around telling HR they need to be more “business focused” and speak the language of the C-Suite, I would suggest the real value is in learning the language of the mind. HR doesn’t need to learn a new language. They need to teach the rest of the company the human one.

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