The CEO Paying Everyone $70,000 Salaries Has Something to Hide
Inside the viral story of Gravity CEO Dan Price.
It seemed too good to be true. On April 13, with reporters from the New York Times and NBC News hovering nearby, Dan Price, the young chief executive officer of Gravity Payments, a Seattle-based credit card processing company, told his staff he was raising their minimum salary to $70,000 a year. Some employees would see their wages double. There was more: He planned to cut his own $1.1 million compensation to help cover the cost. The idea came to him, he’d later tell the media, after talking to a friend who earned less than he did. He’d read about a study showing that extra income improves the happiness of people who earn less than about $75,000. “It’s not about making money; it’s about making a difference,” Price told the Today Show, one of two dozen TV interviews he did in the days following the announcement.
Price’s story rocketed around the world, a capitalist fairy tale to counter growing inequality. With his tousled long hair and dark brown eyes, Price combined Brad Pitt’s smolder and Boo Boo Bear’s aw-shucks demeanor to become an articulate and attractive messenger. Rush Limbaugh denounced him as a socialist. Jesse Ventura christened him Robin Hood.
In late summer, the New York Times ran a longer piece on Price, now 31, showing that raising wages wasn’t so simple. Job applicants had overwhelmed his company, and two employees quit, saying the increase wasn’t fair to higher earners. “Potentially the worst blow of all,” the Times wrote, was that about two weeks after the announcement, Price was sued by his older brother Lucas, who owns about 30 percent of Gravity, alleging Price paid himself too much in the first place. Price insinuated that his brother may have sued in reaction to the generous pay increase. “I know the decision to pay everyone a living wage is controversial,” he told the Seattle Times, which first reported the lawsuit. “I deeply regret the rift this has caused in my relationship with my brother.”
An expensive lawsuit, filed possibly in response to his kind act, made Price seem more of an underdog. When I met him at Gravity’s headquarters in mid-October, he wasn’t even supposed to be in Seattle. He’d been scheduled to join Planned Parenthood President Cecile Richards and General David Petraeus on a panel titled “Leading Under Pressure” at the Chicago Ideas Week festival. But Price had canceled at the last minute, saying he’d hit a wall of exhaustion. “I think I’m just standing in for a bunch of other people doing great stuff,” he said. “To me the responsibility is to be the best spokesperson I can.”
As we talked about his wild six months, I brought up the lawsuit, asking if Price thought Gravity’s spending on the raises triggered his brother’s suit, as he’d implied. “I have no idea,” he slowly shrugged, looking right at me. “The quote in the Seattle Times from his attorney was, ‘It wasn’t only because of that.’ ” He twisted his beard between two fingers, contemplating the statement by Lucas’s attorney, Greg Hollon. “That one singular quote in the paper is the only information I have about if they were connected or not.”
It’s a poignant story, one that I almost wrote. Until I realized Price knew more than he was letting on. The lawsuit couldn’t have been prompted by the pay raise—if anything, it may have been the other way around. And his salary before the big announcement was unusually high. As I read through the court record and media reports, I began to see how Price was writing his own origin myth one interview at a time. With what he says is a $500,000 book deal, he’s solidifying his place as the next do-gooder businessman, joining the CEOs of bigger companies, such as Zappos’s Tony Hsieh and Whole Foods Market’s John Mackey. In the process, he’s surely become the only credit card processing executive to be feted by Esquire, courted by literary agents, and swooned at by women on social media who declared him “yum.” But how it all happened is a little more complicated.
The day-to-day work at Gravity Payments is pretty unglamorous. Gravity is a middleman between merchants and payment networks, namely Visa and MasterCard, which in turn connect to banks that issue credit cards. If you use a credit card to pay for a Habanero Soft Chicken Burrito at a Taco Time in Seattle, it’s Gravity that helps move $6.29 from your bank to the restaurant’s, keeping a sliver for its service along the way.
As Price tells it, he started thinking about credit cards when his middle school band, Straightforword, was gigging around Idaho. He grew up in a religious family outside Boise, the fourth of six kids. The “teenage rock star,” as his speaking-circuit agent now bills him, frequently performed at a local coffee shop and got to know the owner. Price says she complained about how much she had to pay for credit card processing and inadvertently taught him about swipe fees. “She let us do a show and gave us 100 percent of the door, but when someone wanted to pay their entrance with a credit card, we had to pay the fee,” he says.
About that time, Price’s father began consulting for the credit card industry. Price learned the ropes from his dad and helped businesses negotiate with processing vendors. In 2003, Price started college in Seattle, and he and Lucas founded Gravity the next year. The brothers initially split the company evenly. In 2005, at 21, Price married Kristie Lewellyn, and the next year he became Gravity’s CEO.
Gravity works to keep merchants happy with low prices and good service. That’s expensive, but acquiring new clients can be even more so. Gravity says it historically has lost only about 9 percent of its customers a year. “Typically, there’s more than 30 percent attrition per year in our industry,” Price says. Not quite: A 2012 study for Discover Financial Services found the rate averages 16 percent, and other sources indicate attrition rates well below 30 percent.
When the financial crisis hit in 2008, consumers cut their spending, and about 20 percent of Gravity’s business disappeared within weeks, Price says. “It changed us from being mildly profitable to where we were losing money every month.” He called a company meeting, and “I said, ‘In seven months we will be out of business, so let’s hold expenses and get into the black,’ ” he recalls. It worked. In 2012, Price began raising staff pay in steps. Each raise, he says, brought a surge in profit.
In February 2012, he and Lewellyn divorced, “amicably,” the New York Times and Inc. wrote. Price’s own pay grew rapidly. In 2011 he was making “probably $50,000 a year,” he said at the Aspen Ideas Festival this summer. In 2012 his compensation jumped to $1 million, he says. That August, records show, he paid cash for a $900,000 house with a pool—a rarity in Seattle.
In 2013, Price says, Gravity hired compensation consultant Towers Watson to look at his salary. “The Towers Watson recommendation allowed for significant raises over the $1.1 million, but I elected to not raise my pay,” he says. Hollon, Lucas’s attorney, says Price is “mischaracterizing” the findings.
When Price made his $70,000 announcement, he told his staff, “My pay is set based on market rates and kinda what it would take to replace me. And because of this growing inequality, as a CEO that amount is really, really high. I make, uh, you know, a crazy, uh, my compensation is really, really high.”
Whether judged by gross or net revenue, Price’s pay was atypical for a company its size. Gravity’s finances aren’t public, but Price says gross revenue was $150 million in 2014 and will rise to an estimated $200 million in 2015. But Gravity doesn’t get to keep the bulk of that revenue; it must automatically pass most of it on to credit card networks and issuers. The amount the company retains—net revenue, which Price calls “probably a more relevant figure”—was $16 million in 2014, he says. Gravity’s 2014 profit was $2.2 million, Price adds.
At private companies with sales like Gravity’s total revenue, salary and bonus for the top quartile of CEOs is $710,000, according to Chief Executive magazine’s annual compensation survey. At companies with sales like Gravity’s net revenue, the top quartile pay falls to about $373,000. At companies with a similar number of employees as Gravity, the top quartile of CEOs makes $470,000 in salary and bonus. The CEO of JetPay, a publicly traded competitor that processes a similar volume as Gravity, received $355,000 in 2014.
After meeting Price and researching the figures, I called to ask if he thought his $1.1 million pay was fair, given those benchmarks. He replied: “I appreciate you asking the question. I’m happy to answer any other questions you might have. I’m way over time, and there’s a bunch of people waiting for me.” When we spoke later, he said, “I have never given myself a raise without unanimous, full board approval. … That means we both voted the same way. Lucas Price and Daniel Price, the two board members.” Hollon says that’s “inaccurate” and that Price “paid himself excessive compensation for a number of years … over Lucas’s objections.”
As he’s recounted over and over, Price says his aha moment about pay came in late March, on a hike with his friend. “I realized that there were people I was working with—that I said I valued as partners, I said I really want to invest in—and they were making less than her,” he told The Daily Show’s Trevor Noah.
Price says he thought back to a 2010 paper by Nobel prize winners Daniel Kahneman and Angus Deaton, who found that people’s emotional well-being improves as their earnings rise, until their pay reaches about $75,000 a year. Price’s hiking friend, Valerie Molina, remembers their exchange. “Dan said, ‘I’m going to pay all my employees minimum $70,000,’ ” Molina said in an e-mail. “ ‘I’m not sure exactly how I’m going to do it, I need to run the numbers, but I am. Is that crazy?’ ”
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.
Price had gotten publicity for a previous pay increase, telling the Seattle Times in 2013 that he was raising salaries 2 percent to make up for a federal hike in the employee payroll tax. Ryan Pirkle, who runs Gravity’s communications, says with the bigger 2014 raise, Price told him, “I want the right people to tell the right story. I want exclusivity.” That’s why they invited the New York Times and NBC News to the announcement.
“I’m just doing the math, and I’m like, ‘Wow,’ ” Price told me. He figured he could get as many as 700 new customers from the publicity. “That could pay for 10 percent of this crazy thing that I’m doing. … Of course, it became about something way bigger than that in hindsight, but at the time I was thinking so tactically.”
By 3 a.m. the morning after the announcement, Price’s phone was buzzing. The Today Show wanted him the next morning, as did Good Morning America. He hopped a plane to New York. “I did something like 25 live TV interviews in three days,” he says. “We are really passionate about reforming credit card processing. This seemed like an opportunity—we could have a really big impact doing that.”
Fox News pilloried him. Actor Russell Brand, in a laudatory YouTube video, joked, “It’s difficult to ignore the fact that Dan Price looks a lot like Jesus.” Price says he’s been courted by TV producers including Ryan Seacrest and Mark Burnett, who created Survivor and The Apprentice. A spokesman for Seacrest says he “does not recall ever speaking with Mr. Price”; Burnett’s press representatives didn’t return requests for comment. Price signed with the talent agency William Morris Endeavor Entertainment and now charges as much as $20,000 per speech, Pirkle says. When I visited Gravity’s office in October, Price told his team that the company was getting free booth space at Inc. magazine’s annual conference, in addition to a speaking fee. “In terms of what they’re paying us for a one-hour talk, we’re looking at well over $100,000,” he said. Inc. put him on its November cover. (According to the contract provided by Inc., Price didn’t receive a speaker’s fee. Gravity did get exhibition space and an ad in the magazine for a combined value of $125,000.)
Price told me the hoopla has him feeling torn. “This might sound weird, because I do a lot of stuff, but I’m so sick of attention,” he said. “It just feels like a lot of investment of yourself, you know?” He recalled when he was on the cover of Entrepreneur magazine last December and the relief he felt when the next issue went on sale. “I was so happy when they changed issues and I wasn’t on the cover anymore,” he said. “I’m in the airport a lot, and I was just so happy to not see myself.” Yet for all the relief, Price and his team asked six times if he’d be on Bloomberg Businessweek’s cover.
Two weeks after returning from the April media blitzkrieg in New York, Price told me, he was settling in at home to finally unwind. “I was going to watch my first soccer game since this had all happened,” he recalled. “My doorbell rang, and there was a legal courier. ‘Are you Dan Price?’ ‘Yes.’ ” Price said he was served with Lucas’s lawsuit. “I was shocked,” he said. “The soccer game got turned off pretty quickly.” It was during this recounting that Price told me how the comment from Lucas’s lawyer in the Seattle Times was the “only information I have about if they were connected or not.”
The possible retaliatory nature of the suit only adds to the drama of Price’s wage hike. “This is all speculation on my part,” Pirkle said in late September, before explaining how, as minority shareholder, Lucas gets paid dividends from Gravity’s profits. “Those profits are obsolete when you raise the wages. His brother’s, like, ‘That’s my money.’ ”
Pirkle suggested to me that the lawsuit could be part of a broader narrative about the purpose of business: “Is it to maximize shareholder returns? Or is it to best serve the customers and provide for employees?” Inc. hypothesized that Lucas filed the lawsuit after the pay increase “perhaps to pressure Dan to sell when Gravity was in the limelight, thus maximizing the value of Lucas’s share.”
But there’s a problem with all those scenarios: The lawsuit predates the raise. Lucas did file the case two weeks after Price’s announcement, but according to court records, Price was served with the suit at his house on the afternoon of March 16—about two weeks before the fabled hike with his friend and almost a month before the wage increase announcement. Washington state allows litigants to serve a defendant before a suit is filed with the court. Hollon, Lucas’s attorney, says Price informed his brother of the pay hike through an e-mail on April 9, only four days before the New York Times and NBC descended on Seattle. (Pirkle said that in a later document, Lucas “specifically referenced” the wage hike as grounds for the case. Hollon responded that the May document added the pay increase as “one of the potential factual bases supporting the claims in the lawsuit” since “the wage program appeared to be a reaction by Dan to the lawsuit.”)
The lawsuit is light on details, but it claims that Price “improperly used his majority control of the company” to overpay himself, in the process reducing what Lucas was due. “Daniel’s actions have been burdensome, harsh and wrongful, and have shown a lack of fair dealing toward Lucas,” the suit alleges. It asks for unspecified damages and that Price buy out Lucas’s interest in Gravity. Hollon said the lawsuit was the culmination of “years” of efforts to resolve Lucas’s concerns. Price “on several occasions suggested to Lucas that if Lucas didn’t like Dan’s actions regarding Lucas’s rights as a shareholder, Lucas should seek legal remedies,” Hollon wrote in an e-mail. “Prior to the lawsuit, Dan had made clear that he would only engage with Lucas through Lucas’s counsel.”
If the lawsuit wasn’t a reaction to the wage hike, could it have been the other way around? After all, Price announced his magnanimous act a month after his brother sued him for, in essence, being greedy. Lowering his pay could give Price negotiating leverage, too. “With profits, at least in the short term, shifted to salaries, there is little left over to buy out his brother,” the New York Times reported Price said.
In a follow-up interview in mid-November, I pressed Price about the inconsistency. How could what he told me about being served two weeks after announcing the raise be true when the court records indicated otherwise?
“Umm, I’m not, I have to look,” he said.
The court document, I said, definitely says March 16.
“I am only aware of the suit being initiated after the raise,” he replied.
“The court record shows you being served on March 16 ... at 1:25 p.m.,” I said. “And actually, your answer to it was dated April 3,” also before the pay hike.
“I am only aware of the suit being initiated after the raise,” he repeated.
I asked again how that could be, saying the declaration of service shows Price was served with the complaint, the summons, and other documents, “that you are a male, who is white, age 30, 5-feet-8-inches, medium height, dark hair.”
He paused for 20 seconds. “Are you there?” he asked, then twice repeated his statement that he was only aware of the suit being initiated in late April. “I’d be happy to answer any other questions you may have,” he added.
In ways big and small, the wage hike is touching Gravity’s operations daily. Some customers have left, though not many. The head count has grown by about 20. Tammi Kroll, a Yahoo! veteran, was so moved by Price’s message that she asked him to coffee, eventually taking an 80 percent pay cut to join Gravity to improve its technology systems. Matt Sakauye, Gravity’s president, had worked for the company in Hawaii since 2007 but recently moved to Seattle to handle the day-to-day operations while Price is on the road. When employees see TV cameras in the office, they know Price is back in town.
Price says his book about the wage experiment is under way. He’s signed with Tina Bennett, the literary agent who represents Malcolm Gladwell, and is working with Rick Kot, an executive editor at Penguin Random House’s Viking imprint who edited Andrew Ross Sorkin’s Too Big to Fail. Price told me in late October he’d already written 20,000 words. A week later, Inc. reported he’d written 40,000 words. About three weeks after that, Price told me he’d written 60,000 words—almost two-thirds of the book. That’s way faster than I can fathom writing, I responded. Price said he’s quick because he’s writing about himself: “You have to do research and fact-checking,” he said. “Mine’s totally raw.”
Price’s life may get more complicated the week of Dec. 7, when TEDx plans to post online a public talk by his former wife, who changed her last name to Colón. She spoke on Oct. 28 at the University of Kentucky about the power of writing to overcome trauma. Colón stood on stage wearing cerulean blue and, without naming Price, read from a journal entry she says she wrote in May 2006 about her then-husband. “He got mad at me for ignoring him and grabbed me and shook me again,” she read. “He also threw me to the ground and got on top of me. He started punching me in the stomach and slapped me across the face. I was shaking so bad.” Later in the talk, Colón recalled once locking herself in a car, “afraid he was going to body-slam me into the ground again or waterboard me in our upstairs bathroom like he had done before.”
I read those quotes to Price. “I’m just going to take a second because this is very surprising to me,” he said. He paused. “I appreciate and respect my former wife, and she played a very positive role in my life,” he said. “Out of respect for her, I wouldn’t feel comfortable responding to a supposed allegation she may have said coming from a Bloomberg Businessweek reporter when I have absolutely zero evidence of an allegation being made.” I told him that I wanted to be clear: I was giving him the chance to deny the claims. “My comment is very responsive,” he said. “I would be more than happy to provide a comment if and when I actually get the benefit of seeing what you are referencing.”
About three hours later, Price called back. “There’s one more thing that I would like to add to my previous statement,” he said. “The events that you described never happened.”
One aspect of Price’s saga is certain: Seventy employees at Gravity now earn far more than they did before. Was it altruism or a costly lawsuit that motivated it? If his book doesn’t provide answers, perhaps Lucas’s case, which goes to trial in May, will.
(Updates to include a response from Inc. magazine in the 24th paragraph.)