It’s been five years since we announced a $70,000 minimum wage at our company, Gravity Payments. Since then, our revenue has tripled and our headcount and customer base have doubled. Meanwhile, our employees have made major improvements to their lives, such as buying houses, starting families, saving for retirement, and eliminating debt.
Our celebrations came to a halt last month, when officials reported the first coronavirus death in Washington state. As a mid-sized, Seattle-based credit card processor that works primarily with small businesses, we have since felt the brunt of business closures and decreased consumer spending across the area. Overall sales in the Seattle area are down 57% from one month ago. Washington State is down 44%, and Hawaii and California (two of our other largest markets) are down 63% and 44%, respectively.
We’re not the only company struggling. As businesses scramble to adapt to decreased sales and forced cutbacks and closures, many are resorting to layoffs. If you find yourself in this situation, I urge you to proceed with caution. Instead of rushing to cut staff, try talking to your people instead. It just might save your business.
Overall our total revenue is down by 50% and we are losing about $30,000 per day. If things continue this way, we will run out of cash within five months. The company that made headlines for paying a $70,000 minimum wage won’t be able to make payroll, and all of our employees — including me — will be looking for work.
Fortunately, our $70,000 minimum wage policy has prepared us for this exact type of scenario. Yes, our commitment to high salaries means we have higher expenses than many companies our size. But it’s also given us several strategic advantages that most of those companies don’t have.
First, our employees are financially secure. The median salary at Gravity is around $100,000, which means our team members don’t have to worry about paying for an unexpected doctor’s visit or making sure their loved ones are taken care of if they fall ill. Almost 40% of Americans say they could not cover an unexpected $400 expense with savings, but our team members have been able to save. For example, in the years since our policy took effect, average individual 401(k) contributions have increased 155%. As one Gravity employee put it: “The worries of not being able to pay for something have disappeared. I don’t have to worry about an unexpected emergency.”
Because they don’t have to worry as much about money, our employees are less stressed and therefore more productive and creative. Studies show that companies that pay a living wage are rewarded with increased productivity and improved customer service, and 76% of Gravity employees (more than twice the global average) report being engaged at work. In our race to figure out how to adapt to the new reality created by COVID-19, our team members have already offered several great ideas for how to cut costs or increase revenue.
Communication pays off
Two weeks ago, my COO and I hosted a series of video calls with all of our roughly 200 employees. We told them we were losing about $1 million a month and needed to either cut costs or grow revenue to make up the difference. We were able to quickly identify about $200,000 of expenses — such as travel and certain office expenses — that could be cut easily, but we needed their help with the remaining $800,000 shortfall.
We told them that the quickest way to make up this gap would be to lay off 40 people and raise prices to our customers. But we made it clear that we wanted to avoid this if possible. Our mission has always been to stick up for independent business owners by helping them compete and save money. Cutting staff or raising fees at this time would undermine that mission. We needed to get creative.
Our team came up with dozens of ideas. But what blew me away was how many of them volunteered to take a temporary pay cut. They said they believed in our mission so much that they were willing to sacrifice to protect it.
In the end, we asked each employee to let us know how much they’d be willing to sacrifice, and within 24 hours, the vast majority of them volunteered between 10% and 100% of their paychecks. All told, they pledged $400,000 — about 20% of our total payroll — for the next month to help us save the company. We were so inspired by employees’ leadership that the COO and I temporarily cut our pay to $0. As a result, we doubled the runway we have before we run out of cash.
We surveyed our 200 employees and 98% volunteered to take a temporary pay cut (about 20% on average) to avoid layoffs. I hate this idea but it may be necessary.
Bosses: before you resort to layoffs, talk to your employees. They may be willing to help save their colleagues' jobs.
— Dan Price (@DanPriceSeattle) March 30, 2020
3 reasons to talk to your team first
Every situation is unique, but turning to your team when times get tough can pay off in several ways.
1. Better, more creative ideas: Most leaders take a top-down approach to tough decisions. But by approaching my team first, I was able to get more input that allowed me to avoid a more drastic response. In addition to pay cuts, our team came up with dozens of ideas to save money and increase revenue. They suggested expenses that could be cut and volunteered to take on additional responsibilities to help generate leads. Several people offered to take temporary furloughs or reduce their work hours, while others offered to work overtime. Reaching out to them directly and giving them a forum to discuss our situation, gave them the opportunity to share and brainstorm, which has made our company more prepared.
2. They’ll remind you of your mission: Our employees work with small business owners every day to help them save time, money, and hassle in accepting payments. They know how even $10 a month can make a huge difference for our clients and how competition from larger companies is making it even more difficult for them to survive. Forty years ago, the 100-largest companies captured 49% of all earnings. Today it’s 84%. After this crisis is over, I fear the gap will be even wider. The big companies can weather this storm, but smaller, leaner businesses will have a much tougher time.
Because our team is so aligned on our mission, they were committed to coming up with a solution that would help us further it, even if it came at a personal sacrifice to them. They chose to give up, on average, about $2,000 a month from their salary in order to avoid a $40 fee increase to our merchants. Not only did empowering our people to solve this problem allow us to come up with better solutions, it also united us around a common purpose and gave us the will to keep working.
How my company handled losing half our revenue
*As CEO, I told all employees our full financial situation
*I asked all 200 of them what they would do
*They asked to temp cut their pay ~20%
*I cut my pay to $0
Our staff turned 20% layoffs into 0 layoffshttps://t.co/qeJDtMfJW7
— Dan Price (@DanPriceSeattle) April 1, 2020
3. It invigorates the team: We could have imposed a pay cut on everyone, but instead of forcing the team to give something up, we gave them an opportunity to give something back. Not only did this ensure we didn’t put any of them in a difficult financial position, but it gave them ownership over the ideas so they were more motivated to act on them. Trusting your people to help you make decisions helps them feel engaged, and when people are engaged they are more creative and productive. By keeping them in loop and being fully transparent, we empowered them and made it clear just how much we value their contributions.
I wonder how many other businesses would be in our position if they’d chosen to pay their employees more instead of using half their profit to buy back stocks or reward shareholders and executives with millions of dollars they didn’t need or earn. I wonder how many companies that are choosing to lay people off would do better if they instead saw their employees as human beings full of untapped potential rather than liabilities to be minimized.
When our society eventually overcomes the coronavirus, we will still have to face the crisis we’ve been ignoring for years: exponentially increasing income inequality that is weakening our middle class. Already we’re seeing how decades of stagnant wage growth are putting people at even greater risk since most of the people who are being laid off or having their hours cut work in traditionally low-wage sectors like restaurants, retail, and hospitality. It will take low-wage workers and small businesses years, if not decades, to recover from this recession. Meanwhile, well-paid white-collar workers and large corporations will do just fine. The already tragic inequality we have in this country will get worse, and we need to do everything we can to prevent that from happening.
If you run a business, I urge you to do everything you can to keep your workers employed during this time. Losing your job in a time like this is especially brutal. Unless someone steps in to provide a safety net, we’ll likely see an increase in drug overdoses, mental health needs, homelessness, and suicide (as we’ve seen in past recessions) in the weeks and months to come. As a leader, ask yourself what you would sacrifice to prevent this from happening. You might be surprised by how a commitment to people over profit can make your business more resilient, even in the midst of a crisis.
This piece originally appeared on MarketWatch.
Gravity CEO Dan Price writes frequently on American business. Follow him on social media @danpriceseattle.