In 2018, I wrote a post illustrating how one of our largest competitors could afford to pay every single one of its approximately 24,000 employees a minimum wage of $70,000 a year if its executives chose to spend the company’s money differently. The post garnered half a million views and hundreds of comments, indicating that people have a lot to say on the subject of pay in America.
Many of the comments were positive, but among the several dozen dissenting views, I noticed a pattern. Those who took issue with my stance tended to present some version of the same argument: companies should only be responsible for paying people what they are worth.
A false assumption
Although these commentators didn’t always clarify what they meant by this statement, their reasoning was clear.
The modern American capitalist viewpoint holds that an individual’s worth is determined by the market — in other words, what someone is willing to pay in order to hire them.
By this logic, a software engineer is worth more than a secretary and a marketing consultant is worth more than a custodian because companies and customers are willing to pay more for their skills.
People who use this argument present it as gospel, an indisputable fact that, if challenged, indicates someone is anti-American or, worse, a socialist.
In fact, one of the more puzzling comments I received to my post was, “Do we want to live in a capitalist society or a socialist society?”
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Clearly the person who posted this thought the answer to this question was evident in the asking and that choosing to pay people a higher salary than what the market dictates they’re “worth” would put us on a sure path to the destruction of capitalism as we know it.
I find this argument problematic for several reasons.
First, and most fundamentally, the entire concept of market worth rests on a false assumption that the market is inherently fair and should not be tampered with. We as a society have come to believe that the market is some almighty force that keeps our economy running efficiently.
But markets do not exist in a vacuum. On the sixth day, God did not create markets. Markets were created by humans, and those humans are constantly influencing the way they function. At minimum, societies, which are overseen by governments, establish and enforce the rules that dictate how markets operate.
As Robert Reich makes clear in his excellent book Saving Capitalism, “There can be no ‘free market’ without government. The ‘free market’ does not exist in the wilds beyond the reach of civilization … Civilization, by contrast, is defined by rules; rules create markets, and governments generate the rules.”
Enormous, albeit intangible, value
When we understand this, we can see how the rules currently governing (or, some might argue, failing to govern) how the American “free market” operates skews the concept of worth.
A host of factors — from tax laws that favor corporations and wealthy individuals to laws that limit the power of labor unions to the increasing amount of money, influence, and jobs flowing between America’s wealthiest and those in government — have led to skyrocketing executive pay at the same time that the average American’s salary has stagnated.
According to the Economic Policy Institute, in 1965, the typical CEO earned approximately twenty times more a year than the average American worker.
In 2016, that same CEO earned 271 times more than the average worker.
The rules governing the market have made CEOs “worth” 271 times more than the average American, but if we changed the rules, that worth would shift.
Another reason I find the argument of market worth so alarming is that it reduces a person’s value to what the market dictates they can earn.
Some of our most important professions — teachers, social workers, caregivers, research scientists, and many others — command relatively low salaries in our economy, and yet the best of them provide enormous, albeit intangible, value to our society as a whole.
Why have we deemed them less “worthy” than the hedge fund manager who helps rich people make money or the software engineer who codes ads for online retailers?
Similarly, should a person’s value be measured simply by how much money they generate for their employer?
Is your top salesperson worth inherently more than the HR rep who has helped reduce turnover by moderating difficult conversations or the receptionist who inspires customer loyalty through the way she interacts with everyone who walks into your practice?
Even the most efficient market cannot account for a value that cannot be measured in dollars.
Beyond a certain threshold, money is not the motivation
One argument I’ve encountered whenever I advocate for higher pay involves motivation.
Here, again, the thinking falls apart when subjected to a little scrutiny.
Critics have argued that, if you pay people more money, they won’t be motivated to develop the skills that will make them more valuable to employers.
The same people, however, tend to argue that companies need to pay executives a “competitive” salary because, if they don’t, the best execs will find jobs elsewhere or won’t be as effective.
Not only does this logic imply that average workers must be motivated by the promise of a higher wage while the highest-earners must be motivated by the real thing, it completely ignores the research about what motivates us as human beings.
In 2015, when I announced a $70,000 minimum wage at Gravity Payments, I did so because I didn’t want pay to serve as a distraction to our team.
Research has shown that, when it comes to job satisfaction, salary is what is known as a “hygiene factor,” a term used to describe characteristics of a job that do not increase an employee’s satisfaction — like safe working conditions, a reasonable workday schedule, paid time off, etc. — but whose absence results in dissatisfaction.
In other words, if someone is paid too little, they will be dissatisfied, but beyond a certain threshold, money doesn’t create more engaged or motivated employees.
I settled on the precise number because research by behavioral economists Amos Tversky and Daniel Kahneman has found that, while a person’s well-being increases up to the point at which they earn approximately $75,000 a year, it typically does not increase beyond that figure.
Once people have enough money to take care of their basic needs and a little extra, their lives are not dramatically improved simply by making more.
Do we want to live in an equitable society?
To me, it was worth paying every single Gravity employee at least $70,000 a year because it meant they could focus on things besides money, which makes them even more valuable to the company.
It also means that every single person on our team is able to afford to pay their rent or mortgages (which, given that we’re headquartered in Seattle, one of America’s fastest-growing cities, is no small feat), start families, pay down debt, save for retirement, and generally enjoy a standard of living that provides for a relatively high quality of life.
To me, the mere fact that they dedicate the better part of their waking lives to our company makes them worth at least that much.
The question we should be asking is not “What does the market say someone is worth?” but rather “What is it worth to our society to compensate people fairly?”
We should not be asking “Do we want to live in a capitalist society or a socialist society?” but “Do we want to live in an equitable society or one where the odds are stacked against the vast majority of people who keep our economy running?”
While the answers to these questions should be self-evident, the solutions are obviously more complex.
But by understanding the rules that shape our market, we can work to change those rules to make the market work to more people’s advantage.
In an ideal world, the government would do this for us, but given how unlikely that seems — at least in the immediate future — we need an alternate plan.
If businesses want to retain their independence from government interference, then why not make the first move? If businesses started paying people more, they would organically increase the market value of American workers while simultaneously making their workforce stronger.
Will this require some sacrifices on the part of business owners?
Will it require increasing payroll, a business’s number one expense?
Will it mean top executives end up earning less than they currently do?
Probably, though they will still likely earn plenty.
But we ask again: Is it worth it?