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A few years ago, a small Seattle-based company named Gravity Payments generated riveting headlines. After recognizing the rising cost of living in one of the most expensive cities in America, Gravity’s founder, Dan Price, decided to do something about it: he raised the minimum wage that his employees were making.

Now, that in and of itself isn’t particularly newsworthy. Although somewhat on the rare side, corporate executives have shown heart to their worker-bees. Reality television programs – such as Undercover Boss — and their popularity prove that some organizations think beyond the bottom line.

No, what made Gravity so groundbreaking was not their spiking of the minimum wage, but its magnitude. Everyone at the company will make no less than $70,000.

To put this into perspective, the average wage in the U.S. is just above $44,500. And in high-cost Seattle, the average wage is just under $70,000. On the other hand, software engineers in Seattle make between $102,000 to nearly $131,000.

Unsurprisingly, most of Price’s employees received the news with extreme gratitude. But not everyone felt the same way. Some of Gravity’s prized workers left the company because they didn’t feel especially valued. The move also caused executive rifts; namely, Price’s brother filed a lawsuit against him.

 

Is $70,000 a Fair Minimum Wage?

Initially, the idea of setting a $70,000 minimum wage appeared irrational. Certainly, the evidence suggested that this was financially a disastrous move.

However, Price is getting the last laugh. In a recent article, The New York Times revealed that business has boomed at Gravity. Not only that, several business execs and entrepreneurs are looking into the concept of raising salaries as a profitable strategy.

So spiking the base threshold in salary does work, at least in a carefully-defined environment. But is such an action fair? I think this is where reality sets in for most other organizations.

Generally, the free market will find and reward the most talented and the most diligent workers. In a society where mediocrity finds both reward and recognition, true performance stands out, often dramatically. In other words, if somebody deserves a lofty salary, they’ll usually find a way to get it.

On the flipside, the free market eventually penalizes underperformers: it’s the economy’s yin-yang. Where well-meaning people go wrong is when they tinker with this natural order. While it may “feel good” to help a financially-strained individual, merely throwing money at people won’t solve underlying issues.

It’s also not fair to those who have earned their higher paychecks.

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