Do we jump on the $70,000 salary bandwagon?

It might be appropriate to file this under "all good deeds get punished.” 

Dan Price is a 31-year-old chief executive and co-founder-with his brother-of Seattle-based Gravity Payments, which processes credit card payments.

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After reading that $70,000 is the annual income needed to give people financial peace of mind, Price announced that he would raise his workers’ compensation so that everyone earned at least $70,000 and that he would cut his own $1 million-plus salary to that same amount. The savings from Price’s salary and corporate profits would fund the raises.

Good or bad move?

Applauded as a champion in the fight against income inequality, Price enjoyed a lot of complimentary press regarding his decision. But now he is facing a lot of unintended consequences, including:

• The resignation of prized employees who were reportedly angry that marginal, inexperienced workers now earned the same amount or close to the high-performing employees.

• Loss of other key employees who, when raising their concerns about the new plan, were not listened to but criticized for being greedy.

• A lawsuit from his brother, owner of 30% of the company, claiming that Price enriched himself (net worth of $3 million) while the cofounder brother did not financially benefit.

• With the company's earnings committed to the new compensation plan, the company lacks resources to fight the lawsuit and, according to Price, the survival of the company is threatened.

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So how this story will play out is uncertain.

Next: Ophthalmology experiment

Photo credit:  ©Melpomene/Shutterstock.com

Reading this story caused me to wonder how this scenario might play out in an ophthalmology practice. What if we all decided that every employee should be guaranteed a nice salary on the order of $70,000?

Ophthalmology experiment

Then I remembered I had heard about a similar experiment told to me by a friend who had worked in a hospital in another state. One day, a philanthropist decided to provide funding to ensure that every ophthalmologist in the department earned at least the Association of American Medical Colleges (AAMC) median compensation.

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What happened was:

• The ophthalmologists who were not as productive as their colleagues were pleased to receive a raise and guaranteed floor to their compensation.

• The ophthalmologists who were more productive and saw themselves as working harder than their less well-compensated colleagues were angry that they were now earning the same.  They started to reduce the numbers of patients they saw per day.

• Some ophthalmologists who were very productive, and therefore earning above the median compensation, said they saw no reason to "kill themselves" for an incrementally greater compensation.  They also began to reduce their patient volumes, content to receive the guaranteed AAMC median.

As with Price's company, one group of people was happy with the new compensation guarantee, whereas other groups were unhappy (for somewhat varying reasons).

Did you know these 7 men were ophthalmologists?

I look forward to seeing news reports over time on the subject of Price, Gravity Payments, and the $70,000 guaranteed pay scale.

This topic of more evenly distributing wealth is nothing new. 

Next: Concluding thoughts

 In 1888, Walter Bellamy published “Looking Backward.” It was a best-seller, third only behind “Uncle Tom’s Cabin” and “Ben-Hur.” Bellamy’s book describes an America in which everyone receives an equal share of society’s wealth, works fewer hours, and retires with full benefits at the age of 45.

I recommend it to your reading. 

Further reading:

Best ophthalmic hospitals for 2015

7 common lies you've been told about optical shops