The coronavirus has already taken a massive toll on the economy, as businesses of all sizes have had to let employees go because of stay-at-home orders. But in order to keep staff on payroll, companies like Seattle-based Gravity Payments are getting creative.
Dan Price, founder and CEO of Gravity, found a way to keep paying all of his 210 employees, even though the company’s revenue has been cut in half. He asked each employee how much of a pay cut they’d be able to take for the next few months. By trimming salaries accordingly, Gravity now has enough reserves to keep everyone employed for up to a year under the current circumstances.
Gravity Payments, which launched in 2004, processes payments for 13,000 small businesses across the country, which gives Price a unique insight into how mom-and-pop shops are faring. “Across all of our merchants, there was a 55% drop in revenue over the last month,” Price tells me. “That is a bigger decrease than during 9/11 and during the Great Recession.” Gravity takes a cut of about 0.3% of the merchants’ sales, which means it’s seen a similar decrease in revenue. At the current rate, Price said the company would be out of business within four to six months.
Price gained national recognition in 2015 when he set Gravity’s minimum salary at $70,000 after reading a study about income and happiness. The current crisis demanded another out-of-the-box approach, as economists believe the impact of the coronavirus will be enormous—unemployment claims have already dwarfed any other time in history.
So on March 19, Price called a companywide meeting to let employees know the state of the business and solicit creative strategies for navigating the next few months. He and Gravity COO Tammi Kroll also scheduled 40 hourlong meetings with small groups of employees to check in and gather ideas. “We just put all our cards on the table,” Price says. “And we listened.”
Some important learnings came out of those meetings. First, employees agreed that they wanted to avoid raising fees for Gravity’s customers, which Price says are already suffering losses between 40% and 80% in revenue. (Some have already shuttered.) Everybody on the team was willing to make some sort of financial sacrifice if it meant the company stayed in business and people kept their jobs. But employees were in very different situations: Some had big financial responsibilities, while others were on slightly more stable footing. “Some had family members who had just been laid off, some just had babies or bought houses,” Price recalls. “Even a 10% decrease for some families could pull the rug out from under them. But there were others who said they had a savings that could buffer them for several months.”
Together, the Gravity team settled on an unconventional strategy. Each person was given a form that allowed them to privately express how much, if anything, they could sacrifice financially in terms of a pay cut. “We didn’t want to do it in public, because we didn’t want someone who couldn’t afford to take a big pay cut to do so just for the optics of it,” Price explains.
Six people said they would be willing to give up their entire salary for several months, if necessary, if it meant there’d be no layoffs. Two dozen said they would give up half their paycheck. And even those who had significant financial obligations said they would be willing to shave off a small percentage of their salary. “Just eyeballing it, those who earned more and had more cushion ended up giving up more, and those who earned less gave up less,” Price says.
Every single person in the company took a voluntary cut of some kind, although Kroll and Price decided no one’s should be more than 50%. Every member of the management team also took a pay cut (some now earn below the company’s previous $70,000 minimum wage. Overall, these voluntary cuts amounted to a 20% decrease in salary expenses, which Price says gives the company a runway of 9 to 12 months. To save the same amount of money via layoffs, the company would have had to let 40 employees go. “This has bought us a lot of time,” Price says. “That could mean the difference between surviving as a business or going under.”
Many tech CEOs, including Salesforce CEO Marc Benioff, are calling for companies to keep employees on payroll, including hourly workers. Some companies, like Buzzfeed and GM, are temporarily cutting salaries rather than laying people off. But solutions have been piecemeal thus far; the U.S. government doesn’t have a plan in place to help businesses keep workers on payroll.
Gravity’s salary cuts will go into effect next pay period, and the company will reassess every 30 days. Price says they’re working on ways to make up for the lost wages, including possibly giving employees equity and formalizing the pay cut as deferred compensation. “But it’s important to know that none of these workers have any expectations that they will be paid back,” he says. “Their main motivation was to make sure that none of their coworkers would get laid off.”
Price realizes that many workers are sacrificing a financial buffer they’d created for their families to ensure that Gravity stays in business. But there’s still no guarantee that Gravity will survive. “This weighs heavily on me,” Price says. “I’ve been feeling mildly ill, a bit nauseous, ever since this decision was made.”
Because of that, he’s more motivated than ever to keep his business afloat. Beyond just breaking even financially, Gravity is trying to create new lines of revenue to support its merchants and, by extension, improve its own bottom line. “It’s a very different reality than what we had before,” Price says. “We had a very streamlined focus before. Now we have to do a lot more for our clients if we’re going to see them recover.”