Chapter 1
What We Know about Pay Is Wrong
On a weekday evening in south Seattle, a crowd formed outside an old Sears warehouse. Local labor organizers gathered with service industry workers against a backdrop of container ships floating toward the cityâs port. A few had microphones and led chants of âFight for $15!â while the rest waved signs at the passing office workers as they left the building and headed home for the day. As many as five thousand people would see the protest. The old warehouse was no longer being used to fulfill department store catalog orders. Now it was the global headquarters of Starbucks.
The crowd wanted higher pay, not only for the coffee chainâs baristas but for all service workers. They said that $15 an hour was the minimum amount workers needed to live a life of dignity. This was 60 percent more than the Washington State minimum wage, which at the time in 2014 was $9.32 an hour. Seattleâs city council wouldnât pass its own minimum wage until the next year, with a series of increases starting at $11. The new Seattle minimum wage would be one of the highest in the nation, far above the federal rate of $7.25, which was set in 2009 and hasnât been touched since. It still was not enough to provide workers a basic standard of independent living, and the rent problem would get worse with time. By 2018, a national study found a one-bedroom apartment to be affordable for minimum-wage employees in only twenty-two counties across five states: Arizona, California, Colorado, Oregon, and Washington. In each of these states, the local minimum wage exceeded the federal minimum wage by at least 40 percent. King County, home of the Seattle metropolitan area, was not on this list.
This livability question has focused much of the public debate about pay on minimum wage. Minimum-wage jobs are usually described in the most literal senseâas a minimum amount of pay provided to a minimum number of workers with minimum skill for a minimum amount of time. We tend to think of minimum-wage earners in nostalgic terms, as if they are temporarily working for low wages at the soda fountain, just students on summer break who need basic work experience before graduating and taking ârealâ jobs in corporate offices. We downplay the skills required to do minimum-wage work (which often include intensive customer service and physically demanding tasks), and so we mentally disconnect these jobs from an expectation of sustained livelihood.
Estimates from the Bureau of Labor Statistics show minimum-wage workers are neither few in number nor temporary in status. They are also older than the narrative suggests. About 2 million people in the United States are paid at or below the federal minimum wage. More than half are over age twenty-five, and about 80 percent are at least twenty. The majority work in food service. About a third are parents and face increasing barriers to upward mobility for their families, like a lack of affordable childcare or predictable shift scheduling. On a percentage basis, 2 million is only 1 percent of the overall workforce, so critics of minimum-wage increases suggest the laws are therefore unimportant. They underestimate the impact because they fail to look the slightest bit up the income distribution, where we uncover a much larger problemâalmost half the nationâs workforce at the time of the protests were paid below the $15 threshold.
Starbucks was a smart place to protest. The company was then and remains now well ahead of the retail and food service industry in caring for its people, as its mission statement to inspire and nurture the human spirit suggests. Starbucks had, a few months prior, added to its long-standing health insurance and stock programs for all employees by launching a new university degree program in partnership with Arizona State University. The company received fawning news coverage for the innovative program, including a cover story in The Atlantic that showed a barista holding a diploma and the headline âCan Starbucks Save the Middle Class?â Though the protesters didnât know it at the time, the company had already started planning some of its biggest employee investments yet.
I was part of the Starbucks corporate team working on this project. My job was to set the pay rates for every Starbucks store employee, including its hundred thousandâplus baristas in the United States, who on average were about my age. The plan was to improve the pay, benefits, and working conditions for store âpartners,â as all employees at the company are called. Significant starting pay increases, free food while on shift, greater visibility into scheduling, enhanced career development opportunities, and a long-awaited relaxation of the dress code would all be rolled out together in a grand celebration called Partner Experience Investments. Our team felt great about the initiative, but $15 per hour was not on our menu, and in most cities, we would be far from that ideal. At the time, the Fight for $15 movement was considered fringe, if known about at all, as the protests had not yet broken through to the nationwide public consciousness. There was no precedent for that much of a wage increase, and we couldnât point to any other company of similar size paying anywhere close as a comparison.
In my more optimistic moments, I might have thought that for all our efforts and Starbucksâ history of incremental corporate benevolence, we would usher in a new era of economic fairness and goodwill just like The Atlantic had predicted. Over time the companyâs efforts would bend back the arc of inequality, setting off a chain of corporate awakening with cascading wage and benefit increases across the economy that would take society back to the days when a middle-income earner could own a house, support a family, see a doctor without risking bankruptcy, and send children off to college on the steady path to an equally stable livelihood. We would Make America Great Again before anyone thought to print the idea on a red hat. In my more grounded moments, I at least knew Starbucks would stand out even further from the competition in the coming year.
What I soon learned was that while increased pay would make a difference in many places around the country, where the economic pressures of affordable housing, childcare, and transportation were not extreme, in most urban centers, our initiatives had no chance of resonating with the daily lives of baristas, including those I walked past working in the store attached to the headquarters, steps away from the protest outside.
I hadnât seen the crowd until I left work that day. Weaving through the signs, I walked toward my car parked on a battered street several blocks from campus, figuratively and literally on the other side of the railroad tracks. At the time, the corporate parking garage had a four-year waiting list, so faraway street parking let me experience a small slice of the cityâs worsening real estate burden, caused in part by Amazon, which took up an increasing share of square footage in unmarked buildings all over town and untethered housing prices from incomes along with it. This was years before Jeff Bezos would erect a not-so-subtle phallic-shaped building in the middle of downtown to symbolize his public dominance over the city.
On the busiest days, when the Seattle Mariners had an afternoon baseball game next door and street parking filled up early, I parked on the side of the street with the car campers, people whose only option of housing was their vehicle. Eighty years prior, the same land was a Hooverville, named mockingly after President Herbert Hoover as one of the hundreds of makeshift communities around the country where destitute families lived during the Great Depression. Prospects for the people who lived here now were not much better. Most days, I didnât think much about the circumstances that put them in this situation. Iâm not proud of my apathy, but I got used to the sight, and I was usually too busy thinking about how to organize my calendar around getting to the third-floor cafeteria in time for the dayâs fresh salmon. The corporate chefs never seemed to make enough, and by 12:15, it would be gone.
I was only a middling analyst at the company, but I was already insulated by my own financial bubble and career ambition. I failed to see the needs of those directly around me and my own power to advocate for them. Later, I would learn of research showing a tie between a personâs wealth and the brain reactions of seeing marginalized peopleâsimply put, the richer you are, the less you tend to physically notice the poverty around you. My middling analyst salary was nearly double the median wage for the city, and more than four times the barista wage, yet I was already treating the working poor next to me as if they were invisible. I was living in the richest country in history, but for an increasing share of its people, fresh salmon was never on the menu. Worse still, in my job I was directly contributing to the problem.
The protesters did not know I was among the handful of passersby who could increase service industry payâwho could make $15 an hour happenâthough not without first convincing more senior people it was a good idea. My team was responsible for knowing the trends and amounts that our competitors paid their workers everywhere in the world, in as granular detail as possible, and for recommending the appropriate âmarket rateâ of pay for every job in the company. Traditionally, people in jobs like mine have understood their role to be trackers of market trends. We pay less attention to how we can influence the trajectory of the marketplace itself. The market, in its all-knowing wisdom, would tell us what to do.
Every large company has a group in their Human Resources Department that does this type of work, which, for lack of a more charismatic name, we will refer to as the compensation team. We usually sit in an unglamorously titled group called Total Rewards. Internationally, the standard nomenclature is even blander; weâre called Total Remuneration. As a party trick, this work can be fun. By knowing a few details about your job, I can tell you within a few percentage points how much money you currently (or should) earn. If I get it wrong, I can deflect and say thereâs both an art and a science to the job, and that perhaps I leaned too heavily on the science and didnât properly calibrate for your companyâs compensation artist. This is all sort of true but mostly a convenient excuse people like me use to maintain a black box around our work and dodge questions or accountability.
After leaving Starbucks, I still played an indirect role in setting barista pay, not as a formal part of the company but in consulting with international franchisee conglomerates that operate brands owned by many companies. My new employer was Yum! Brands, which owns KFC, Pizza Hut, and Taco Bell, and has many of the same franchise (or license) partners as Starbucks. Weâll return to how these arrangements work and how they can be problematic for fair-pay outcomes by limiting market competition in Chapter 8. After the restaurant world, I returned to the Pacific Northwest and joined Nike, where I work as I write this book.
For disclosure purposes, I should say a few things about this bookâs relationship to the brands I have been associated with. I am writing on my own behalf, not on behalf of any company. In these pages I donât share any proprietary company information, warts, or practices, and in the few spots where I do tell stories from my day job, I have changed enough of the details to make my point without exposing the inner workings or mistakes of any company or person (except my own). Sharing specific company details would add little to my reason for writing, which is to explain and improve upon a system that can be changed to bring fair pay to everyone. I am interested in bettering the systemic, corporate view of pay in which most of us work, and any improvements to the overall ecosystem will affect all companies in the same ways. As weâll see, this is because pay design at the worldâs largest companies is done by a small group of people who are well connected to each other and who use the same proprietary data sets. You can think of us as the worldâs least-interesting Illuminati. Our field is not well known, and that becomes an advantage we have over you.
Returning to our protest, you should also know I did not volunteer any of my professional expertise to the demonstrators. Had I shared any information about the pay plans we were working on at the time, I would have risked my job and put my own family in the neo-Hooverville. There were proper, legally vetted corporate channels to discuss such things at the right time, through the right messenger, using the right, focus-grouped phrasing, and I concentrated on that. Until then, I had a black box to protect.
MORE MONEY, DIFFERENT PROBLEMS
Across town from the Fight for $15 protests, a different kind of experiment in pay was underway. Dan Price, CEO of Seattle-based credit-card processing company Gravity Payments, announced a new minimum wage at his company. It wasnât $15 per hour, but $70,000 per year, which for full-time employees works out to almost $34 per hour. The number wasnât pulled out of the ether; it was based on a headline-grabbing study that found peopleâs emotional well-being climbs with their income but plateaus once their annual pay reaches $75,000, enough to provide the necessities of life in most places plus a cushion to cover emergencies. As expected, Priceâs actions also made headlines. He hadnât only raised his companyâs minimum wage significantly, but funded the move by cutting his own salary from $1 million to $70,000. The Gravity Payments story generated hundreds of global news clippings and its own magazine covers. Among his most flattering was a cover story from Inc. Magazine titled âIs This the Best Boss in America?â High expectations for a guy most people had not yet heard of.
Price describes, in his book Worth It, being shaped by his childhood experiencesâfamily financial struggles and religious convictions among them. Priceâs business intentions were also clear, as Gravity Payments would need to position itself to compete in the rarefied evergreen Seattle air alongside local household names like Jeff Bezos and Bill Gates. In the tech industry, where Gravity Payments competes, notoriety is often the only way to attract top-tier talent, and therefore survive. Industry observers know that the difference in work quality between the average tech worker and the top tech talent can be dramatic, even in already niche fields like artificial intelligence or machine learning. The pursuit of â10x engineersââthe engineers who are ten times as productive as their peersâhas led to a corporate arms race to find and pay for top tech talent, especially in Seattle. This quest has brought wages up for the entire tech industry and generated a mythology of twenty-something engineers saying no to million-dollar job offer packages. In the early 2000s, competition got so fierce that many tech heavyweights found themselves caught up in a class-action complaint for having established âno-poachâ arrangements with one another, in a coordinated effort alleged to have been designed explicitly to suppress pay. In one email to Google cofounder Sergey Brin, released in court filings, Apple icon Steve Jobs warned that âif you hire a single one of these people, that means war.â Googleâs Eric Schmidt, also over email, said, âGoogle is the talk of the valley because we are driving up salaries across the board. People are just waiting for us to fall and get back at us for our âunfairâ pay practices.â Recruiters who crossed the demilitarized zone were fired for their insubordination.
By design, Gravity Paymentsâ minimum-wage pledge gave the company the strategic differentiation it was looking for compared to their better-known peers. Gravity Payments was a different kind of company. The pitch seems to have worked well enough to attract top talent, including Tammi Kroll, the companyâs chief operating officer, who was reported to have taken an 80 percent pay cut to join from Yahoo. It didnât matter if Gravity and all the other tech companies were already paying well above the legal minimum wage just as a factor of the industry and the kinds of jobs they employed, or that most of Priceâs earnings potential lay in the long-term equity ownership of the company, not in his annual base salary. Price was now a hero. Today, Gravity Payments continues to be successful. In a January 2020 tweet, Price said that since he put the company minimum-wage plan in place, revenue at Gravity Payments had grown 200 percent.
The Gravity Payments experiment wouldnât affect the service-level workers at the Fight for $15 protests. Priceâs argument, however, w...
