Dan Price, Don Quixote and the Surprising Intelligence of a $70,000 Minimum Wage

Co-authored by Moses Pava

"I hope this company is a case study in MBA programs on how socialism does not work, because it's gonna fail," exclaimed Rush Limbaugh in response to CEO Dan Price's decision to cut his pay from close to $1,000,000 to $70,000 per year in order to raise employees' compensation at Gravity Payments, his payment processing company, to a minimum of $70,000 over the next three years. The Seattle-based, privately-held company anticipates earning just over two million dollars this year and expects to take an immediate hit to its bottom-line as a result of the new policy. In the long run, Price hopes his company will generate additional profits as a result of his audacious and courageous decision.

Price was inspired by Seattle's new $15 per hour minimum wage law and by academic research suggesting that workers earning about $75,000 a year are relatively happy and satisfied. Price is also worried about the increasing chasm between the haves and have-nots in this country, and what effects this is having on our society and the long-run sustainability of our democracy.

Although Limbaugh's voice is the shrillest among naysayers, he is hardly alone. Others have pointed out that a decision like this could never happen at a publicly-held company. And, even if it could, cutting the CEO's salary and dividing it up among workers wouldn't make much of a difference at huge companies with thousands of employees. Other critics suggest that it won't work because it's based on a misreading of the science. Happy workers may be less motivated to work hard, not more motivated.

All of the critics share the common-sense view, that the only thing that really matters when it comes to decision-making is the outcome, or, as James March, one of the leading experts in the world on organizational behavior and decision-making would put it, "consequences." But March points out rather counter-intuitively -- especially to those of us trained in the nation's top business schools -- that this is not the only way to evaluate the intelligence of decision-making. He identifies an alternative logic, the "model of appropriateness." Here, decision-makers don't ask about preferences, but ask questions like "What kind of a person am I?" and "What does a person like me do in a situation like this?" According to this alternative way of thinking, decisions can be seen as an opportunity to help shape and mold our characters and the identities of those groups to which we belong.

For sure, there is a Don Quixote-like quality to Price's unusual decision, but sometimes, as March has pointed out, it is precisely the imagination, commitment and playful joy of a Don Quixote that is needed when we face intractable problems like income and wealth inequality.

We have little doubt that Price's decision was one he felt ethically and morally committed to. Dozens of employees and their families will benefit from the unanticipated raises. From a broader social perspective, though, it is a stretch to believe that his approach will have a material effect on the underlying problems causing the increasing gap in wealth between the most well-off and the least well-off citizens. As Joseph Stiglitz, a Nobel Prize winning economist, has recently pointed out, there are three ways to bridge the growing inequality gap: reform the tax code, enact smarter and better regulations, and provide equal access to education. But, before any of this can happen, the rest of us need to feel the urgency of the problem, and it is the Don Quixotes of the corporate world who are jump-starting the conversations needed to reform the system.

We share Rush Limbaugh's fantasy that one day Dan Price's decision to drastically cut his own pay will be written up as a case study for MBA students. The difference is that we hope that it will be taught as an example of visionary leadership in the face of seemingly impossible odds. To quote James March, "Quixote reminds us that if we trust only when trust is warranted, love only when love is returned, learn only when learning is valuable, we abandon an essential feature of our humanness."

Rabbi Tarfon, living in a period of crisis following the Roman destruction of the Second Temple, had this advice to give to his co-religionists in a time of great uncertainty, "It is not your responsibility to finish the work [of perfecting the world], but you are not free to desist from it either." James March, Don Quixote and Dan Price exemplify and carry on the tradition of this ancient Jewish sage. In a world focused almost exclusively on getting the job done, it is good to be reminded of the counter-cultural wisdom that the journey counts as least as much as the destination and, perhaps, even more.

Moses Pava is the Dean of the Sy Syms School of Business, the Alvin Einbender Professor of Business Ethics, and Professor of Accounting. Dr. Pava is the author of several books, including: Corporate Social Responsibility and Financial Performance: The Paradox of Social Cost, Jewish Ethics In A Post-Madoff World, Business Ethics: A Jewish Perspective, Leading With Meaning, The Jewish Ethics Workbook, The Search for Meaning In Organizations, and Jewish Ethics As Dialogue.