The Dan Price controversy got a little hotter this week when Bloomberg Businessweek published a story alleging that Price "has something to hide" about why he made a dramatic decision to create a $70,000 minimum wage at Gravity Payments, his Seattle credit-card processing company.
Specifically, the story suggests that Price, who appeared on the November cover of Inc. magazine, may have been motivated not by altruistic reasons--he cut his own pay from $1.1 million to $70,000 to help pay for the raises--but because he was being sued by his older brother Lucas. Lucas started Gravity Payments with Dan in 2004, became equal partners shortly after the company's formation, and today owns a 33 percent share.
Dan declined to comment for this article but Gravity released a statement that read, in part, "The recent story in Businessweek contained reckless accusations and baseless speculations that are unequivocally false."
Lucas's lawsuit, as reported in Inc.'s article, claimed Dan had previously paid himself "excessive compensation" and asked the court to order Dan to buy Lucas's share of Gravity "at fair value" or dissolve the firm. (Lucas declined to comment for our previous story except through his lawyer, who did not respond at press time to requests for comment for this article; Dan denied his brother's claims.) The case is scheduled to go to trial in May.
As recounted in our story, Lucas and Dan had a falling out about 18 months after the company launched, because Lucas was frustrated at being given menial tasks by his kid brother. Eleven days after Dan's April 13 pay-raise announcement, Lucas formally filed the lawsuit, the Inc. story said, "perhaps to pressure Dan to sell when Gravity was in the limelight, thus maximizing the value of Lucas's share." (Through his attorney, Lucas denied there was any connection).
The Businessweek article took the opposite tack, noting that Price was actually served with the complaint on March 16--four weeks before the pay-raise announcement and five and a half weeks before it was actually filed in court. That means, the Businessweek story concluded, "The lawsuit couldn't have been prompted by the pay raise--if anything, it may have been the other way around. After all, Price announced his magnanimous act a month after his brother sued him for, in essence, being greedy. Lowering his pay could give Price negotiating leverage, too."
That scenario is a possibility that Inc. considered and rejected as far-fetched. Nothing in the Businessweek story alters our judgment. In July, Inc. asked Lucas's attorney, Greg Hollon, during a telephone interview whether Dan's dramatic announcement might have been motivated by the lawsuit. "I don't know whether that's what happened or not," said Hollon. "You have to ask him."
Asked why Lucas's lawsuit was not filed until April 24, after Dan's pay-raise announcement, when it was dated March 13, Hollon said by email on September 25, "The reasons for the timing of the filing are privileged attorney-client communications, but as I have repeatedly told you, the filing was not related to the announcement. Among other issues, a mediation requirement in the parties' contracts delayed the filing."
When we asked Dan in July whether the pay raises and his salary cut were motivated by the lawsuit, he said no. He said that he and Lucas had been feuding for so long that being served with the complaint--while serious--was to him just another chapter in his brother's effort to force a liquidation of the company. "What I took from it, generally speaking, he wanted the company run [in a way] that was more short-term, cash-to-shareholder, like, 'Let's gut this golden goose,' and the fact that I didn't agree with that, the retribution was, well, I'm never going to approve anything else you do," he said.
According to the Gravity shareholder agreement, Dan has more voting power on many company matters. It further stipulates that any modifications to Dan's employment agreement, but not the amount of his compensation, require a unanimous vote. However, Dan told Inc., "I've never given myself a raise in the history of the company without Lucas agreeing to it."
In previous interviews, Dan said he offered his brother $4 million to $5 million for his 33 percent stake but has received no response. Hollon told Inc. that past appraisals commissioned by the company have estimated the value of Lucas's shares at $35 million but today that number "is likely quite a bit higher, as revenues have increased materially since the time of that appraisal."
"In my reading of the lawsuit, the remedy he seems to be asking for is the forced liquidation of the entire company," Dan said in July. "The conventional thing to do in our industry after a sale is to slash and burn our staff and then increase the pricing to our client base. That strategy would unlock a lot of value to be ripped out of the company. And there's a good chance that the number he would pocket from that type of event would be more than I could pay him."
When he received the complaint, Dan says, he considered it a threat to force him into making Lucas a higher offer. On April 3, Dan answered Lucas's complaint with his own legal filing denying the claims. Ten days later, he made the pay-raise announcement. On April 24, Lucas formally filed the suit. "I think the raises were probably the last straw" that prompted Lucas to go ahead with the suit, Dan said. "He was basically saying, 'Hey, you can't run a business like this.' Well, our business wouldn't even exist if it wasn't run like this."
The Businessweek article was light on details about why Dan would respond to a vaguely-worded lawsuit from his brother with an extreme measure like a $70,000 minimum wage. For one thing, the numbers don't add up. Even if the lawsuit costs $1 million in legal fees--Dan's best estimate--that would be a bargain compared to what his radical wage policy is costing him and Gravity: $1.8 million for the pay raises for 70 workers, phased in over three years, and Price's $1 million in lost salary per year. As Inc.'s story reported for the first time, Price also liquidated his entire $3 million net worth--selling all his stocks, emptying his retirement accounts, and mortgaging his $1.2 million home and a condo--and put the proceeds back into Gravity, a move he said he made to ensure that his pay experiment worked. The Inc. story also noted that Dan had been handing out 20 percent pay raises for the previous three years. When profits soared after those initial pay raises, he says, he was emboldened to make his dramatic announcement in April.
The Businessweek article also makes much of Price's $500,000 book deal and $20,000 speaking fees but failed to note that he is also putting those earnings back into the company. He has been candid about wanting to wring the maximum amount of publicity possible from his wage policy to benefit the company and pursue his larger goal of changing the way companies do business.
Inc. will not address allegations in the Businessweek article from Price's ex-wife, Kristie Colón, except to note that Colón contacted Inc. through a representative after our article's publication to ask for some factual changes. She did not challenge the story's characterization of her marriage to Dan as ending "amicably." In fact, blog posts written by Colón before and at the time of the divorce lend considerable credence to this characterization. In the online edition of Inc.'s story, at Colón's request, Inc. corrected the spelling of her first name and the year of their divorce. We also added the couple's ages when they were married. For this story, Colón and her representative did not respond to requests for comment.
Price spoke yesterday at Inc.'s Vision 2020 conference in San Francisco.