Since Inc.'s November cover story about Gravity Payments co-founder Dan Price, a great deal has been written about him, much of it negative. Price is the entrepreneur who drew tremendous media attention when he established a $70,000 minimum wage at his Seattle credit-card processing firm. A BusinessWeek story speculated that his apparently generous gesture was really a ploy to gain advantage in a lawsuit between Price and his brother Lucas, a minority shareholder in the company. Stories on tech site Geekwire and elsewhere challenged the truthfulness of his claims and the ethics of his business practices.
Now another shoe has dropped. A group of court documents in the lawsuit between Price and his brother has recently entered into the public record. The documents shed light on some of the questions raised about Price's pay experiment as we reported it in November.
Did Price really put money into Gravity to fund the $70,000 minimum wage?
Dan Price told Inc. that he was liquidating his entire $3 million personal net worth and putting the proceeds into his company to ensure his pay experiment works. According to our story, Price had already sold all his stocks, emptied his retirement accounts, and mortgaged his two properties--including a $1.2 million home with a view of Puget Sound. Price confirmed this during our fact-checking process in September. On December 7, the tech news site Geekwire reported that property records show that Price had not taken out any mortgages on his two Seattle homes.
Inc.'s story was incorrect in reporting that Price had completed the liquidation of his assets but a review of documents provided by Gravity shows that he had, in fact, begun the process when our issue went to press in late September. That process is still not complete. Price declined to comment for this article, but Emery Wager, the Gravity employee he had instructed to handle the liquidation, said by email that "[We] failed to clearly delineate roles and responsibilities, so the project never progressed until Dan asked me on November 2nd if the company had access to the funds, which we did not." According to an email from Wells Fargo, Price applied for a mortgage on November 4. According to a court document, the application was rejected because of the lender's concern about the lawsuit. However, Dan is currently applying for a mortgage from another bank, Wager says.
The plan hit another snag when Lucas Price, who co-founded Gravity and owns 33 percent of the firm, objected to putting the $3 million directly into the company, according to Wager, saying the funds were not needed. (Lucas's attorney did not respond to an interview request.) So, on October 15, Dan instructed his lawyers to draft a Revolving Line of Credit Agreement, which he signed on November 5, that commits him to "dedicate and set aside three million dollars so that it is immediately available to Gravity" on demand for the next three years. A September 30 bank statement shows that Dan had a balance of $1.9 million in an account accessed by the line of credit. Proceeds from a mortgage or sale of his properties would bring the total liquid funds available to over $3 million.
Did Price pay himself an excessive amount as CEO?
Recent court filings reveal for the first time Dan's compensation in the years before he cut his own pay to $70,000 last April: $1.1 million in 2014 and 2013, $2.04 million in 2012, $909,000 in 2011, and $958,00 in 2010. Excerpts from depositions also indicate that Lucas admitted under oath to approving Dan's $800,000 cash bonus in 2012, a raise that Dan continued to receive in subsequent years. "In hindsight, I probably should not have," Lucas said in the deposition.
"My pay is set based on market rates and kinda what it would take to replace me," Dan told his staff when announcing the pay raises last year. "And because of this growing inequality, as a CEO that amount is really, really high . . . my compensation is really, really high."
Would it really take $1 million to $2 million a year to replace Dan Price? "There are not a lot of even Fortune 500 executives in similar industries making more than $1 million in guaranteed cash pay," says Dan Walter of Performensation, an independent compensation consultant for small and midsize companies. "For a company with Gravity's $200 million in revenues, $1 million in guaranteed pay is pretty unusual."
On the other hand, CEO salaries can vary widely. A study by Towers Watson that Gravity commissioned in 2014 recommended that its CEO receive between $675,000 and $2.8 million per year in salary, bonus, and stock, depending on how well the company does. A recent court filing from Dan Price included expert testimony from Steven J. Kessler of MKD CPAs of Seattle, who said his pay was "reasonable" and "approximates market derived compensation for his services."
Was the $70,000 experiment just a ploy to help Dan Price defend the lawsuit filed by his brother?
No one but Dan Price knows his true motivations, but Inc. magazine editors considered this possibility when writing the November story and dismissed it as improbable. We discussed our reasoning in this story, posted on Inc.com in December. Nothing in the new court documents suggests that our reasoning is wrong. The lawsuit is scheduled to go to trial in May. Perhaps we will learn more then.