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PayPal Workers Were Struggling to Make Ends Meet; CEO Dan Schulman Vowed to Change That

PayPal launched a financial-wellness program after realizing its employees were struggling. After putting the program in place, the average net disposable income for workers went up to 16 percent.

A piggy bank next to a pile of coins and a laptop.

This article was written by Shannen Balogh from Business Insider and was legally licensed through the Industry Dive publisher network. 

Despite working a full-time job at PayPal as a customer-service representative, Mark Parker of Omaha, Nebraska, used to sell his plasma to pay his bills. By going a couple of times a month, he'd get a few hundred dollars.

Parker, who took the job at PayPal in May 2019, couldn't afford the payroll deductions for healthcare, so he went without health insurance. His wife was on Medicaid, and nearly all of Parker's income went to rent, food, and diapers for their two young children.

"We were putting a lot of our bills on credit," Parker, who is 32 and his family's sole earner, told Insider.

Parker's struggles came at a time when his employer was enjoying incredible success.

Long known for its online checkout button, PayPal has evolved into a payments behemoth, with a market cap of over $285 billion. The stock has soared more than 500% under its chief executive, Dan Schulman, since splitting off from eBay in 2015. It reported over $17 billion in revenue in 2019, has spent billions on buybacks in recent years, and acquired rewards startup Honey for $4 billion in cash in January.

Parker's job with the payments giant paid "at or above market rate," like all jobs at the company do, a PayPal spokesperson said. The average wages for a customer-service representative at the company is about $16.75 in Omaha, the spokesperson added. That's well above the state's minimum wage, but also well below the living wage for a sole provider in the area.

As with millions of working Americans, Parker was living paycheck to paycheck.

He applied to PayPal's employee-relief fund, which the company established in 2017 to help employees dealing with an unexpected financial problem, such as a costly medical diagnosis or expenses associated with, say, a car accident.

He wasn't experiencing an unexpected life event, but he was in need, he said.

PayPal gave him a one-time $300 Walmart gift card, which went to food and household items, and saved his family from falling behind on rent.

A couple of months later, Parker was invited to the company's expansive Omaha office to meet with regional and C-suite PayPal executives and external consultants hired to do research. They wanted to hear his story.

About 12 other employees, also from the area, were sitting in a circle in a small room. One by one they told the consultants how they were struggling.

"What do you need to be more financially stable? What would you like the company to prioritize?" Parker remembers a consultant asking the group.

Parker and his colleagues jotted down their answers on sticky notes and placed them on a wall. Phrases like "more money" and "cheaper healthcare" went up several times.

Just months after that meeting, and less than a year after joining PayPal, Parker's wages increased (though he would not disclose by how much). Today, he and his family are enrolled in the company's healthcare. And he now also holds stock in the company as part of a new compensation package.

The company increased wages for hourly workers, those who work in the company's customer-service centers dotted around the US, and other employees who qualified in areas ranging from business operations to facilities.

Then came the coronavirus pandemic.

PayPal sits at the intersection of many of the defining business stories of 2020

The spread of COVID-19 devastated the US economy and labor market through the middle of 2020. Unemployment spiked to 14.7% in April, the highest level since the Great Depression. The economy contracted at a record 31.4% annualized rate in the second quarter.

Stimulus checks gave the economy a boost in the early summer, but nearly 8 million Americans still fell below the poverty line between June and November, according to researchers at the University of Chicago and the University of Notre Dame. That lifted the US poverty rate to 11.7%. For those with a high-school education or less, the poverty rate jumped to 22.1%.

"People have to choose between healthcare benefits or putting food on the table," Schulman told Insider. "And so I knew even before the pandemic that this was an issue that was fraying our society, fraying our democracy, really undermining capitalism."

Yet the pandemic heralded a boom for PayPal. It saw a surge in demand from merchants looking to quickly shift their businesses online. It benefited from years of investment in its tech stack, quickly rolling out new products to respond to shifts in consumer behavior.

Where other companies were forced to cut jobs, Schulman said in March that PayPal didn't intend to lay off any employees as a result of the pandemic (though it has since reportedly laid off about 100 people). And in June, as corporate America reckoned with institutional racism following the police killing of George Floyd, PayPal announced the creation of a $530 million economic-opportunity fund to support Black and underrepresented minority businesses.

Its stock more than doubled in 2020

Amid one of the most unstable times in modern history, PayPal is blazing ahead. It's seen record new users, charged past revenue targets, and seen its stock price soar. C-suite leaders told Insider the key to PayPal's recent success boils down, in large part, to the company's investment in its employees.

This holiday season, Parker and his wife, who's pregnant with the couple's third child, had enough money to buy their children presents. "We don't have to worry about whether we're going to be able to make it from paycheck to paycheck," he said.

Dan Schulman is far from your average CEO

In 2014, Schulman, then the CEO of Virgin Mobile, spent 24 hours living on the streets of New York City.

"There's a certain amount of deference paid to a CEO," he'd later write in a New York Times op-ed. "No one paid attention to me on the street. I consider myself a good communicator and a good salesman. It took me five hours of begging to raise less than a dollar."

The experience of displacement was in support of a nonprofit for homeless teens that the wireless provider supported. 

Later, while he was an executive at American Express, Schulman went again into the streets of New York, this time standing in line at check-cashing shops to experience firsthand the challenges of unbanked Americans for an AmEx documentary.

When Schulman arrived at PayPal, in 2015, it was newly split from its parent company, eBay. He boldly declared the company's purpose: to democratize the financial system and, in his words, make "financial services universally affordable and accessible."

That meant making PayPal's values central to the now independent company itself, said Franz Paasche, senior vice president for corporate affairs.

"We were not going to create a separate foundation and put our good works and our thought leadership in a foundation," he added. "We did it all at the core of the company."

PayPal launched a financial-wellness program after realizing its employees were struggling

Schulman and other top executives heard that the company's hourly workers at its call centers and entry-level employees had been struggling.

In 2017, Schulman decided to create the employee-relief fund, a pool of money set aside to help employees through unexpected financial hardships. The company funded it with $5 million.

Soon after creating the fund he realized just how much financial need there was. There were far more employees applying to the employee-relief fund than he'd expected. He decided to investigate.

In 2018, Schulman greenlighted a survey looking into his employees' financial health. The results showed that some 60% of PayPal's employees had a net disposable income of between 4% and 6%, meaning that, after food, housing, and health costs, they had little money to save for an emergency or their children's education, or on any nice-to-haves.

That was despite PayPal paying at or above market rate for all positions globally, Schulman said.

Employees at PayPal were not an anomaly. A staggering 70% of Americans have less than $1,000 in savings. In 2019, one in eight Americans was below the poverty line, NPR reported, a number that's spiked since the pandemic hit.

The CEO set a goal to get employees' net disposable income up to 20%, a number suggested by personal-finance experts.

To implement this, healthcare costs were slashed by 58%, on average, with PayPal covering more of the costs for employees. Compensation was raised an average of 7%, and employees were given restricted stock units, or RSUs, company shares that vest over a certain time. (Vesting schedules varied depending on tenure and country.)

Instituting a program of this scale required serious financial consideration. The cost wasn't "chump change," said John Rainey, PayPal's chief financial officer and executive vice president of global customer operations.  

But the company's investors didn't push back, Rainey said, adding that its shareholders "are very long-term focused." 

"What I told the board — what I said out loud in earnings calls and to investors — is that the foundation of moving from a good company to a great company rests upon having the very best employees," Schulman said.

Since instituting the financial-wellness program, in October 2019, the average net disposable income has jumped to 16%, positioning employees to meet or exceed the average American's personal savings rate.

The ROI of PayPal's investment in its employees was made clear in a year of record growth

The payoff from PayPal's investment in employees was evident in 2020, a year of massive growth for the payments company.

Employee turnover in some locations has been cut in half, saving the company millions in staffing costs, Rainey said. (PayPal does not disclose attrition rates.)

"In any profession, with experience you get better at what you do," he said. "So it's really important for us to retain the employees that we have."

It's seen material improvements in employee sentiment. The biggest change PayPal has seen is the number of employees saying they intend to stay at the company, a survey conducted this year found. Customer satisfaction and PayPal's net promoter score have gone up, too.

That's despite the challenges of managing record demand, all the while working remotely. Executives attribute part of employees' effectiveness to the fact that they're not worrying about their finances.

"Imagine asking people to double down on serving customers when they're more financially stressed than ever before, when they don't have healthcare benefits," Schulman said.

PayPal's head of sales, Peggy Alford, said she saw this firsthand, as her team managed skyrocketing demand earlier this year. Doing so with employees who weren't stressed about their finances made a big difference, she said, and was evident in interactions with customers.

"It creates an environment where you're able to serve your customer so much more," Alford said. "People are much more loyal, and they are much more engaged if they feel like they're being taken care of."

Nicholas Bloom, a professor of economics at the Stanford Graduate School of Business, explained that increasing worker pay and benefits to reduce turnover and boost productivity is a tactic that dates to 1914, when Henry Ford raised wages to increase employee loyalty.

There's a "long literature" supporting PayPal's decision, Bloom said, citing Nobel Prize winner Joe Stiglitz's writings on "efficiency wages," the idea that if you pay people more, they work harder and quit less.

"When people are stressed about money, it can negatively affect their performance on the job. By paying more, companies can help to reduce some of that stress — which can also lead to better performance," Michael Luca, an associate professor at the Harvard Business School, said.

Lauren Aydinliyim, an assistant professor at the Zicklin School of Business at CUNY Baruch College, characterized PayPal's program as "human-capital investment" and explained the relationship between it and company performance.

"What I would expect to see generally is that the relationship between human-capital investment and firm performance is an inverse-U shape," she said. "That is, the more firms invest in their human capital, the greater their performance up to the point that the costs start to outweigh the gains."

PayPal's success is also driven by its CFO investing big in tech and product — and shaping the future of how we shop and pay

There's a lot more to PayPal's success through the pandemic than the hiking of wages for some staff. As with most payments companies, the pandemic's push of digital payments and e-commerce has proved to be a major plus.

E-commerce has been steadily rising for the past decade, but this year growth skyrocketed. In the third quarter, e-commerce grew by 37% year over year, or 14% of total retail spending, according to the US Census Bureau.

To keep up with new habits in the way consumers shop and pay, PayPal has been on a product-launching spree.

Rainey said that history-changing events like the pandemic often lead to permanent changes in consumer behavior. "We don't want to just sit back and be a recipient of the trends that are happening around us," he said. "We want to help influence those trends. We want to drive some of these changes."

Part of Rainey's role as CFO is deciding when, where, and how much PayPal invests in new products.

This year alone, it launched QR-based payments, a buy now, pay later product, and the Venmo credit card. It also enabled customers to buy and sell cryptocurrencies on its app.

None of this would have been possible without a years-long revamp of its tech stack, Schulman said. Five years ago, PayPal was running on antiquated tech, executing about 30 software releases a year. Today, it's shipping more than 30,000 releases annually.

"Think about that velocity change," Schulman said. "We're able to do a lot more on top of our architecture than we ever were able to do before."

The ability to move quickly with new rollouts helped business dramatically. During the second and third quarters combined, PayPal reported nearly $11 billion in revenue and processed $469 billion in transactions, numbers it previously took the company an entire year to reach.

Consumer habits quickly changed this year out of necessity, but PayPal is focused on evolutions in the way we shop and pay in the coming years, not months. For the second half of this year alone, PayPal earmarked $300 million to invest in tech and product.

Schulman's calling on other CEOs to put employees first

Emboldened by the success of PayPal's financial-wellness program, Schulman is finding his voice as a leader calling for a change to capitalism. In a recent TED Talk, he declared that it "needs an upgrade."

He's advocating for stakeholder capitalism, the ideology that says companies are responsible to all their stakeholders. Schulman's view is that more companies need to prioritize their employees. He told Insider that caring for employees was at the center of his "ethos" as a leader.

Schulman's thinking is part of a trend in the business world that's accelerated over the past few years.

In August 2019, the CEOs of JPMorgan, Walmart, Mastercard, and about 180 others joined PayPal in coming together in the Business Roundtable, an organization that serves as a megaphone for the business community, to declare a new "Purpose of a Corporation."

In the open letter, the executives signaled a move away from shareholder primacy, the economic theory that a company exists solely to benefit its shareholders.

Now, alongside a few partners, Schulman's calling on other leaders to conduct their own financial-wellness surveys of employees, saying it's key to advancing stakeholder capitalism. Working with Just Capital — an independent, nonpartisan research firm established by the billionaire Paul Tudor Jones — the Financial Health Network, and the Good Jobs Institute, PayPal launched the Worker Financial Wellness Initiative in October.

It seeks to make workers' financial security and health a C-suite and investor priority. To make it happen, CEOs of America's largest companies will be asked to conduct what the partners call a "worker financial-wellness assessment" to address inequality and economic vulnerability in house. The idea was modeled after PayPal's program.

"The important element of this project is for CEOs to ask the questions" that Schulman has been asking, said Alison Omens, the chief strategy officer at Just Capital.

About 92% of Americans surveyed said they wanted large corporations "to promote an economy that serves all Americans," but only 50% said they believed large corporations were delivering on that goal, Just Capital 2020 research found.

For the PayPal CEO, investing in employees is the first step to getting stakeholder capitalism right. 

"We need to step up, we need to stand up," Schulman said. "We need to not rely just on governments to address all the problems in our society. We have responsibilities. And I think that responsibility starts with the wellbeing of our employees." 


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