How many chief executive officers (CEO) you know would cut their own salaries and give it to their employees?
That was precisely what one CEO in Seattle did recently.
Dan Price, the boss of Gravity Payments, a credit-card payment processing firm which he set up in 2004 when he was 19-years old, told his staff that he will be cutting his annual salary of US$1 million to a mere US$70,000 for three years, and use the rest to raise the minimum salary of all his employees to that same figure of US$70,000 by the end of the next three years.
The average salary of his workers was US$48,000.
Price also said he would use 75 to 80 per cent of the company’s anticipated US$2.2 million in profit this year to pay for the salary increase as well.
Price made the announcement on 13 April after reading a research paper on happiness.
The paper, “High income improves evaluation of life but not emotional well-being”, was written by Angus Deaton and Daniel Kahneman, a Nobel Prize-winning psychologist.
According to them, emotional well-being rises with income – but only to a point.
Emotional well-being is defined as “the emotional quality of an individual’s everyday experience, the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one’s life pleasant or unpleasant.”
The research found that for people who earn less than about US$70,000, extra money makes a big difference in their lives emotionally. The opposite was true for those who earn more than US$70,000 – there was little increase in emotional well-being.
US$70,000 seems to that “sweet spot” which brings emotional satisfaction.
But the paper’s findings were only one reason which prompted Price’s decision.
He had also been talking to his friends and others who have told him how hard it was to make ends meet with low incomes.
The US has a minimum wage of US$7.25 per hour.
“They were walking me through the math of making 40 grand a year,” Price told the New York Times (NYT).
“I hear that every single week,” he added. “That just eats at me inside.”
The NTY reports:
Mr. Price said he wanted to do something to address the issue of inequality, although his proposal “made me really nervous” because he wanted to do it without raising prices for his customers or cutting back on service.
Of all the social issues that he felt he was in a position to do something about as a business leader, “that one seemed like a more worthy issue to go after.”
He said he planned to keep his own salary low until the company earned back the profit it had before the new wage scale went into effect.
All in all, about 30 of his employees will see their salaries double because of this decision by Price.
“The market rate for me as a CEO compared to a regular person is ridiculous, it’s absurd,” Price told the NYT.
He said his main extravagances were snowboarding and picking up the bar bill.
“He drives a 12-year-old Audi, which he received in a barter for service from the local dealer,” the newspaper reported.
Hayley Vogt, a 24-year-old communications coordinator at Gravity who earns $45,000, said, “I’m completely blown away right now.”
She said she has worried about covering rent increases and a recent emergency room bill, said the NYT.
“Everyone is talking about this $15 minimum wage in Seattle and it’s nice to work someplace where someone is actually doing something about it and not just talking about it,” she said.
Watch the video of Price making the announcement to his staff here: “One Company’s New Minimum Wage: $70,000 a Year”.
Price was also a recipient of the 2014 Seattle “CEO Excellence Award”.