CEO cuts salary to boost employee pay

Gravity Payments CEO Dan Price. Image / Gravity Payments
Gravity Payments CEO Dan Price. Image / Gravity Payments

An American CEO has cut his own pay so he can give his employees a raise.

CEO of US company Gravity Payments, Dan Price, has taken a $NZ1.2 million dollar cut to increase all of his 120 staff members’ pay packet to at least $90,000 a year. 

The entrepreneurial employer will take home the same pay as everyone who works for him, in an effort to increase the happiness, and potentially, productivity of his employees.

According to a study in 2010 happiness levels off at around $90,000, meaning that if they earn more the increase in happiness is not significant enough to be measured. Allegedly the way to become happier after your money-bought-happiness has plateaued is to surround yourself with people.

It is unusual for a CEO to give up their extremely high pay, but Price is certainly not the first.

Rick Holley, the CEO of Plum Creek Timber Company, gave back a stock bonus worth about $2.5 million in 2014. Lenovo CEO Yang Yuanqing, shared $4.5 million of his bonus with workers, and Next CEO Lord Wolfson, gave his $4.8 million bonus to his employees in 2013.

The overwhelming majority of public response to Price’s actions have been extremely positive, although not without its detractors. Facebook marketing expert, Sandi Krakowski, said on Twitter: “His mind-set will hurt everyone in the end. He’s young. He has a good intent, but wrong method.”

Patrick R. Rogers, associate professor at the School of Business and Economics at North Carolina A&T State University, says: “The sad thing is that Mr. Price probably thinks happy workers are productive workers. However, there’s just no evidence that this is true. So he’ll improve happiness, only in the short term, and will not improve productivity. Which doesn’t bode well for his long-term viability as a firm.”

Other criticism is that overpaying workers may make them lazy and could inspire them to resent colleagues who once sat at the higher end of the pay scale.

Price, however, argues that the new salary structure will benefit his company in the long run and help to highlight the corrosive effects of income inequality in society.