Seattle CEO sets $70K minimum wage as US 'pay gap' widens (+video)
Dan Price, the owner of Gravity Payments, has announced he will raise his employees' minimum annual salary to $70,000 while cutting his own. The generous move comes as the pay gap between CEOs and workers in the US grows ever larger.
Money can't buy happiness, so the old saying goes, but a certain level of stable income can definitely give one peace of mind. So, what is the threshold to alleviate one's financial concerns: $10 million? $100 million? $1 billion?
In fact, it's closer to $75,000, according to psychologists Angus Deaton and Daniel Kahneman, the latter being a Nobel Prize winner in psychology. Emotional well-being grows with income to a point while mitigating factors that decrease emotional well being, such as divorce, ill health, and being alone. The two researchers concluded that after the $75,000 mark, "life satisfaction" like yachts and Alpine ski vacations can be purchased but more money does not increase individuals’ ability to participate in what means the most to their emotional well-being – for instance, spending time with friends and family, avoiding pain and disease, and enjoying leisure.
For Gravity Payments owner and founder Dan Price, the emotional well being of his workers was worth more to him than growing his checking account. The New York Times reported that Mr. Price, after reading Dr. Deaton's and Dr. Kahneman's piece, called a meeting with his 120-member staff on Monday and announced he intended to raise everyone's salary who was making under $70,000 to that figure within the next three years.
The credit card payment processing company expects the paychecks of 70 employees to increase with roughly 30 of them doubling their current salaries, company spokesman Ryan Pirkle told the New York Times. The average employee salary is currently $48,000, according Pirkle.
“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," Hayley Vogt, a 24-year-old communications coordinator at Gravity, told the Times.
So how exactly is Price going to pay for these wage increases without raising prices for his customers? He will cut his own salary from $1 million down to $70,000, and dip into 75 to 80 percent of the firm's $2.2 million in profits from the previous year, according to the report.
Price said he would hear from friends in the workplace that even though his wages were way above the Federal minimum wage, they were still struggling to make ends meet.“They were walking me through the math of making 40 grand a year,” the Gravity Payments chief executive told the Times, and described surprise rent increases or nagging credit card debt his workers face. “I hear that every single week. That just eats at me inside.”
This selfless act on the part of Price highlights the astronomical pay discrepancy between top company executives and their workers. In the United States, chief executives took in a salary more than 295 times larger than their average worker in 2014 with a peak compensation of 350 times the average employee coming in the year 2000, according to the Economic Policy Institute (EPI).
This has not always been the norm. In 1965, on average, US executive pay was only 20 times that of their workers. The gap grew modestly in the next decade plus to nearly 30 times average worker pay by 1979, according to the EPI.
Starting in 1979 and through today, executive pay grew exponentially. According to the EPI, chief executive officer pay grew 937 percent from 1979 to 2013 after being adjusted for inflation, which was double the growth of the stock market in the same period. By contrast, over the same decades, the average worker's salary increased a meager 10.2 percent.
In 2013, the average CEO salary of the top 350 US firms was $15.2 million, which also accounts for company stock options exercised that year, according to the EPI. In Europe, top executive pay is still high, but roughly half that of their American counterparts. For instance, German CEOs pulled in salaries 147 times larger than their average workers in 2012, and on the lower end, CEOs in Britain brought home a salary 84 times larger than their employees in the same year, according to the Globalist. Japan's CEO salaries were 64 times that of their employees, according to the same report.
Gravity Payments has just 120 employees, so Price's pay raises will barely move the needle in reversing the trend. But his actions could inspire other business leaders to provide better financial security to their employees in the future.
“As much as I’m a capitalist, there is nothing in the market that is making me [raise employee wages]," he told the New York Times. “The market rate for me as a CEO compared to a regular person is ridiculous, it’s absurd.”