Why one CEO took a $930K pay cut to give his employees a $70K minimum salary

Dan Price, founder and CEO of Gravity Payments, a small, privately owned payment processing solutions company based in Seattle, is docking approximately $930,000 from his own salary to increase every employee's salary to at least $70,000. Why? To make his employees happier.

According to the New York Times, Mr. Price made the announcement to his 120-person staff Monday that over the next three years, the salaries of all employees will be raised to a minimum of $70,000.

Mr. Price plans to pay for his employees' wage increases by reducing his own salary from nearly $1 million to $70,000 and using 75 to 80 percent of the company's expected $2.2 million profit for 2015. As a result, about 70 employees will see their paychecks rise, with 30 seeing them double. Currently, the average employee's annual salary at Gravity is $48,000, according to the report.

Mr. Price founded Gravity Payments in 2004 at the age of 19 after playing in a rock band at a local coffee shop. The owner was having difficulties with the company the shop used to process credit card payments. After looking into the problem for the manager, Mr. Price realized he could provide the same service more efficiently and at a lower cost with better customer service, according to the report. Today, the company is a success. Last year, Gravity Payments processed $6.5 billion in transactions for more than 12,000 companies, according to the report.

Troubled by the knowledge that the U.S. has one of the world's largest pay gaps — where CEOs earn up to 300 times the salary of the average employee — Mr. Price wanted to do something to make a difference.

"The market rate for me as a CEO compared to a regular person is ridiculous; it’s absurd," Mr. Price told the New York Times.

As a business leader, Mr. Price said he felt he was in a strong position to do something to address the issue of inequality.

His decision to raise his employees' salaries was spurred by an article he read on happiness that showed for people earning less than $70,000 per year, extra money significantly improves their happiness. The research on happiness came from Angus Deaton, PhD, and Daniel Kahneman, PhD, a Nobel Prize-winning psychologist, who found that people's emotional wellbeing rises with income to a certain threshold, which is about $75,000 per year. While a high income does not translate directly to happiness, a lack of money can certainly deprive people of it, Dr. Kahneman explains in the article.

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Twitter: @DanPriceSeattle & @GravityPymts

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