CEO taking $70K salary says it's a "sacrifice"
Gravity Payments founder Dan Price says he studied about 20 different business scenarios before deciding to raise his company's minimum wage to $70,000.
"I came up with a bunch of different scenarios, including macro-economic disruptions," Price told CBS MoneyWatch. "I looked at a lot of different variables. They were all fairly detailed."
The bottom line: He said he came to the conclusion that boosting his employees' baseline pay to $70,000 -- more than double the U.S. median annual income of $28,031 -- would pay off in a few years. Price's theory is that by investing in his employees, the company will grow faster. And that's already in evidence, given a boost in new business since Price announced the plan to his workers this month.
However, the business plan included a hit to his own income: Price cut his compensation to $70,000, down from $1 million, which he called "a sacrifice."
"I'm so happy how people's lives are changing, because they deserve it, and they deserve every penny of it," Price said. "For me to make the sacrifice in the short term, I'd rather this than a vacation home in Palm Springs or the Hamptons. I guarantee that this will pay off."
When it will pay off isn't a fixed point in time, though. Price estimates it could take between one to five years before the company becomes profitable enough to allow him to boost his own salary again. That's something he says is important, given that Gravity Payments may later need to hire a new CEO -- and hiring a top executive with the offer of a $70,000 salary won't cut it.
Price said his pay will "go up to what it was before as soon as we recover profitability-wise." He added, "It would be risky for the businesses to always pay me $70,000, because if someone better than me can replace me or if I can't fulfill my duties, the company needs to move forward."
As for his view on criticism that CEO pay across America is too high, Price said he's not "super passionate" about the issue. "My passion is getting the regular person up," he said. Having a team of employees who are dedicated and not stressed about "having to focus on making ends meet" will help the company's overall performance. However, he also said his view includes "getting the CEO role back in perspective."
While employees have generally been enthusiastic, Price noted that one staff member expressed concern. "I have had one complaint from someone who was a high achiever and couldn't understand why someone else would get a raise," he said. "My response was, 'It's a valid point of view. We have to do better and try to push it, and let's try a course where you'll be more successful.'"
During the post-recession years, American workers have been suffering from stagnating or even declining wages, hitting households at a time when costs such as housing and food continue to rise. Most income gains have gone to upper brackets, with the top 1 percent of earners seeing huge gains in income.
Price says he hears other CEOs wanting to invest more in their staff, echoing his concerns about encouraging and developing the team. He says he was "inspired" by the discussion of a higher minimum wage and the push from labor activists for a $15 hourly minimum wage.
As for future raises, he says he has the ability to deliver salary increases to his employees.
"I could have frankly been more aggressive, but I wanted to leave myself room where we could continue to grow the team," he said. "It's a matter of paying people the value that they're contributing, and to make sure we're not saying, 'They only make $40,000 -- they aren't worth investment.' We create loyalty to our team by investing in them."