Earlier this month, Dan Price, CEO of the Seattle-based credit card processing company Gravity Payments, announced that each of his 120-strong workforce would receive a salary of at least $70,000.
A spokesman for the company stated that at present the average wage in the company sits at $48,000 and the increase, to be phased in over the next three years, will mean a pay rise for 70 staff in total with the 30 lowest paid staff seeing their income doubled.
Furthermore, Price announced that the funding for this experiment in equal pay benevolence would come direct from a $1 million cut to his own pay packet because he believes that CEO pay is “way out of whack”. By December 2017, Price aims to have everyone on the $70,000 minimum including himself.
He told ABC News: “My pay is based on market rates and what it would take to replace me, and because of this growing inequality as a CEO that amount is really high. I make a crazy amount.”
Price has previous in his attempts to pay his staff a fair wage. In 2013, he elected to give his employees a two-percent raise in response to the 2013 two-percent payroll tax reduction lapse.
Seattle was already at the centre of a debate on financial inequality after the city council unanimously voted to impose the highest minimum wage in the US at $15 an hour, more than double the federal minimum of $7.25.
The double whammy of the $15 minimum wage and Price’s unprecedented demonstration of equal pay among his staff has set tongues wagging in a country where some economists estimate CEOs earn nearly 300 times that of their average worker.
The $70,000 figure was inspired by the academic paper High-Income Improves Evaluation of Life but Not Emotional Wellbeing, undertaken by Daniel Kahneman and Angus Deaton and published by the University of Princeton. The study measures the amount of money a person should earn for optimal wellbeing and happiness. Mirroring the study Price said: “I’m a big believer in less. The more you have, sometimes the more complicated your life gets.”
He said he was also motivated by friends who described their financial struggles despite earning $40,000 per year and how their tales of unaffordable rent and credit card debt “ate at me inside”.
“The day I decided to do this, I was on a hike with a friend who had her rent hiked up a little bit. And she’s incredibly smart, very hard-working, and her employer does a great job taking care of her, but market rates being what they are, and living expenses being what they are, it was creating a very difficult, stressful situation for her”, Price told Money magazine.
In the UK, Simon Wolfson, CEO of Next is also flying the flag for staff pay equality having sacrificed consecutive annual bonuses of £4 million each to spread among his workers. A number of them had not had pay rises during the recession and as a result, Wolfson has pledged a 5% increase for shop floor workers to come direct from his next bonus.
Wolfson and Price are rare examples of generosity in a field of increasingly well-cushioned CEOs. It is estimated that it now takes a British chief executive only two days to pocket the same money that an average worker will take home in the entire year. Despite the global financial crisis, the resulting recession and stagnating wages, FTSE 100 bosses have seen their income swell by almost £1 million per head since 2010.
These levels of high executive pay create the kinds of societal rifts that I touched upon in a previous article regarding the introduction of a wealth tax on the capital assets of ultra-high net worth individuals.
Even the west’s leading economic thinktank, Organisation for Economic Co-operation and Development (OECD), have remarked that such unbridled inequality is a drag on economic growth.
A report conducted by the OECD said that trickle-down economics was fundamentally flawed and its authors urged governments to juggle tax systems to ensure that wealthy individuals pay their fair share.
It found that the richest 10% of the population in the UK now earn nine and a half times the income of the poorest 10%, seven times the amount it had been in the 80s when ‘trickle-down economics’ was the punchy catchphrase promoted by the Thatcher and Reagan administrations. Had the gap between the wealthy and the poor not widened since the 80s, it is estimated that the UK economy would have been 20% bigger than it is today, evidence that financial inequality hampers economic growth.
Growing up in rural Idaho, Price remembers learning that values are more sacred than any amount of money. “My dad would ask me a question…He’d say, ‘How much money is your integrity worth?’ His point was there’s no amount of money that he would be willing to sell his integrity for. And that was ingrained in me at a very, very young age.”
Questioned on how Price will be measuring the success of this precedent in an interview with Money magazine, he said: “I do think that there was some level of distraction, and there must be when you’re living paycheck to paycheck. And so, I honestly believe that removing that distraction will significantly increase our ability to take care of our clients.”
Price founded Gravity Payments out of his Seattle Pacific University dorm room in 2004 after witnessing thousands of small business owners being ripped off by their credit card processors. The mission of Gravity Payments is to combat the exploitation of small business owners by making the financial services a level playing field.
In June 2010, Dan Price was honoured with the Small Business Administration’s ‘National Young Entrepreneur of the Year Award’ by Barack Obama.
“To me, once you know the right thing to do, it becomes a moral imperative to actually do it. And so, with that Princeton study, one of the other aspects that really hit home with me was, ‘The dollars that you’re making underneath that amount are causing harm to your well-being.’ And that, to me, is powerful stuff. And we only get to live this life once. And I want everybody that I’m partnered with at Gravity to really live the fullest, best life that they can.”
Until governments show a collective backbone in cracking down on the culture of rampant inequality harvested by chief executives, society as a whole shall continue to suffer for the greed of the few but it’s nice to know that for Price and Wolfson, there are some values more important than merely increasing a figure on a bank statement.