CEO’s Choice of $70,000 Minimum Salary for Employees: What Do You Think?

gravity-income-announce-videoSixteenByNine540-v2You may have seen a story floating around on Facebook last week about the CEO of a Seattle-based credit-card processing company, Gravity Payments, decided to enact a new minimum salary for every full-time employee: $70,000.

As discussed in detail here, CEO Dan Price read an article about how peoples’ happiness significantly increases when they earn at least $70,000 a year (the incremental increase in happiness for people making more than that is much lower).

Paired with his dismay that many CEOs in the US make nearly 300 times what the average worker makes, Price initiated a plan that would increase all salaries at his company (nearly 120 employees) to at least $70,000 over the next three years. During that time, he’s decreasing his salary from nearly $1 million to $70,000.

My favorite part of the article is a quote from Price: “As much as I’m a capitalist, there is nothing in the market that is making me do it.” He’s saying that his decision to raise his company’s minimum wage isn’t a business decision…but neither is his $1 million salary.

I consider this a statement about the 300:1 ratio of many CEOs compared to their average employees. Is there anything in the market saying that such a big wage gap is a good business decision? I don’t think so, but in this response to Price’s move, a number of “experts” seemed to disagree.

Happiness, productivity, employee retention, and quality of applicants aside (not that any of those things should be put aside, because they’re incredibly important and are the responsibility of the CEO), how is it a bad business decision for the CEO to pay employees a little more and pay themselves a little less?

Currently Stonemaier Games employs one full-time employee (me), so I don’t have the opportunity to do something like Price has done. But I greatly admire it, and I hope I never let my salary overinflate if/when I hire other full-timers.

Honestly, I like the old Ben & Jerry’s scale of 5:1: The CEOs salary would never be more than 500% higher than the lowest salary in the company. So if my lowest-paid employee makes $45,000, the most I could make is $225,000. Even that number seems ridiculously high. I don’t need anywhere close to that much money. I’d rather spend most of that money making awesome things for my customers (and keeping enough cash flow in the company to weather an uncertain future).

Not only does that method keep a CEO’s ego in check, but it also gives CEOs a reason to fairly and compassionately compensate their employees.

Also, I want to be clear that I admire that Price did this as a CEO. This isn’t a political statement. This is me applauding a private company’s decision to create their own minimum wage.

What do you think about Price’s move? Is it a good business decision?