By Dean Whittaker

Today, I attended a leadership event held by our local chamber of commerce. The speaker was Dan Price, CEO of Gravity Payments, a 120-employee credit card processing company headquartered in Seattle, Washington.

You may have heard of Dan as he is the CEO that announced on April 19, 2015 that he was cutting his $1,000,000 salary to $70,000. He said that he was establishing $70,000 as the minimum salary of his employees.

What Dan was reacting to was the growing inequality in his own firm. He did so after reading a 2010 study by Daniel Kahneman and Angus Deaton that found people’s happiness levels off around $75,000 a year. He also cited Henry Ford’s experiment when Ford doubled the factory workers wages so that they could afford to buy the automobiles they were producing. Also, it has been reported that CEOs in the U.S. make 354 times as much as their average employees.

The change is salary for his employees will be phased in over a three-year period. His reduction in salary is temporary until the company returns to the same level of profitability it had prior to the announcement. The reason he gave for returning to the former compensation level is so that he will be free to leave the company at some point in the future at which time the company will need to replace him. In other words, his salary is determined by his replacement cost.

Dan acknowledged that this is a relatively radical idea and a bit of a social experiment. He said that he wanted his employees to be focused on providing the best customer service possible and not on worrying about making ends meet. Of his 120 employees, 30 will see their incomes more than double, 40 will receive a significant raise, and 50 were already receiving above the new minimum salary.

Some of the consequences of his decision have been a large influx of resumes (some of dubious quality). Staff performance reviews are continued as before. The company’s $2.2 million profit has been reduced to $400,000 but was covered by Dan’s reduced salary.

A few other aspects of Dan’s company are that it has first-rate benefits including unlimited paid leave and vacation. He said this is predicated on hiring good people and trusting them. Here’s a link to a YouTube video of Dan making the announcement at his company and an interview with him.

When asked what advice he would give other small companies, he paused and then said, “Don’t take advice from anyone, but listen to what they have to say, and then do what you feel is the right thing to do.” He said that he consults with people selectively based upon the issue he is currently trying to resolve.

He said that he is “putting a stake in the ground” when it comes to income inequality at his company. He asked the question, do we want to pass on wealth to our heirs or make our community and the world a better place?