Opinion

Why Gravity CEO decision to cut own pay to raise staff wage highlights issues around salaries

6 min read

18 April 2015

Dan Price, the chief executive of Seattle-based software firm Gravity reportedly did something quite remarkable this week – giving up 90 per cent of his pay in order to fund a wage hike for his staff.

The cut, which will see his $1m salary dwindle to $70,000, is part of a new overall wage strategy in which his lower-paid staff will make at least $70,000 a year. Price apparently made the move after reading a study on happiness and is hoping that this generosity will provide an “emotional well-being boost” to his staff.

He had also listened to his employees about the difficulties they were finding paying for housing or other necessary living costs on their salary.

Price knew the consequences of his actions – a likely $2m hit to the firm’s profits – but it was one he felt “morally” obliged to do.

This isn’t just a case of one wild-haired, North-Western American going out on a limb.

It came only days after Next chief executive Lord Wolfson vowed in a letter to his shop-floor staff that he would distribute his bonus amongst them if there was not enough cash to fund its pledged five per cent wage hike.

“I hope at least it will convince you of the company’s sincerity and determination to improve your wages and still remain competitive,” he wrote.

Read more about increasing employee happiness:

The two moves come at a time when wage pressures are weighing heavily on owners, chief executives and financial directors.

Figures this week showed regular wages in the UK excluding bonuses over the three months to February were 1.8 per cent higher than a year ago. That’s down to a number of factors such as the improving economy, political pressure and a shortage of labour with employers looking to recruit and retain staff as they seek growth.

It is a difficult time for businesses still emerging from one of the deepest recessions in history, Their balance sheets are steadily recovering and although generally looking to grow are still relatively cautious.

Should they fund wage rises? Can they afford to do without incurring damaging costs to the business? Can they afford not to sanction rises given the need to find and keep experienced and quality staff?

Dan Price can clearly afford to take the cost hit. Lord Wolfson recognises the tricky balance between needing to increase salaries but also remaining competitive.

They have surely done what any good chief executive and FD should do – fully cost out any wage increase on the bottom line.

They have also identified the lower paid staff as the group which will benefit most from a wage hike. Part of this is because employees in more senior or better paid roles can be rewarded in other ways such as profit related bonuses or shares awards.

For the lower paid workers it is all about cash in their pockets at the end of the week or month. These are the people who are perhaps not benefiting from the nascent recovery and need the help of their employers.

Many of these workers will be on the minimum wage, some will be on the living wage. But perhaps not enough. Again these are cost and risk and reward issues businesses have to calculate and discuss for themselves.

And when it comes to that discussion they try and do what Price did in talking to staff about their wages.

Read more about wages:

Too often it appears that chief executives live in a wage bubble. Do they really know how much many of their staff are being paid? What that amount of money means in their everyday lives?

You’d be surprised how many of your employees think that you as their boss just don’t understand, don’t appreciate how they are potentially struggling on their hourly rates.

There is a huge disconnect here but Price took the time and the effort to find out how his staff were struggling to pay for everyday needs.

Businesses need to look at their wage policies as we move into recovery. They have to develop an all-inclusive strategy incorporating the views and realities of all their workers if it is going to be a success.

Financial and ethical pressures around pay are increasing and businesses need to respond positively without putting their bottom lines at risk.

They can find the balance.