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CEO’s Taking Pay Cuts For The Company: Good or Bad?

In April 2015, CEO of Gravity Payments, Dan Price decided to cut his own pay and the company’s total profits by 90%. This entails cutting his own $1 million annual budget to $70,000 and taking from the company’s $2 million profits. This is expected to result in that each employee will be making $70,000 annually for the next three years, doubling the payments for at least 30 employees and significant raises for at least another 40.

Understandably, employees were shocked and thrilled with the change. Technician Jason Byrd said, “This gives us so much freedom to just do our jobs and not have to worry about money.”

The Seattle-based payment processing company gained national attention and raised controversy as well as inspiration. This move also begged the questions many companies are trying to answer: Does this kind of move promote better employee recognition, engagement and motivation? Furthermore, Is this a start of a new trend?

Where the inspiration came from

Price has linked his actions to a recent study of happiness by Angus Deaton and Daniel Kahneman. In it, they concluded that emotional well-being and better life evaluation rises steadily with an income no higher than $75,000. Furthermore, the lack of money can deprive people of happiness. Price wanted to give that happiness back to his employees.

What employees really want from their job

When it comes to job satisfaction, knowing what employees value should be the employer’s ultimate goal. And the best way to do that is first understand employees on an individual level and create engagement and recognition in relation to them. The basis should be first to establish a company culture where employees feel comfortable to talk with upper management. Once better communication is established, employers can create recognition plans that better the employee’s career and life goals. This can vary from mentorship to company shout-outs in meetings and newsletters. Understanding and trust is key when it comes to better employee relationships

At Gravity Payments, Price knew and heard some of his employees were struggling financially and felt like it was his job, as CEO, to help them out. Though it was a major move, Price hopes that employees will be more happy with their work and thus reflect better customer service

Could Gravity Payments become the slingshot for new methods in the way that businesses are run?

In a time when the nation is climbing out of the Great Recession, it has been desperate for new evidence-based answers. Considering how much of a positive impact that Gravity Payments has been having on the nation, Price’s most recent actions may well become a slingshot to making the nation more prosperous again. For instance, Jeffrey Bussgang, venture capitalist and senior lecture at Harvard Business School explained that this move not only keeps employees loyal, but gives them an edge in gaining more clients and recognition in their respective industry.

However, some are worried that Price may be enabling his workers to become less productive, resentful, or even outright “lazy” in the end. It is obvious that Price is being nothing but genuine. In addition, the pay increase is expected to run for three years so it is not as if it will be continuing indefinitely. Price has stated that he wants to wait until the profits get back to where they were before putting his own budget back to $1 million. As a result, some would probably think that the phenomenon is some kind of test. However, it appears that Price’s intentions were completely genuine.

At the moment, the situation is considered kind but has also triggered numerous worries and controversies. As a result, whether it’s likely to succeed in the long run or become a new trend remains to be seen.

 

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