10 Jul 2021

Dan Price: the CEO who slashed his salary by $1 million

From Saturday Morning, 10:05 am on 10 July 2021

Seattle-based entrepreneur Dan Price hit headlines around the world in 2015 when he slashed his own salary by $1 million so he could start paying his all employees a minimum salary of $70,000.

The chief executive of Gravity Payments received plenty of praise for the move as well as a raft of criticism, with Price coming under fire from right-wing media outlets who dubbed him a socialist.

Six years on, his company's business has tripled and staff turnover has halved, and they've bounced back from the blow of the pandemic. However, Price says the experiment hasn't been entirely successful. He talked to Kim Hill.

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"I took a million-dollar pay cut so that all my employees could make $70,000 a year - and what that meant is our lowest paid employees got their pay doubled. We immediately took it to $50,000, and then over the next two years went to 60 and 70. 

"My million-dollar pay cut covered the first part of that, but then we needed to make enough money to cover the second and third phase. And our employees came through and they were able to succeed in doing that.

"Our employee turnover was cut in half, so we started to hold on to employees for a lot longer, which made us a lot more efficient. Also, instantly there was a backlash, where a lot of the conservative media came out against us, and a very big voice - Rush Limbaugh - came out and said that we would be a case study in MBA programmes for how to destroy a company using socialism. He said we were going to fail and that I was basically an idiot. And ironically Harvard business school is teaching classes in its MBA programme on Gravity Payments. 

"But what they're teaching is that when you pay people more their productivity goes up - not because they're more motivated - that's the misnomer, but because their capability increases; they have less stress, they have less pressure, and they're able to focus more on their work and they have an increased sense of license."

Harvard business school is teaching classes in its MBA programme on Gravity Payments

Harvard business school is teaching classes in its MBA programme on Gravity Payments Photo: AFP

Price says his company's productivity dramatically increased after he introduced the changes. 

"And just to give a concrete example, there was a gentleman that works at Gravity Payments named Jose Garcia, he got his pay doubled and he was able to cut down his hour and a half daily commute to about ten minutes; he lost 100lbs, he got a lot healthier, and ... when you're healthy you do better work and you're able to be more productive. 

"That's not because of motivation, it's not because the person is not incentivised to do the right thing, it's really just because when you have a system that disproportionately takes money from pretty much everybody out there that's working and gives it to a few greedy CEOs and corporate executives, that hurts the productivity of all of us as a whole." 

The results, he says, highlight not just the disproportionate salaries and benefits of senior executives compared to workers - they also show the wider strain on society caused by those exploiting the labour market. 

"And it's getting worse and worse. In the US in particular we have a culture of always blaming individuals for everything. But when you pull back and look at it systemically...

"The baby boomers, when they were the age that Millennials currently are, they controlled 20 percent of all wealth, and then the Gen Xs at this age controlled 11 percent.  But Millennials are only controlling 5 percent of all wealth - and what's even worse is that 2 percent of all Millennial wealth is controlled by only one person; Mark Zuckerberg."

The issues were clearly systemic, with the system set up to make it hard for workers to live a good life and comfortably support your family, Price said.  

"And there have been points in our history here in the United States where we've gotten those things right, because in the 50s, 60s and 70s we were able to double the median income twice, and we were able to basically share the financial success that we achieved, broadly. I think that's the model that the US and indeed the whole world needs to follow, which is sharing that economic success broadly.

"But what we are seeing here in the US, and all over the world, is the very opposite - we are redistributing wealth from workers to the people at the very top, and and it's hurting everybody."

Price says the words of radio personality Rush Limbaugh "haunted me for a little bit"

Price says the words of radio personality Rush Limbaugh "haunted me for a little bit" Photo: GETTY via AFP

Price has brought Gravity Payments through substantial disruptions caused by the pandemic, as many small businesses shut up shop. But, he says he was worried about whether they would survive.

"I did, I worried... and the words of Fox News and Rush Limbaugh - that my employees would end up on the bread lines - those words haunted me for a little bit, and I wondered 'was it going to turn out that they were right and I was wrong?'.

"The small business economy seized up, and we lost 55 percent of our revenue. And... our employees came through with an incredible plan...

"They meet and come up with things like a union would. And they got together and decided that they were going to create an opportunity for people to anonymously cut their own pay to help the company get through the tough time. And we had 98 percent of the employees at the company ask to cut their pay - which took our amount of time we had to recover from just a few months up to a year."

His employees worked on getting small businesses reopened and giving them the technology they needed for social distancing. 

"And by the summer we were able to pay our employees back, we were able to pay them back everything, and then by the end of the year to resume raises."

The company has had a record two months, and so gave employees a raise. 

The backlash to his choice to cut his own pay and raise workers' salaries was vehement, and included death threats. But why did it trigger that nerve so dramatically? 

"You know I don't know - but what I do know is it's important to share those things, because when you stick up to the system, when you stick up to rich and powerful people there is danger involved.

"The more that we allow rich and powerful people to do all this damage to all of us, and not face accountability, and the more we allow them to accumulate these vast sums of money that couldn't be spent over hundreds of lifetimes, and the more we put ourselves in peril of that power becoming concentrated and that sort of thing becoming normal.

"So I think we all need to look out for each other and realise that we have to protect each other, because the real enemy here is corrupt power at the top, it's not the everyday person next door. 

He says he has heard from a few journalists that some of the wealthiest and most famous CEOs in the world really don't like what he has to say.

"But apparently it's not inconvenient enough because those very CEOs have doubled their wealth during the pandemic, have gained billions and billions of dollars, and the average person out there just has not increased their wealth or power. So it's too bad that in addition to being so greedy these wealthy CEOs are also pretty sensitive." 

Price says he expected his move would make news - he had briefed media that he was going to make an announcement, but the scale of the interest took him by surprise.  

"I've had news coverage in the past for things. I started building my company when I was 17 years old, and so even though I'm 37 today I'm in my 20th year at this. So working with the public and working with the media has always been part of the job. 

"So of course I thought this would be something that some might find interesting. But to see it create such a world-wide sensation with a half a billion people interacting with the story and it going all over the globe - what it told me was it wasn't so much that what I was doing was so good, or that laudatory, and I certainly should not be considered a hero - everything I've done should be normal and something any 10-year-old that's a nice 10-year-old would do.

"But what it told me was how bad the problem was, and since then it's only gotten worse, so I think the interest in the story is not because I'm so great - and I'm proud of Gravity Payments, but it's really not even because of Gravity Payments being so good for small businesses or employees, it's really more a damning thing about where the world is today."

Price believes adopting a similar ideology and practice for paying workers could succeed for big businesses, and for publicly listed businesses with shareholders to answer to.

But he says there is not a lot of incentive to do it. 

"... It is true that it probably is more work for a CEO, instead of just trying to squeeze everybody and herd everybody. 

"It's more work to do the right thing and to build your reputation over the long term as somebody that can be relied upon and trusted to do the right thing for their employees and for their customers, and most CEOs these days just aren't sticking around that long, because they've got their huge exit packages. 

"And they're getting so much money, and they get government assistance here in the US, so they're sort of fat and happy and they're not really doing their job in my opinion. So you can do it as a public company.

"But we've seen zero big companies follow suit. Even though we were able to prove that it worked. and then a few other small businesses did the same thing, just to show it wasn't a fluke, and they made it work too."

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Last week Kim Hill interviewed author Jessica Bruder about the social phenomena behind her book (and later the film) Nomadland - US corporations use of a nomadic but compliant workforce willing to accept very low wages. The argument for allowing this to continue is that lower wages ensure more jobs. Does Price see a way to break out of that cycle?  

"If that doesn't make you sick enough we actually are subsidising it," he says. "The US taxpayer is subsidising it because we have to provide assistance to those workers that are barely making it, in the form of food stamps and other social services.

"So we're subsidising that sort of awful system, and indeed we're subsidising the wealthiest person in the world in that way, and also by not charging him his fair share of taxes. So he's taking all that money and doing things like buying the Washington Post, one of our most reputable and most important newspapers..."
"These are really serious issues that we need to think about, because when we put that kind of money and power in one person's hands, we can expect that they will do anything in their power, even if they have to be very evil and do some really horrible things that none of us would ever think of doing. They will do those things to hang onto that money and power, and that's the ideology of wealthy CEOs, of people like Jeff Bezos and Elon Musk. 

"So the solution's pretty simple, and we did it here in the US in the New Deal, you just have to have a tax rate that they can't dodge, they can't get around, it should be 50+ percent.  We should have a wealth tax, we should have progressive consumption taxes for things like private jets and yachts and all those sorts of things.

"Then we take all of that and we build world-class infrastructure, including education, and we become the most capable workforce out there that's ever existed.  

"And we really give people a good life so they have a really great incentive to be productive, but not by selling their soul or giving away all their time, but giving away a reasonable amount of time toward productivity at work. And that system works for us in the wake of the New Deal, with all the gains we've had with automation and technology we could better it significantly today."

Price says it takes enough political will to overcome "concentrated power".

"So we have to come together and get over some of the news stories that distract us, and just understand that if we can hold power aggressively to account and we can spread and distribute that power broadly it'll make all of us stronger." 

With the influence wealth buys within the current donor-based US political system, can change happen? Price says yes. 

"Two people have said things to me lately that have been encouraging: The Reverend William J Barber II who leads the Poor People's Campaign said: 'well, with all these rich people being so awful, there's more and more poor people, so if we work together we can actually come together and create common good'. 

"And Marianne Williamson, who ran for president, said we need a miracle but that's exactly what we're going to get because we're going to find some way to have it happen." 

"So when I look at the data in a cold dispassionate way, it just seems like we have no chance of accomplishing these things. But then I go and meet people and talk to people - and not just people on the left, not just Democrats, but people of all political backgrounds. When I talk to them they really get these issues, and they really understand how they're hurting them everyday. 

"So there is a chance - it might not be a big chance, but there is a chance that we could all come together and re-align and stop having so much division. Not at the political level, but just at a human being level - realise that we can accomplish some of these goals if we work together."

Price says even after his pay cut he considers himself privileged. 

"I'm fine - I own a home that I bought from a friend prior to making my big announcement, whereas a lot of my peers in my industry have multiple yachts and multiple houses and mansions all over the place... I did have to rent my house out for a little bit initially, but we recovered from that initial challenge, and I had some savings that I built up. So I'm doing just fine, no-one should feel bad for me. 

"And in fact I'm happier than I've ever been, I'd way rather be working in a job where I know everybody's taken care of, than have to have multiple mansions all over the place." 

Price believes in the universality of the choice he made to cut his pay to raise his workers wages, and says it doesn't mean he's special.

"It just does not take a rocket scientist to recognising that somebody working at a company is creating the value for that company and, if that company's successful then the people working at that company should get the lion's share of that success and benefit, along our clients - the small businesses that we serve. I don't think that you would need any particular background [to reach that conclusion].
He grew up as one of six kids, in rural Idaho in a conservative Christian family, "between two towns of a hundred people, near a dump".
"But I really hate it when people use my story or some of those elements to suggest that [being a successful entrepreneur] is possible for other people too. Because I had a lot of luck along the way, I had a lot of privilege along the way - things that I didn't do. I just don't like it when people use my background to suggest that it's possible to get ahead when the truth is for most people it's not.

"And I think that this sort of decision is a decision that almost anybody would make, the problem is that this system selects people in power that won't make these sorts of decisions. 

"So, I don't think... that I deserve any extra credit."

Price was hit with a lawsuit, immediately after making his announcement in 2015. His brother, a co-founder of Gravity Payments, asked the court to rule Price should buy out his 32.5 percent stake in the company. 

"It's all sorted. There were so many different claims, and many of them did relate to the $70,000 [wage announcement], some of them did not, but there was an aggressive line of pursuit in terms of pursuing every possible inquiry, to ultimately try to wrestle control of the company away from me.

"But the judge said 'no way, there's no merit in any of these claims', and the Court of Appeals upheld that unanimously. 

Price says business is good, and he gets a lot of satisfaction from helping improve the lives of those he works with. But he had hoped the Gravity Payments approach could have galvanised more change in businesses.

"It's tough, because the big companies won't. So in that way it was a failure," he says.

"But I get messages every single day from individuals who made a change because of something that I wrote, they read my book, they read something like that, and that's very gratifying to me. I get messages from people all the time from people who quit their job and decided not to be so loyal to a company that was not being loyal to them, and it opened their eyes.

"So I think just having us all together work to be more informed... we're all just working together and doing our part." 

Price says rethinking taxes and enforcing them is necessary to create the socio-economic standards we expect, and a more productive society. But does he think that could scare big businesses away from the US? 

"I would say if you want to do business in the US - if you want access to our consumers, you're going to pay your American taxes.

"And if you don't want to pay American taxes you can pack up shop and leave the United States. And it's just that simple, it's not that hard.  

"I think that the reason we think that can't be done has more to do with the politicians letting the corporations off the hook, and less to do with any actual practical objection. 

"My gesture here, and this change that we make for our employees is a great thing for us, but it's not going to solve the problem.

"After the big world-wide popular response, and everybody sharing it with their boss, and then those small businesses reaching out and following suit, I really thought that we could make a dent in income and equality just by getting the word out there and spreading this awareness.

"But ... the truth [is] ... these are systemic issues that have to be changed with laws and through public advocacy."