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The CEO Who Slashed His $1.1 Million Salary To Pay Workers $70,000 Says The Decision Changed His Life
A conversation during a hike in the Cascade mountains left Dan Price questioning a decision many executives would never consider. A former girlfriend told him she was working 50 hours a week across two jobs and still struggling after her rent increased by $200 a month. She had served 11 years in the military, including two tours in Iraq, yet earned around $40,000 a year.
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Price was earning $1.1 million as the CEO of Gravity Payments, the company he had built from a young age. He began wondering how many of his own employees were facing similar problems. Within months, he decided to slash his salary to $70,000 and raise the company’s minimum salary to the same amount.
Image Via danpriceseattle
The Conversation That Made Price Rethink Everything
Price was hiking through Washington’s Cascade mountains with Valerie when she opened up about the financial pressure she was facing. Her rent had just increased by $200 a month, and despite working two jobs for around 50 hours a week, she was struggling to keep up with her bills. Her situation was particularly striking to Price because of her background and years of military service.
“She is somebody for whom service, honour and hard work just defines who she is as a person,” Price said. Valerie had spent 11 years in the military and completed two tours in Iraq before returning to civilian life. Yet earning around $40,000 a year was not enough to provide the financial stability she needed in Seattle.
The conversation forced Price to look at his own circumstances. At 31, he was already a millionaire, and Gravity Payments had around 2,000 customers with an estimated value running into millions of dollars. He was earning $1.1 million a year while some workers could potentially be struggling with housing, debt and everyday expenses.
Price says that was the moment he realized he could no longer separate his personal wealth from the financial problems affecting people around him. He decided to make a dramatic change at Gravity, even though doing so would require him to give up much of the income and financial security he had built for himself.
Why The Number Was Set At $70,000
Price did not choose the $70,000 figure randomly. He had read research from Nobel Prize-winning economist Daniel Kahneman and economist Angus Deaton examining how income related to happiness and emotional well-being. The research gave him a number to consider as he thought about what level of income might give employees greater financial stability.
After crunching the company’s numbers, Price decided that $70,000 would become the new minimum salary at Gravity. The move required him to cut his own income dramatically, while also putting his personal assets and savings at risk as he worked out how to fund the increases.
He gathered his employees together and announced the plan. Price expected an immediate celebration, but the first reaction was much quieter than he anticipated. The significance of what he had announced took a moment to sink in as workers realized that the change would affect salaries across the company.
The figure was not quite what the research had suggested, either. Years later, Price acknowledged that he had missed an important detail in the study. The amount identified by the Princeton researchers was actually $75,000, but the $70,000 figure still meant that around a third of Gravity’s workers would immediately see their salaries doubled.
Some Employees Walked Away From The Company
The salary change also created tension inside Gravity. Two senior employees resigned after objecting to the way junior workers’ salaries had increased. Their concern was that the new structure reduced the financial difference between employees with different levels of experience and responsibility.
The departing employees believed the change could create problems for the company’s competitiveness. They also argued that dramatically increasing the salaries of junior workers could reduce their incentive to work harder. Their departures became an early test of whether Price’s approach could function inside a real business.
Price’s supporters saw the resignations differently, particularly as the company continued operating and expanding. The concerns about reduced motivation did not become the defining outcome he had expected critics to focus on.
Rosita Barlow, a longtime Gravity employee and director of sales, said the higher salaries actually allowed junior workers to concentrate more closely on their jobs. “When money is not at the forefront of your mind when you’re doing your job, it allows you to be more passionate about what motivates you,” Barlow said.
Gravity Payments Began To Change
The company eventually produced numbers that Price viewed as evidence that the salary decision had not destroyed the business. Gravity’s headcount doubled, while the value of payments processed annually rose from around $3.8 billion to $10.2 billion.
Price was especially interested in what happened to employee retention. He said turnover was cut in half after the salary changes, meaning employees were staying longer and accumulating more experience with the company and its customers.
That longer tenure became an important part of Price’s explanation for how Gravity could afford the higher salaries. He argued that the biggest financial benefit did not come from his personal pay cut. It came from having experienced employees remain with the business long enough to become better at their jobs.
The company also saw changes in employees’ personal lives. More than 10% of workers were able to buy homes, compared with less than 1% before the salary increase. Employees were also putting more money into retirement accounts, while 70% reported paying off debt.
Employees Started Using The Extra Money Differently
The additional income gave some workers options that had previously been out of reach. Price described one employee who had been commuting more than an hour and a half each day while worrying that a car breakdown could leave him unable to afford the repair.
After receiving the higher salary, the employee moved closer to the office. Price said the worker also began spending more money on exercise and healthier food, changes that he connected directly to having more financial breathing room.
Price also described another employee who lost more than 50 pounds. Other workers reportedly began spending more time with their families or helping their parents pay down debt.
The company also saw a major increase in family growth. Before the $70,000 minimum salary was introduced, Price said Gravity typically had between zero and two babies born among its employees each year. In the roughly four and a half years afterward, he said the company had seen more than 40 babies.
Price Had Already Seen How Money Could Affect Workers
The decision was shaped partly by Price’s own experience during the 2008 financial crisis. Gravity’s customer base and income were hit hard, with company income falling by around 20%. Business logic could have resulted in around 12 of the company’s 35 employees being dismissed.
Instead, Price focused on cutting costs and eventually got the company back into profit. The experience left him worried about the possibility of another downturn, however, and he became focused on saving money and keeping salaries low.
Barlow experienced those financial pressures herself. At one point, she secretly worked at McDonald’s outside her Gravity job because she needed more income. When someone discovered a training manual from the restaurant at her desk, she feared she was about to be fired.
Instead, her bosses asked how much she needed to stay with Gravity and increased her salary to $40,000. Price later admitted that the situation made him reconsider how little he understood about the financial struggles some employees were facing.
“I was very impressed and proud of her and mad at myself,” Price said. He had already begun giving employees annual pay increases of around 20%, but his conversation with Valerie ultimately convinced him that incremental raises were not enough.
The Decision Turned Into A National Debate
Price’s announcement arrived while Seattle was debating a major increase in its minimum wage. The salary decision quickly became part of the larger argument over how much workers should earn and how companies should respond to rising living costs.
Price received hundreds of letters supporting the move, but some of Gravity’s customers objected strongly. Critics viewed the decision as a political statement and questioned whether the business could survive after taking on such a large payroll commitment.
The backlash became particularly personal when conservative commentator Rush Limbaugh criticized the decision and predicted that Gravity would fail. Price had grown up listening to Limbaugh, making the criticism particularly notable to him.
Price had hoped the decision would encourage other companies to make similar changes. A handful eventually followed with higher minimum salaries, and Price believed his lobbying efforts also influenced Amazon’s decision to increase its minimum wage. However, the broader structural change he had hoped to see did not materialize.
His Own Lifestyle Changed With His Paycheck
The salary decision meant Price had to change his lifestyle as well. Before the pay cut, he lived like a young technology millionaire, with a home overlooking Seattle’s Puget Sound and the ability to spend freely at expensive restaurants.
After cutting his salary, Price rented his house through Airbnb to help keep himself financially afloat. His employees also noticed that he was arriving at work in a 12-year-old Audi, a sharp contrast to the lifestyle associated with his former income.
Eventually, a group of employees decided to surprise their boss. They secretly pooled their money and bought Price a Tesla, then arranged for him to discover the car outside the office.
“I feel like this is the ultimate way to say thank you for all the sacrifices he’s made and any of the negative stuff he’s had to deal with,” Alyssa O’Neal said. Price became emotional when he saw the car.
Price Says He Is Happier On $70,000
Five years after the salary announcement, Price was still earning $70,000 a year. Gravity had grown, employees had gained greater financial security and the company was processing substantially more money than it had before the decision.
Price’s own financial position was very different from the one he had enjoyed when he earned $1.1 million. He had given up the lifestyle that came with that income and had to make practical adjustments to continue living on the lower salary.
He also acknowledged that giving up extreme wealth was not always easy. He remains the same age as some of the world’s most successful technology billionaires, and he admitted that the desire to become richer can still enter his thoughts.
“I’m the same age as Mark Zuckerberg and I have dark moments where I think, ‘I want to be just as rich as Mark Zuckerberg and I want to compete with him to be on the Forbes list. And I want to be on the cover of Time magazine, making lots of money.’ All these greedy things are tempting,” Price said.
He did not pretend that the choice had eliminated every difficult moment. Instead, he described the tradeoff in personal terms: “It’s not like it’s easy to just turn down. But my life is so much better.”