In April 2015, CEO Dan Price of Gravity Payments made a shocking
announcement. Price, who is also founder and co-owner of Gravity,
decided to cut his own salary by 93 percent, and then to use that
money—along with a big chunk of corporate profits— to ensure that every
single one of his employees makes a minimum of $70,000.1
The news was certainly welcomed by Gravity’s employees. (For the
lowest-paid employees, the raise to $70k meant a doubling of their
salaries.) And Price was widely applauded by commentators and on social
Price’s move was especially noteworthy in an era in which many CEOs
have been criticized for accepting astronomically high levels of pay. In
a 2015 article on executive compensation, Bloomberg.com
reported,2 for example, that Elon Musk, the entrepreneurial CEO of Tesla
Motors Inc., earned just over $100 million in 2014. But that’s far from
the high end of executive compensation: The same article noted that
Nicholas Woodman, CEO of GoPro Inc., had earned a whopping $285 million
that year. Criticism of CEO pay has not focused solely on the absolute
amount earned, but also on the ratio of CEO pay to what those CEOs’
employees are paid. According to the Bloomberg article, “The CEOs of 350 Standard & Poor’s 500 companies made 331 times more than their employees in 2013.”
Some people defend high levels of pay for CEOs, pointing out that the
highest levels of compensation are achieved through stock options,
which means that CEOs do well only when the value of the company’s stock
goes up, a sign that the CEO is actually doing a good job. Others,
however, are skeptical. As the Bloomberg article points out,
“Stock options, once believed to align executives with shareholders
because they appreciate when the stock price rises, are now derided for
encouraging short-term financial engineering at the expense of long-
term planning.” In other words, stock options encourage CEOs to find
short-term ways to boost stock prices (such as reducing costs by cutting
employees), even if those moves aren’t in the long-term interests of
the company and its shareholders.
Let’s turn back to Price’s decision. Different people had different
reactions to the decision. Some applauded it as a move toward justice or
fairness in compensation. Others thought it was a savvy business move,
aimed at producing better outcomes for Gravity Payments by motivating
employees and gaining free publicity for the company. Still others
thought it spoke well of Price’s character; to them, Price looked like
what a good CEO ought to look like, in comparison to the greedy CEOs of
so many other companies.
1. Do you think Dan Price is a hero? Why or why not?
2. Are there any further facts that you would want to know before making a judg- ment about this case?
publicly traded company with thousands of shareholders, would that
change your view about the ethics of his decision? If so, in what way?
4. If you were an employee at Gravity Payments, already making
$70,000, how would you feel about employees who made half what you make
suddenly mak- ing the same amount as you?