Finally, a boss who has the honesty to admit that he doesn’t need his multimillion-dollar package and is prepared to spread it among his staff.
Dan Price, chief executive of Seattle technology company Gravity Payments, is hiking wages to $70,000 a year for his 120 employees. He’s also taking a cut in his own pay of around $1m to the same level.
Price was convinced by research into wellbeing and happiness by academics Daniel Kahneman and Angus Deaton. Their 2010 paper makes the argument that emotional wellbeing rises with income up to a cut-off point of $75,000 (£50,000 in the UK) – beyond which people do not get any happier as they get richer.
It is a well-known thesis that once people’s major financial needs have been met with a bit leftover for luxuries, additional income does not make them any happier. “The market rate for me as a CEO compared to a regular person was ridiculous, it’s absurd,” Price said. However, that does not stop other US CEOs pocketing $11.7m – 331 times the average of their employees. In the UK, our top bosses last year took home on average £4.7m or 120 times the rate of their workforce in FTSE 100 companies.
If money created happiness you would expect these executives who are in the top 0.1% of the income scale in both the US and UK to be the most ecstatic people on the planet. But it doesn’t work like that. Research by academics Professor Sandy Pepper at the LSE and Dr Julie Gore at the University of Surrey into the attitudes of senior executives to their rewards shows that they do not place great value on the size of their pay as such. Instead they are much more concerned about how they compare with rivals. This research also showed that executives would be prepared to give up 30% of their remuneration to work in more satisfying jobs.
Price said: “I may have to scale back a little bit, but nothing I’m not willing to do. I’m single. I just have a dog.” A few top executives echo Price’s views in private, but few are prepared to speak out in public.
One UK chief executive who has made an attempt to spread rewards more evenly is Simon Wolfson, CEO of the clothing retailer Next. He gave up a £4m bonus a couple of years in a row to share among staff – most of whom had not had a pay rise during the recession. This week he promised shop floor staff a 5% pay rise and said he would give up his bonus again to help fund it. While Lord Wolfson still takes home around £4m, he is unusual among the executive ranks in admitting he doesn’t need his whole package.
FTSE 100 bosses have seen their income rise by almost £1m since 2010 at a time of stagnating average wages. Many of these packages have been driven higher by bonuses and big share awards such as Martin Sorrell’s (CEO of advertising group, WPP) £36m for 2014. “It’s the way the system works,” says Sir Martin.
It now takes a British chief executive only two days to pocket the same as an average worker will take home in the whole year. That means if you’re on average pay it would take you 170 years to earn as much as your boss.
High executive pay is divisive, creating a rift in society between those at the top and everyone else. What’s more, it’s a drag on the economy – even the OECD has said that rampant inequality is hampering economic growth.
It takes courage to break ranks such as Price has done at Gravity Payments. But it is certainly easier when you only have 120 employees. While it would be encouraging to see more companies follow Price’s lead, I suspect it will not happen until we get governments that are prepared to take a tougher stand on executive greed.