The CEO raising his company's minimum salary to $70,000 highlights an important point about money and happiness

Dan Price, CEO of Gravity payments, announced this week that he’s raising the minimum salary at his 120-person company to $US70,000 a year, the New York Times reports.

To do this, he’s cutting his own nearly $US1 million annual pay to $US70,000, as well.

For contrast, federal minimum wage in the US is $US7.25 an hour, which comes out to about $US15,000 a year for someone working a typical 40-hour week. Seattle, where Gravity Payments is based, started phasing in a minimum wage of $US15 an hour in early April.

Price is being widely lauded for his decision not only because it’s a feel-good story that makes him seem like an awesome guy and desirable boss, but also because most CEOs cling tight to their pay — and it’s risen steadily over the years. By some estimates, CEOs in the US make 354 times as much as their average employees.

Notable exceptions include Rick Holley, the CEO of Plum Creek Timber Co., who gave back a stock bonus worth about $US2 million in 2014; Lenovo CEO Yang Yuanqing, who shared $US3.25 million of his bonus with workers in 2013; and Next CEO Lord Wolfson, who gave his $US3.7 million bonus to his employees the same year.

Other companies have also made headlines for their generous compensation. The Container Store, for instance, pays retail workers an average of nearly $US50,000 a year, and Costco pays hourly workers an average of $US20 an hour.

Price told the New York Times he started thinking about making such a massive change in his company’s pay rate after reading an article about a 2010 study by Daniel Kahneman and Angus Deaton that found people’s happiness levels off around $US75,000 a year — meaning as they earned more, they didn’t get measurably happier.

Dan price gravity paymentsGravity Payments / YoutubePrice is cutting his own salary to better compensate his workers.

This is one of the most interesting plot points in the story of a CEO giving up his million-dollar compensation to better pay his workers.

Since the 2010 study came out, different numbers have emerged as the benchmark for happiness. In a 2012 survey of 13 European countries, CNBC reports it was found that the needed income to be happy was around $US161,000, ranging from $US85,781 (Germany) to $US276,150 (Dubai).

In 2014, Doug Short from Advisor Perspectives pointed out that since the 2010 paper analysed 2009 data, thanks to inflation, $US75,000 doesn’t hold up a few years later. He says that the new number for the US, based on purchasing power, is $US83,000.

Plus, research from Karen E. Dynana and Enrichetta Ravina finds that for people who are middle class and somewhat affluent, a certain amount of money can’t guarantee happiness — unless you have more than the people around you. In 2013, Betsy Stevenson and Justin Wolfers also found that the more money people have, the more it takes them to be happy. Essentially, their research suggests, “you can never have too much money.”

From the examples cited above, you might draw the conclusion that there’s no such thing as an amount of money that will universally increase people’s levels of happiness. And if that’s the case, Price’s actions may be based on a flawed premise.

Price made an impressive move on behalf of earning inequality and deserves praise. However, it will be interesting to see if, beyond the elation of the crowd when he made his initial announcement, his choice actually makes his employees happier.

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