This American CEO has his heart in the right place!

A chief executive officer of an American firm has surprised one and all by announcing a 90 per cent pay cut for himself and slashing company's profits to give employees a hefty salary hike after he read a study about happiness.

The boss of a technology start-up in Seattle shocked his employees by announcing he was taking a massive pay cut in order to raise the salaries of the firm's lowest-paid staff.

CEO Dan Price took a 90 per cent pay cut and slashed his company's profits just so that he could give his employees a raise.

Price, who heads the Seattle payment processing firm Gravity Payments that he founded, has pledged to make certain all his staffers make at least $70,000 annually in the next three years.

To do that he is cutting his $1 million salary to $70,000, and dipping into the firm's annual $2 million profit.

This will double the pay of about 30 of his workers and will mean significant raises for an additional 40.

Price decided to hike his employees pay after he read a study about happiness. It said additional income can make a significant difference in a person's emotional well being up to the point when they earn $75,000 a year.

He had also been hearing employees talk about the challenges of finding housing and meeting other expenses on their current salary, and decided there should not be such a big gap between his pay as CEO and that of his workers.

He described the raises as a "moral imperative".

Price told employees of the new pay policy at a meeting on Monday. For several moments there was stunned silence before people broke into applause and high fives, said Phillip Akhavan, a merchant relations worker whose $43,000 salary immediately jumped 16 per cent to $50,000.

"It took us a moment to understand what he was saying," Akhavan was quoted by CNN as saying. His first call was to his wife, who he said did not believe him at first.

Nydelis Ortiz, a 25-year old underwriter who only started working in January called her parents with the news.

"My mom cried when I told her," she said. Her $36,000 salary was one of the lowest in the company.

Price said he is the majority owner of the privately-held firm, which he started in his college dorm room 11 years ago. His older brother, who gave him seed money to get started, is the only other stockholder.

Price told CNN that he is not the only CEO looking to close the income gap. He has heard from almost 100 other CEO via email and text who say they support his move.