General

Ethical and Stakeholder Issues in ABP

Ete Grant Written by hotpen · 1 min read >

This week’s case in Analysis of Business Problems (ABP), Gravity Payments was an elucidating one. It is exposed the ethical and stakeholder issues that businesses sometimes encounter. Gravity Payments is a private card processing and financial service company based in the Seattle area of the State of Washington, USA. It was founded in 2004 by two brothers- Dan and Lucas Price. The latter was a minority shareholder with a 30% share of the company.  Gravity Payments was started in response to the exorbitant charge for card processing fees in Seattle. So, the company instituted a low-cost strategy and by 2008 became the largest credit card processing company in Washington. Dan Price believed in tackling poverty by financially empowering his staff so that they could meet their basic needs and help society. This led him to make a decision that changed the face of pay inequality in America.

The Decision

In 2015, Dan Price decided to increase the salary of all 120 employees to a minimum of $70,000. The desire for his employees to meet the basic needs of owning a house and paying bills drove the salary shift. In his words, it was important for his staff to thrive and not merely survive. He backed his decision with results of a Princeton University study that showed that pay less than $75,000 resulted in pain and job dissatisfaction. He had also done his calculations and was confident that Gravity Payments could afford the new pay structure. To support his move, he took a 94% pay cut.

This decision was well received by the staff, some of whom appreciated the chance to live better. However, the decision was also met with criticism from different stakeholders.

Stakeholder issues

There were several reactions to the decision. While some were good, others were not as good. Dan Price became the media’s poster boy for tackling income inequality. As a result, the number of job applications and customer base increased. However, two top employees left the company. They were unhappy that employees they perceived as poor performing got a pay rise.  Some of the other employees expressed concern about deserving the rise in the first place.

Also unexpectedly, some customers left due to the fear that the new wage will impact the service fee.

Perhaps, the most shocking move was from Dan’s brother, Lucas. He filed a lawsuit against him citing the potential threat to the survival of the company and his rights in the company.

Ethical Issue

The most critical ethical issue was pointed out by Grant Moran, who felt that the decision had exposed his salary and put him at risk. In other words, he felt that Dan Price bridged confidentiality by exposing his salary to the public. He opted to leave the company.

The Aftermath

Further reading indicates that Dan Price won the lawsuit. During the pandemic, the company’s revenue fell by 55% and staff unanimously offered to take a pay cut instead of a layoff. Following a rise in revenue, Dan Price increased their pay to a minimum of $100,000 and Gravity is now doing better than ever. The staff recently bought Dan Price a Tesla in appreciation of his leadership.

Dan Price is no doubt the boss of the century!

#EMBA27, #MBAChronicles

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