Analysis of Business Problems

Axella Yusuf Written by Axella Yusuf · 2 min read >

                                        The case of Gravity Payments

                                     The $70,000 minimum salary company

‘Income inequality has been racing in the wrong direction. I want to fight for the idea that if someone is  intelligent,  hard-working  and  does  a  good  job,  then  they  are  entitled  to  live  a  middle-class  lifestyle’.

-Dan Price CEO

These were the exact words of Dan Price the CEO of Gravity payments just before he made the decision to increase and cap the salary of the entire staff force of Gravity payment at 70,000. With this, this meant that people earning less than 70,000 dollars were all going to receive a bump no matter their position and years on the job.

While this seemed like a perfect idea, it was met with a lot of uncertainties, complains and even Lawsuit as his brother and partner took him to court claiming decisions were made without his knowledge

‘It was the right thing to do. I want everybody that I’m partnered with at Gravity to really live the fullest, best life that they can. . .. I think that’s the [income level] where you can start to check off those life’s goal boxes — saving for college, buying a home, some of the basics, starting a family. I want everyone to have those basic opportunities’ also in Dans voice. But humans are insatiable as some of the staff who received a bump were resigning; just imagine that. Leaving the job because you think you do not deserve the salary you are receiving? Now that is different because Dan did all of these with a good intent.

In his thought, he wanted everyone to live a good life and be able to afford necessities. All these stemmed from a discussion he had with a friend who complained of choking bills including student loans which is a big issue.

Price decided  upon  the  amount  of  $70,000  based  upon  a  2010  study  conducted  at  Princeton  University  by  economist, Angus Deaton and psychologist, Daniel Kahneman, a Nobel laureate.10 According to the study, those who made less than $75,000 were likely to experience emotional pain and job dissatisfaction. However, even if people made more than $75,000, they did not feel any greater level of happiness. Simply put, the study suggested that emotional well-being increased with economic compensation, but only up to the amount of about $75,000. The study  concluded  that  “low  income  exacerbates  the  emotional  pain  associated  with  such  misfortunes  as  divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.”

Dan also reduced his own pay to match the new sum. A classic example of leadership by example which is commendable.

                                            Where did Dan Err

  • Salary bump is not a bad idea, but it will not be appreciated if the recipients do not feel like they worked for it
  • Increasing salaries without attaching a ‘caveat’ to it like a performance factor will only cause excitement which will wear off and will not motivate them
  • Pulling an industry enrager is  a  great move but then it puts  you under pressure because what if your competitor decide to match your effort? What next.
  • Can he sustain the sudden and immediate salary increase? He did not consult anybody before taking the decision  

Well, one cannot please everybody at the same time. Learn to pick your battles

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