The case study is about Dan Price, the CEO of gravity payment, who read a research paper about the correlation between wages and happiness. He discovered that people earning less than $75,000 are likely to have emotional pain and job dissatisfaction. He also found out that people earning more than that will likely not be better off. Based on the research, he decided to increase the minimum wage from $34,000 to $70,000. That means everyone earning between $34,000 and $70,000 starts earning the same amount. He also reduced his salary from $1,000,000 to $70,000, using between 75% and 80% of his profit to finance the minimum wage increase.
This came with some challenges: 2 of his members of staff resigned- One felt he shouldn’t be paid the same rate as the junior staff, while the other felt he didn’t deserve the salary increase; it initially affected sales too, as many people opted out; his brother also who had about 30% of the shares filed a lawsuit against him. The key question here was whether he was right in trying to justify reducing pay disparity significantly. Should someone ridiculously earn more than what every other person of his level in the industry earns? And should the pay band be ridiculously close so that people earn about the same amount without consideration of the value they bring to the bottom line?
Reading the case at a glance, it appeared as the most stupid decision in the world. While nothing is wrong with increasing the minimum wage, you should also increase the maximum band. That would make people aspire for promotion, which will affect organizational performance. If people know they will likely not get any salary increase regardless of their organisational performance, they tend to put less effort into the work. People who think they may not earn that much outside may be motivated enough to work harder not to lose their job. But senior guys who may get as much as that outside might need more incentive to try harder.
Should we be bothered about what other colleagues earn or just be satisfied with what we earn? If I negotiate a $50,000 job, which may be a significant increase from my last pay- should I be disgruntled if I discover that someone on the same level as I earn 50% higher than I do? That happens and could be a reason to be dissatisfied. I was once in that shoe, too but was hardly bothered except that it didn’t make sense. It didn’t affect my performance at work, and I didn’t go back to negotiate.
In the class, we concluded that nothing was wrong with the decision because it reflects mainly on the organisation’s value system; it was a conscious decision with likely consequences known. It was based on solving the problem of job dissatisfaction and emotional pain. The faculty concluded that this is contextual and not a basis for reducing pay disparity in an organization. But I doubt I will ever agree with Dan Price’s decision.
Fear of Public Speaking