Case:

Gravity Payments
Floor Salary
Team 12:
Kevin Pfeifer, Guido Perez, Ghanshyam Thakkar,
Helen Zapata, Felipe McAllister, Kelly Rigolini

"Gravity Payments
exists to stand for the
little guy or gal who
believes in the
American dream and
is willing to chase it."

 Founded in 2004
Private Company
CEO and Founder: Dan Price

Introduction

Industry Sector: Banking &

Finance
Number of employees: about
100
Product: Credit card processing
Revenue: $ 150 Million (2014)
Profit: $ 2.2 Million (2014)

 2015: CEO Dan Price decided to change the policy

Floor salary of $ 70,000 for all employees by 2017
Some employees reached a doubled salary
All employees with a salary over $ 70k didn't get a similar
increasing

Case

Price's idea came from a study by Angus Deaton and Daniel

Kahneman
Threat that employees are facing in terms of long term
motivation

 CEO tried to improve life of employees

The Princeton article made realized that there was
a motivational problem with the employees
because they were not being paid near these
$70,000 minimum

Why did
Dan Price
change the
policy?

Basic needs of all employees should be covered

(see Maslow), respectively hygiene factors (see
Herzberg)
If employees dont have to think about basic stuff
they work more efficiently

 Profits has been doubled since the announcement

Customer retention rate grows from 91% to 95%
Happiness of employees has generally increased

Positive
Effects

Gravity Payments is now considered to offer very

competitive compensation packages that allows all
employees to maintain a higher standard of living

 Short term sacrifice

Some clients were upset by the political message this move
indicates and feared that prices would increase
Shackles high performers to less motivated employees
Former employees are not happy with income distribution

Negative
Effects

Due to high salary hike, their own profit of $2.2M will be

dedicated to the salary increases
Company more charity than profit orientated => bad reputation
at Wall Street

 His own brother, Lucas price, 30% shareholder in the

company suing him
Cut down his own salary of $1 million to $70000

Negative
Effects

He has to mortgage his won house to pay his

employees a paycheck.
'Is it fair?', Managers say

Equity Theory

Conclusion

Employees who were very experienced were unhappy that

their salaries were not increased as much as those with less
experience.

Some entry level employees feel that they have not earned
the raises they have been given.
The performance of employees increase based on their own
perception of equality among the employees and the market.

Equity Theory
The equality measure comes about how much experience,
effort and skills you have related to the salary, recognition and
benefits the company gives to employees.

Conclusion

This policy change is disrupting the normal hierarchy and

employees are happy for now with their raises, in the long run
employees will be frustrated as the foundations of the equity
theory states this.

Herzberg Theory
New salary offered by Gravity Payments is above the market
standard.

Conclusion

Even before the policy, hygiene factors of the employees were

being met and policy change caused strain on employee
satisfaction.
Hygiene factor only keep employees from being unhappy but
doesnt necessarily motivates them
They didnt try to find out actual cause of dissatisfaction of
employees if any.
Even if they increase the salary, they might be unmotivated
because of motivation factors of Herzberg theory.

Recommendati
on

The minimum salary should reach the $70,000 but whether or not
to get this amount will depend on your performance.
Gravity Payments should introduce a graduated pay scale that
allows employees to quickly move up the salary ladder as they
earn experience.
The new minimum salary can be a promise within an allotted
amount of time and allows the employee to earn their higher
compensation without upsetting more experienced coworkers.

Recommendati
on

Every single job position performance should be measure

correctly and eventually the salary risen to $70,000.
Once on the $70,000 according to the equity theory Gravity
Payments should include a bonus to make sure the more you
contribute the more benefit you get.

Questions?