Case application - One for the money

Does money buy happiness? Ask the 120 employees at Gravity Payments, a credit card processing company based in Seattle, in the US.720 The company's founder, 33-year- old Dan Price, made the news in April 2015 when he decided to put everyone in the company (including himselfl) on a new 'minimum wage' of US$70,000. At the time, the national minimum wage in the US was just over US$7 an hour, and the average salary at Gravity Payments at the time was US$48,000, so that was a pretty big deall To pay for the salary increase, Price took a pay cut from his own annual US$1 million salary and used 75-80 per cent of the company's profits to help cover the USS1.8 million total cost of the plan.

Why did Price do it? He said that he had been thinking about employee pay for a while, especially after reading several news reports about the glaring pay disparities between corporate CEOs and employees, which he says struck him as 'ridiculous' and 'absurd' Price had also read an article on happiness by two Princeton researchers (one a Nobel Prize-winning psychologist) who had surveyed 450,000 US residents on whether money could buy happiness - both as it affected overall happiness and day-to-day life. The researchers concluded that people claimed to be happier with each doubling of income, but only to the point where their income reached about US$75,000 a year. Learning how friends and employees were dealing with having to make ends meet on low incomes also made him realise that 'I needed to take a bold action instead of waiting around for someone else to do something. When employees are making a less- than-workable income, it's distracting. Paying more results in less distraction, greater autonomy. all things leading to high levels of engagement and ultimately better business outcomes.'

Price and his plan have also attracted an overwhelming amount of public attention and commentary, with commentators calling it everything from "'inspired' to socialism' and doomed to fail'. But the business consequences have been mostly positive. In the wake of Price's announcement, customer enquiries jumped from 30 per month to 2,000 in two weeks. In an industry in which customer retention rates average about 68 per cent, Gravity has had a 91 per cent retention rate for the past three years. Business volume has trebled, and the company has had to hire more staff, some of whom took significant pay cuts to join Gravity because, as one new employee put it, 'I spent years chasing the money. Now I'm looking for something fun and meaningful.' The company did lose two of its 'rock-star' employees who reportedly thought it was unfair that other employees got big raises without contributing as much to the company's performance Some clients also left because they anticipated that fee increases would be used to pay for the new salaries, or because they felt Price's actions were a political statement or a PR stunt.

What will happen in the longer term remains unclear. Five years on, Price says more of his employees are buying homes and starting families because they have the financial security to do that. But will this approach be sustainable when economic times become harder? What will happen if it becomes less profitable? Only time will tell

Discussion Questions

1) 3 management and organisation concepts learning reflections from the case study (in detail) 2) 3 management and organisation learning reflections from the case study (in detail) 3) look back at the capter-opening 'fact or fiction' & how to was 'debunked'. evaluate this wage decision in light of that 4) explain each of the employee produtivity/motivation concerns. which of these do you think is most critical? why 5) expectancy theory says employees are motivated when they see a clear link between effort, performance & rewards. by that logic, do you think employees would find price's aooriach to be motivating or de-motivating? 6) what problem(s) might managers face under this new play approach, & how could they use knowledge about employee motivation to help them deal with those problem(s)?

thank you!