MGT 3210 DB 9

Case 9: Dan Price, CEO of Gravity Payments, Established a Minimum Salary of $70,000 for All Employees

Dan Price grew up in a family of seven, whose evangelical Christian parents homeschooled him and his siblings until they were 12. The family had strong roots in reading and studying the Bible, which was a daily activity. Price was very interested in learning the scriptures and reached the finals of a Bible-memorization contest in the fifth and sixth grades.

In 2004 Price, then 19, started Gravity Payments with his brother Lucas. The brothers initially had a 50-50 stake in the company, but about 18 months later Lucas Price ended his direct involvement in the company and Dan Price became the majority owner.

Gravity Payments is a credit card processing company. According to an article about the company in Bloomberg Businessweek, “The day-to-day work at Gravity Payments is pretty unglamorous. Gravity is a middleman between merchants and payment networks, namely Visa and MasterCard, which in turn connect to banks that issue credit cards.” The office is a conglomerate of “desks and computers in bland cubicles—but the space is reorganized every six months so people can sit near different colleagues.” Price does this because he doesn’t want people to get too comfortable.

The corporate home page describes the company as follows: “‘Take care of your team, and they’ll take care of your clients.’ Gravity Payments recognizes the value in establishing an entrepreneurial, goal-oriented, rewarding, honest, and innovative culture, which is what makes our company such a remarkable place to work. We believe in a holistic and balanced lifestyle, supporting our team members with:

• $70,000 minimum wage
• Unlimited paid time off
• Medical, dental, and vision insurance
• Bonus opportunities
• Flannel Fridays
• Company-sponsored outings
• Volunteer opportunities
• Catered breakfasts and lunches

A survey of comments on Glassdoor reveals a combination of pros and cons about working at Gravity. A sampling of comments includes the following:

Pros:

“I have never worked for a company that cares for their customers more than Gravity. Company culture is the best I have worked with.”

“The company is built on a foundation of community and teamwork. I have built some long-lasting friendships. We are a community of people who are competitive, love to learn, and want to grow.”

“I love the team of people I work with! They value the unique skills and experience that I have, support me in accomplishing my goals, challenge me to bring my best, and inspire me to push to new heights.”

“Gravity Payments offers an incredible opportunity for employees to seize responsibility and grow personally and professionally.… You really do get out what you put in as far as effort being rewarded with additional responsibilities and trust.”

“Management genuinely cares about your success and professional growth. Even though people work hard … the environment is fun and social.”

Cons:

“It can be intimidating to work with such high quality and capable people. Personal sacrifice is often necessary to provide a high level of service and support for our customers and teammates.”

“It’s no secret that this industry is tough. As a rep you have to be very driven and handle plenty of rejection.”

“Be prepared to work long hours …”

“Many days are filled with rejection and apathy.”

“This is not easy work. Anyone who is just looking to do the minimum and collect their paycheck will not be happy nor successful here. Be prepared to operate at 100 percent at all times, as there is rarely down time.”

Price made international headlines in 2015 when he announced his plan to raise the minimum salary of his 120 employees to $70,000. At the time, the average employee salary was $48,000.

He decided to phase in the salary increase over three years. The minimum starting salary became $50,000 in 2015 and $60,000 by December 2016 and $70,000 by December 2017. Price plans to pay for this increase without raising prices to customers by reducing his own salary from about $1 million to $70,000, and by diverting about 80 percent of company profits for 2015. This strategy is critically important because profit margins are slim in this industry, and any price increases are likely to result in a loss of customers.

Many employees were ecstatic at the news of the salary rise. One hundred received an immediate pay increase, and 30 saw their pay double. Others were not so happy and perceived the decision as inequitable. Maisey McMaster, a 26-year-old financial manager, said, “He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump.” She felt it would have been fairer to give smaller increases with the opportunity to earn a future raise with more experience.

McMaster told Price about her feelings, and according to an interview in The New York Times, he suggested she was being selfish. She quit.

Grant Morgan had a similar reaction in his Times interview. “I had a lot of mixed emotions,” he said. His salary was raised to $50,000 from $41,000. “Now the people who were just clocking in and out were making the same as me. It shackles high performers to less motivated team members.” He also quit.

Some customers left the company because they viewed the pay increase as a political statement or a prelude to higher fees.

A few key events seem to have prompted Price’s decision to raise wages. One was a 2011 conversation with Jason Haley, a phone technician making about $35,000 a year. Haley told Price, “You’re ripping me off.” A surprised Price said, “Your pay is based on market rates.” Haley shot back that “the data doesn’t matter. I know your intentions are bad. You brag about how financially disciplined you are, but that just translates into me not making enough money to lead a decent life.” Price was shocked and upset.

Price also came to feel that pay inequality between himself and his employees was simply wrong. He told a reporter from The New York Times that income inequality “just eats at me inside.”

According to Bloomberg Businessweek, Price’s original pay was “atypical for a company of Gravity’s size” and profitability. The company’s profit was $2.2 million in 2014. Bloomberg Businessweek reported that “at private companies with sales like Gravity’s total revenue, salary and bonus for the top quartile of CEOs is $710,000.… At companies with sales like Gravity’s net revenue, the top quartile pay falls to about $373,000. At those with a similar number of employees as Gravity, the top quartile of CEOs makes $470,000 in salary and bonus.”

Price told a CNBC anchor in 2011 that he was making “probably $50,000” in 2011, which he noted was the “most I’d ever made in my life.” This statement contrasts with data reported in a lawsuit filed by Lucas Price, who retains a 30 percent stake in the company. According to a reporter for Geekwire.com, “The filing discloses Price’s compensation as CEO dating back five years. It says Price received $957,811 in compensation in 2010, $908,950 in 2011, and more than $2 million in 2012, which represented more than 20 percent of Gravity Payment’s $9.9 million in sales that year.”

Price’s compensation is at the heart of his brother’s lawsuit, filed about a month before the wage increase was announced. Lucas Price claims Dan Price was taking millions out of the company, detracting from the financial benefits of being a minority owner.

Bloomberg Businessweek reviewed court papers and stated that the lawsuit claims Price “‘improperly used his majority control of the company’ to overpay himself, in the process reducing what Lucas was due. ‘Daniel’s actions have been burdensome, harsh and wrongful, and have shown a lack of fair dealing toward Lucas,’ the suit alleges.” Lucas Price wants his brother to pay for damages and buy him out.

A judge ruled in July 2016 that Lucas Price had failed to “prove his claims that Dan had overpaid himself and inappropriately used a corporate credit card for personal expenses. The judge also ordered Lucas to pay Dan’s legal fees,” according to a reporter for The New York Times.

1. What is the problem?
2. What are the causes?
3. What solutions will you propose to address the problem? (How do you, as an HR manager address this issue? Think of practical solutions – explain why you think they are appropriate)