CASE ANALYSIS: GRAVITY

Introduction

Dan Price, CEO of the Gravity Payments announced in April 2015 that he would raise the
minimum salary of his employees to $70,000 by slashing his own million-dollar package to do it.
He would pay for the wage increases by cutting his own salary from nearly $1million to $70,000
and using 75 to 80 percent of the companys anticipated $2.2 million in profit this year. This
move was triggered by a study he read that found that emotional well being increases with
income level until you make $70,000 and then after that it has no measurable effect on
happiness. The announcement created a huge stir in the corporate world and social media. Mr.
Price received appreciation and backlash at the same time. Some called it a publicity stunt, a
social agenda while others believed it to bring a new change in the controversial issue of income
inequality.
Mr. Price wanted to address the income disparity between income levels of CEOs and other
employees of the company. As a leader he believes it his moral duty to set an example and make
changes where necessary. He was deeply disturbed by the wealth gap he saw in front of his office
everyday. While most companies would put all their focus on customers Mr. Price main focus is
to put his employees first, make them happy because he cares about them.
The main question arises is that whether this is ethical leadership or not. According to me the
answer is yes. Mr. Price wants 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. Ethics are standards of
right and wrong. Ethics are an extremely important of every organization and they are usually
laid down for everyone. A persons ethical behavior stem from their personality traits, attitudes,
situations and morals.
In this case, Mr. Price leadership has an ethical behavior attached to it because it is personal
belief and judgment that if his business continues to prosper his actions would have a significant
impact on not just his business and employees but the whole society at large. For him money is
the driver of good performance and at the same time bringing happiness.
Causes
Ethical leadership can be influenced by your personality traits, moral development and
situational factors. In this case, Mr. Price has based his decision on his own morals he has
developed over the years. It is his moral development that has led him to give up his own pay for
the sake of his employees. Moral development is when you think what youre doing is right
because your values and beliefs says so. As a leader, Mr. Price thinks he has a moral duty to help
out his employees. He doesnt identify with the idea of giving bonus to employees to make them
happy. For him its about having a purpose and setting an example in the business world for a
good cause. And that cause is reducing the wealth gap between the leaders and employees
otherwise he would not have been able to take such a bold step of cutting his pay.
Mr. Price himself comes from a humble background and as an owner of a start up company he is
very supportive of small businesses. He wants to help them, save them money, remove the
distractions that affect performance and help them further move ahead. At the end all his choices
and decisions stems from his moral development and judgments. He has no self-interest in this
situation. His beliefs and drive to succeed made him take such a big step.
Every leader has a power to either it for a socialized power or a own personal benefits.
Obviously as a CEO, he wants the best for his company however with this strategy he has given

up on his personal advantage and put the employees first even if eventually it benefits him
personally.
The study of money giving you happiness is also another contributing factor but this strategy is
more of a sense of purpose he feels he has as a leader. He wants to uplift the underrated
employees who have all the talent and the skills but are not rewarded enough.
Pros and Cons
One of the main pros of this strategy for Gravity would be that it would attract new employees
which would in turn lead to higher productivity, more profits and eventually high level of job
retention and satisfaction for the employees. Monetary compensation plays a huge part in job
satisfaction with the minimum wage of $70,000 for all employees.
Also another pro of this move is that it could help in increasing business of gravity as new
customers would be attracted and the existing ones would want to remain loyal due to the shared
values of employees in the company. Certain customers might connect with and support Mr.
Prices endeavor and may wish to do business with Gravity on a humanitarian level. On the
business side, it would compel other companies to rethink their compensation plans and address
the income disparity in their own way.
Additionally this move could also make employees in general question their bosses and in
general have a perspective on the level of income inequality at their own workplace. The huge
income gap needs attention. The fact that CEOs makes 300 times more than the average
employee is ridiculous and with this move Mr. Price is certainly heading in the right direction. It
would bring power in the hands of employees if taken up seriously.
Also, if the strategy goes as planned, Gravity in the next five years at a constant growth rate with
the same number of employees who will hypothetically be much happier and productive with
less financial constraints, will be one of the fastest growing start ups.
One of the major disadvantages is that there is no compensation based on skill, experience and
performance. The old skillful employees are put on the same level as a receptionist or a janitor.
This could lead to high employee attrition rate for the company.
Secondly a negative side for the business would be that the loyal customers would cut ties with
the company feeling dismayed because they think its more of a political statement rather than the
company trying to improve the customer service. Some customers might anticipate a fee increase
and would eventually leave the business. Another con of this move is that Mr. Price would have
to hire a dozen additional employees at a significantly higher cost as the minimum salary has
been set so high.
Also as mentioned in the article two of Mr. Prices most valued employees quit the company
calling the move unfair to double the pay of some new hires while old long serving employees
got small or no raises. This move will make employees believe that the increased salary is their
compensation and would expect the company to pay them even when there are no profits. This
could drive Gravity to bankruptcy. Realistically, this is more of a charity than a business decision
since 75-80% of the profits would be used for salaries.
Making every employees pay the same from CEO to janitor could go against Mr. Price because it
would lead to slacking and even lesser effort from employees than before.
Apart from this, it is a known fact that money cannot buy you happiness. It can certainly reduce
your stress and financial worries but thats to an extent only. The study that Mr. Price relied on is
not entirely accurate and cannot be totally relied on.

Results
Mr. Price comes from a conservative religious background. He has grown up reading the Bible
and was taught to accept it as the literal truth. The values and the beliefs he grew up on are a big
part of his life. He transferred that to his credit card processing company. For him its all about
keeping the people you work for or with happy. This move garnered a lot of backlash but for him
there was no perfect way to deal with the complex workplace issues in todays world. He did not
want to rely on capitalism but rather on socialism.
Every leader has their own set of personal beliefs and values. Considering that, this is the best
solution he could think of. The positive aspect of the situation is the fact that his all his current
employees are extremely happy with the announcement. He has made a positive impact on lives
of many of his employees. The lower level staff that had financial worries is financially secure
now.
The company has attracted many new customers just based on the goodwill this move has
created and the loyal ones are going strong. It has made several other business leaders to rethink
their compensation plans and be involved more with labor wage issues. Mr. Prices commitment
and his social cause to help small businesses have attracted similar business leaders. They have
left their perfect jobs because it drew them to his passion. The existing employees have never
been happier and are pumped up to work harder to achieve greater profits.
Although this move has helped to create a new perception on the issue of wages in the minds of
leaders, customers and employees and society at large, it doesnt seem a very profitable strategy
in the long run. It has a lot of risks involved in it and the stakes are very high. Somehow it
doesnt seem right to be matching every employees level of performance and hard work on the
same pay scale. The $70,000 is being paid to reduce your financial stress and to make you happy.
The level of hard work and effort a senior manager puts in cannot be compared to that of an
assistant.
Currently the pay increase will be given out of the 75-80 percent of the current profits. This
leaves barely anything for the company to use on other costs like research and development,
expansion, new technology etc. The cost of hiring new employees would also go up
tremendously compelling the company to suddenly double up their profits, which is not practical.
Therefore a more safer and achievable strategy that would keep the employees happy would be
to promise to give them 50-60% of the profit share every year so that when the company is low
on profits they wont run on losses because of the expensive compensation structure. Even though
Mr. Price has ruled out this option because he believes it is capitalism but paying compensation
out of the profits has never been a good business decision ideally.
Mr. Prices strategy is new change in the issue of income inequality. He has taken a big leap and
it could go either way. He has the belief he is doing good for the employees, which will
eventually benefit Gravity in the long run. Time will tell whether as an ethical leader his
judgment has been right or wrong.