Total

Rewards

MScM 4.2

Yoan Basset

Gravity Payments Case Analysis

1) Identify all the issues related to the jobs and salary structure at Gravity Payments

New compensation paradigm People at Gravity used to work hard and ask for more responsibilities
to be compensated with higher base pay. With the raise announcement, the situation is different:
people who have been working many years to reach their current pay level and have suffered from
underpayment are really frustrated.
Theory of motivation Jobs are considered unequal in terms of value but equal in terms of base pay:
same base pay for a 154pts job than for a 230pts. Equity theory of motivation (Adams, 1965) is broken
(employees are not feeling compensated for their skills) and lead to demotivation. As exhibit 12a
shows employees motivation hasnt increased after the announcement, even decreased in May and
June.
Base pay dispersion According to Tenhil et al. (2015) findings in their recent research, vertical base
pay dispersion can foster constructive competition. They found that vertical pay dispersion was not
related to the attitudes at the low end of the pay distribution, but was positively related to the
attitudes of those at the high-end of the distribution. At gravity the dispersion has been reduced from
a 47 max/min ratio to only 9 (5 times less). Following Tenhils results this decrease in dispersion is
likely to trigger negative behaviors from above-mean wage employees with no change for the low-end
ones.
Political and competitive signaling Gravity has signaled its political position as part of the $15/hour
min wage. Some big clients of Gravity complained because their business model was based on low
hourly wages, and Gravitys action triggered social pressures in Seattle. Some clients could also ask for
discounts and favors because they consider Gravity is highly profitable in the sense they can afford a
$70k min wage.
Side effects Some employees are feeling not worth their base pay and are afraid of their job
security (Gravity received 20 times more applications after announcement). The raise decision is highly
risky because its tricky to predict the outcomes and also because part of the profit will be used to
finance the pay plan. In case of loss, it will be very complicated to decrease every employees bas pay
(contract issues). Media attention is also very costly.

2) What are the corrections you would implement to avoid the main issues you identified?

Job class-based & Performance-based base pay If I were Gravitys CEO I would implement a job
class-based min wage for the sake of fairness and employees motivation. To help employee restore a
correct purchasing power and to compensate for the price of life in Seattle, I would offer performancebased pay raises every year. To balance individuals and companys interests, the rise shall be
computed using employees, corporate, and job class indicators. Ideally the raise would be set in %
(not in $), and other compensations would be available for outstanding performance (out of scope
here).
Sustain competitive advantage Gravitys competitive advantage is mainly based in sales workforce
(also where KPIs are set). As the case states Gravity has the lowest attrition rate of the industry as well
as a team of efficient people with intangible capabilities (know-how). As this is a high fixed costs
business with therefore a need to spread these costs among long-time relationships with customers,
sales people are probably the most valuable of all. The problem is that the price increase is not
rewarding them at all: account executives, officers and sales specialist have no raise. If I were CEO I
would ensure that the people who contribute the most the Gravitys competitive advantage are
treated fairly. There is also the same paradoxical problem with finance people: if they feel not
rewarded fairly, Gravity could loose its cost advantage (they charge less than competitors) which
would jeopardize Gravitys profits and sustainability.
Limit media attention Again, if I were Gravitys CEO I would avoid making an official public
announcement. Of course transparency is essential for the companys stakeholders, but making
things quietly could avoid a lot of costs as well as any political affiliation.

Monday, March 7, 2016