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The 70K USD CEO At Gravity Payments Case Solution

Solution Id Length Case Author Case Publisher
2232 1463 Words (6 Pages) Mitchell B. Weiss, Michael I. Norton, Michael Norris, Sarah McAra Harvard Business School : 816010
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Gravity Payments was founded in 2004 and it is headquartered in Seattle. Over the years, with its industry experts, the company has established its name as a trustworthy credit card processing and financial services company. The mission of the company is to provide credit card processing services to the businesses at a reasonable rate as Dan Price, the CEO, felt that its competitors in the industry charged a significant chunk from their customers and he “did not want to take advantage of hardworking individuals”. 

Case Analysis for The 70K USD CEO At Gravity Payments

The company and the CEO made headlines and received a lot of media attention when Price announced in 2015 that he was raising the annual minimum wage of his staff at the company to $70,000. This was a huge step in the compensation of the company employees especially when the income inequality in Seattle was skyrocketing and the working class across the United States, including Seattle, was protesting to increase the minimum wage to $15 per hour. In general, according to reports, employees other than senior management had not received a raise in real dollars since 2010 as corporates and entrepreneur bosses had been reluctant in increasing wages and had a tight control on costs to sustain the business (Keegan, 2021). This has had an effect on the consumer spending as people do not get to spend money on home equity and do not get to spend money on things of their choice which can give them emotional satisfaction. 

As far as Seattle is concerned, the income inequality in the city has increased over the years with the Gini Index which shot to 50.4 in the year 2016. This is because, in the corporate hub of Seattle, more capital got concentrated in fewer hands and impoverished people living in the city. As per reports, the average income of the top 20% of households in the city reached up to $318,000 and they took a significant chunk of 53% of overall income earned by the residents in the city (Balk, 2017). Affording a reasonable living in Seattle is more difficult as compared to other cities in the US. Due to the metropolis that Seattle had become, in 2015 the median rent of a one-bedroom apartment had reached close to $3,500 which accounted for around 60% of the average salary of beginner level employee at Gravity Payments (Gee, 2015). 

The case has also highlighted an important reason for the income inequality incorporates in the US. The CEO to worker ratio has significantly increased over the past few years and in year 2013 the CEOs were paid 300 times more than average workers. At the time when Price made the announcement, he cut down on his own salary to give back to his employees and reduce the ratio of CEO to worker salary to a reasonable value. 

The average salary of operational teams in the company was $48,000 before the pay raise which was 18% less compared to the relative income of median household in Seattle. Relative income is described as earning in relation to average income. It is important to study relative income as it is an important economic indicator and behavior of people is terms of consumer spending is influenced by average income levels and when they see happening around (Riccardsson & Mellander, 2017). When the income of a group of workers rises and they spend more, other groups tend to come under pressure and their earning levels are affected by it. On the other hand, absolute income is an economic term which refers to the amount of money that an individual receives as compensation for their work which is generally called as wages or salary (knowledge center, 2016). It is important to study absolute income as the level of income determines the amount of work done and spending of an individual. At Gravity Payments, in terms of both absolute and relative income, it was observed that the operational levels employees had an “attitude of ‘I am underpaid’” as mentioned in the case. Although the absolute income was marked at least at or above minimum wage set by the government but the relative income of employees was less than average households in Seattle which meant that it was difficult for operational level employees to afford a living in the city. 

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