Dan Price read in an article that employee happiness will increase when they are less stressed due to financial problems (Cohen, 2015). The result of this article is that Price publicly declared a planned increase in the compensation income of Gravity Payment employees, which will reach a minimum of $70,000 at the end of three years (Cohen, 2015). The problem with this perception is that it is contradicted by the study of Stevenson and Wolfers (2009, p.33) where the level of employee happiness within the United States will not increase despite an improvement in their income. Other studies such as Oishi et al. (2011, p.1095) revealed that the reason for the increase in happiness by American employees was actually due to a negative perception with regards to national income inequality. One alternative reason that was given is that the improvement in employee happiness was due to a perception of fairness and general trust especially when the respondents receive what they believe to be a more fair income (Oishi et al., 2011, p.1095). This perception however is more prevalent in the lower-income respondents of the study when compared to the higher-income respondents (Oishi et al., 2011, p.1095).
Equalizing Employee Compensation
The level of happiness for higher-income employees in Gravity Payments are perceived to be only minimally improved since Maisey McMaster, the company’s financial manager, believe that the pay hike declared was unfair for the older and more experienced employees (Cohen, 2015). The primary reason given by McMaster was that pay equalization was given to the new employees or those who are not equipped to handle the job (Cohen, 2015). This is because the proposed salary increase for all Gravity Payments employees from below $50,000 to an ideal of $70,000 annually is not considered to be operationally sustainable by McMaster (Cohen, 2015) especially with the current financial performance of the company.
The older and more experienced employees such as those in the supervisory position had revealed that they had already sacrificed a portion of their personal life in order to be promoted to a higher management level within Gravity Payments (Cohen, 2015). This is because the culture of Gravity Payments is to work hard and to play hard (Cohen, 2015). Unfortunately, the salary compensation of both new and experienced employees will be the same, which can result to a potential decline in employee morale especially with the more experienced employees. This was concurred by the study of Klomegah and Fleming (2014, p.2) where they revealed that pay inequality within organizations are primarily dependent on the level of education, experience, and working period of their employees.
Unjustified Compensation Increase
This perception was also revealed by some Gravity Payment employees who have the skills, education, and experience for their job and were not affected by the proposed pay hike despite the fact that they were working harder and longer than the lower skilled employees (Cohen, 2015). The effect of the unfair increase in employee compensation resulted in a number of employee resignations (Cohen, 2015) with the potential reason that highly motivated employees are given the same pay hike as the less motivated employees resulting to a decline in operating productivity and employee morale.
In order to prevent a decline in employee morale, McMaster suggested a more equitable salary increase to Price, which would have been designed to increase the employee compensation based on an improvement in both skill and experience of the employee (Cohen, 2015). This approach is perceived to be the same employee strategy used by other companies and is considered as traditionally more acceptable to both new and old employees (Klomegah and Fleming, 2014, p.2). Pay inequality is usually not known by the company employees since the National Committee on Pay Equity revealed that most employees are unaware of the disparity between co-employee wages due to the fact that the wage data are normally kept secret by the company management (Klomegah and Fleming, 2014, p.2).
Employee External Expectations
Employees that were given a pay hike despite their inexperience and skill revealed that their level of stress was increased due to external expectations not only by other companies but other individuals and groups as well (Cohen, 2015). The reason for this is that employers that give a better employee compensation may expect they to produce higher revenues, better profits, and more work commitments (Weise, 2015). This is because Lee’s (2000, p.17) study revealed that employees given a compensation increase are perceived to have a higher work motivation and commitment. This was concurred by Gravity Payment equipment team supervisor Jose Garcia since the salary increase improved the financial security of his family and resulted to a higher work commitment (Cohen, 2015).
The main issue contested by the older and more experience employees is that newly hired employees are usually not trained or skilled enough for their jobs, which can result to increased stress levels (Lee, 2000, p.18). The level of stress within the workplace had significantly increased after Price declared the employee compensation hike as revealed by administrative assistant Stephanie Brooks (Cohen, 2015). Brooks had only started working in Gravity Payments for two months and believes that the wage increase should not have been applicable to her since she does not deserve it due to inexperience and limited skills (Cohen, 2015). The result is a higher level of stress, which was further worsened by the relentless pace of company operations due to the increase in new customers (Weise, 2015).
Relentless Work Pace and Stress Levels
The higher number of new customers increased the working hours of the Gravity Payment employees, which were currently averaging to around 80-hours per work week as concurred by the sales manager Leah Brajcich (Cohen, 2015). The increase in work was primarily due to customer complaints especially from the affected customers (Cohen, 2015). Two of the most significant questions asked by Gravity Payment customers were: (1) if there will be future increases in the service fees, and (2) a possibility of service efficiency declines (Cohen, 2015).
The Price Effect
The above examination of the company’s internal and external perceptions with regards to the compensation increase implemented by Price revealed that there are both positive and negative reactions. The new, unskilled, inexperienced and underpaid employees are thankful for the compensation increase but there are implied consequences such as a perceived increase in work motivation, which is believed to increase their level of stress. This is because these employees believe that they need to work harder in order to adequately match the generous compensation received.
The number of dissatisfied and disappointed employees, customers, and other business owners are higher. The reason revealed by the employees is that employee morale decreased since the dedicated and hard-working employees are being paid the same as the less motivated employees. The Price effect resulted in a perceived volatile company operation since some customers have left while a higher number of clients were accepted. This is because the company needs to adapt to key employee changes along with the changes in the nature and number of the current clients being handled. The long-term result of the Price effect is still uncertain especially since both clients and employees need to adapt to the current company operations while being under intense scrutiny from external individuals and groups.
References
Cohen, P. (2015). A company copes with backlash against the raise that roared. New York Times. Retrieved from http://www.nytimes.com/2015/08/02/business/a-company-copes-with-backlash-against-the-raise-that-roared.html
Klomegah, R. and Fleming, N. (2014). Pay inequality: A comparative analysis of pay inequality in the United States by selected correlates. The Journal of Public and Professional Sociology, 6(1), 1-26.
Lee, D. (2000). Managing employee stress and safety. Lee and Associates. Retrieved from http://www.memic.com/Portals/0/docs/Safety/ManagingStress.pdf
Oishi, S., Kesebir, S., and Diener, E. (2011). Income inequality and happiness. Psychological Science, 22(9), 1095-1100.
Stevenson, B., and Wolfers, J. (2009). Happiness inequality in the United States. Journal of Legal Studies, 37(2), 33-49.
Weise, K. (2015). The CEO paying everyone $70,000 salaries has something to hide. Bloomberg. Retrieved from http://www.bloomberg.com/features/2015-gravity-ceo-dan-price/
