Lessons from Gravity: Murphy’s Law of Compensation

Dan Price: The Robin Hood of Raise Giving, or the Sheriff of Silly Comp Calls?

Thanks to massive publicity, we’ve all got a front-row seat for the Murphy’s Law of compensation scenarios unfolding as we speak. Quick refresher: Dan Price, the CEO of Gravity Payments, announced in April that he would be taking a pay cut and raising the minimum salary at his company to $70,000 over the next three years. What started as a noble intention has spiralled into a compensation can of worms. At least two employees have left because of the two biggest conundrums of implementing an equitable pay system: upper-level workers didn’t see the same type of pay increase as the less qualified, lower paid workers, and workers who did receive a pay increase were concerned that their less motivated co-workers wouldn’t put in the same effort as they do. These are both legitimate concerns and are two of the most significant issues with equitable compensation practices.

We’ve all Had a Dan Price Moment

All things considered, we sympathize with Dan Price. It’s an unfortunate thing when your well-intentioned efforts at creating an equitable compensation system go horribly wrong. I think there are many of us who have been there on a micro scale. We try our best to determine what’s fair. Then perhaps we want to bring someone similar onto our team but they require a higher salary than the rest of the team is receiving. Or maybe we pay someone what we think they deserve and then hear of their financial troubles. Or worse yet, our system falls flat on its face and not only leaves people wondering whether or not it’s actually equitable, but it also demotivates them completely.

Cracking the code

Compensation is a confusing issue. In a time when everyone is talking about pay equity and equitable pay, many companies are struggling to figure out what it means for them. Some are overhauling their systems and moving to one that pays all employees equally, but as we’re finding out, even that may not work. The problem is that these programs don’t motivate every employee. Many times, they do the complete opposite and leave high performers feeling de-valued because of how hard they worked to get there and how little their co-workers put in to get to the same place. On the other end of the spectrum, paying low-performing or minimally qualified employees a higher salary just for equity’s sake most likely won’t motivate them to give more than they were before.

According to PayScale’s 2015 Compensation Best Practices Report, nearly 21 percent of employers expect to increase the minimum wage as part of their compensation strategy for 2015. This could be a really good move for these companies, or their new plan could go down in flames.

Getting it right

Unfortunately, this is new territory for most companies and there aren’t a ton of models out there on how to do it right. However, one thing that most will agree on is that even equitable pay systems must also be accompanied by different reward and incentive programs that motivate low performers and promote a sense of fairness among top performing employees.

Determining the right pay increase, whether it’s increased percentage amounts as part of your annual review process or a bonus payout, it is a tricky thing for any company. The old saying “measure twice, cut once” comes to mind, meaning that before you make any big moves such as the one Gravity Payments made, you should consider both the positive and negative ramifications of doing so.

What’s fair and what’s not?

We want to know what you think the good and bad sides of equitable pay structures are. Tell us in the comments below.

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