Navigating the Complexities of Salary: Are You Underpaid?
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Chapter 1: Understanding Salary Perceptions
In any salary range, it's common to hear individuals asserting they are underpaid. This sentiment has gained traction, highlighted by viral instances of interviewers in San Francisco querying tech professionals earning $350,000 annually about their satisfaction with pay.
You may have encountered the phrase "golden handcuffs," which describes lucrative compensation that makes employees hesitant to leave their positions. Many employers often argue that their team members would struggle to secure better salaries elsewhere.
But what does being over- or underpaid truly signify within a market framework? By applying a conventional pricing model, we can dissect the dynamics between employers and their employees.
This article seeks to answer the following questions:
- How can you determine if you're genuinely underpaid?
- What methods can facilitate meaningful discussions about salary between employers and employees?
- What steps should you take if you're dissatisfied with your pay?
A Brief Overview of Value-Based Pricing
Value-Based Pricing is a method that sets prices according to the perceived worth of a product or service from the customer's perspective. The accompanying diagram illustrates the relationship between Customer Willingness to Pay (WTP) and Business Willingness to Sell (WTS), which defines the price range.
Charging above the WTP may lead to customers opting out of a purchase. Firms can enhance WTP by improving their offerings or by reducing costs, thereby passing savings to customers or boosting their margins.
For further insights into value-based pricing, additional resources are available.
Applying Value-Based Pricing to Salaries
In the context of salary, similar principles apply. Your pay is not influenced by personal expenses, such as an increased mortgage or additional school-aged children. Instead, it is determined by the value your employer attributes to your contributions.
At the top of the value spectrum lies the perceived value for your employer. A significant disparity between this and your salary often results in greater satisfaction for them and improved margins for the company.
To simplify, the willingness to work reflects not your living expenses but the point at which it becomes worthwhile for you to commute to your job. In regions with supportive unemployment systems and a thriving job market, this threshold may be considerably higher compared to areas with less job security.
For instance, in Switzerland, mandatory unemployment insurance provides 70% of a previous salary if one loses their job. Consequently, a managerial employee earning $150,000 annually may be reluctant to accept a $70,000 position in retail, even while unemployed. Their willingness to work might kick in at a figure above $105,000.
Ideally, there should be a gap between your willingness to work and your salary. The larger this gap, the more content you are likely to be. If you feel underpaid, it suggests you earn more than your willingness to work, yet perceive a substantial difference between your salary and your perceived value to your employer.
What Comes Next? Validating the Gap
If you suspect that your salary doesn't reflect your value to the company, you can validate this belief through three approaches:
Construct a Business Case Highlighting Your Contributions
Can you draw comparisons between your productivity and that of your peers? How have you directly enhanced the company's profitability? This is particularly straightforward for roles in sales or account management, where clear performance metrics can be tracked throughout the year.
Present Market Research Indicating Below-Market Salaries
The aim here is to persuade your employer that attracting someone with comparable qualifications for the same salary would be challenging. They likely wish to avoid the expenses involved in recruiting and training new talent.
Obtain an Offer from a Competing Firm
This serves as the most compelling evidence, demonstrating that you can secure a higher salary elsewhere. However, this approach can be time-consuming and may be interpreted as disloyalty in certain work environments.
While this strategy can bolster your confidence, it might also reveal that your current role has elements you value more than you realized. You may discover that you can indeed seek a pay raise externally, yet prefer to remain with your existing team.
These methods focus on negotiating a larger share of the value you already contribute to your employer.
Enhancing Your Perceived Value
It’s worth noting that the aforementioned strategies may not always yield the desired outcomes. You might begin interviewing only to find that better offers come with sacrifices, such as diminished work-life balance or fewer family benefits.
This situation may indicate that you are not actually "underpaid" but rather that your perceived market value is lower than you anticipated. You might not possess as much negotiating power as you believed. Nevertheless, this doesn't mean you should abandon the pursuit of a salary increase; rather, it signifies a need to work on enhancing your perceived value—your career capital.
As an employee, continuously improving the perceived value of your skills is essential. This approach not only boosts employer satisfaction but also increases your salary potential.
The benefits of having a high perceived value extend beyond financial gain; they include securing favorable working conditions, collaborating with like-minded individuals, and finding joy in your work.
A strong perceived value provides job security, allowing you to weather layoffs, economic downturns, and relocations with resilience.
What Actions Can You Take to Elevate Your Perceived Value?
Engage with Your Manager About Growth Opportunities
Discuss with your manager or leadership the skills that will be in demand over the next year. Are they seeking someone to manage data? Are they exploring a new business area? Being proactive in identifying what creates value can lead to opportunities.
Identify Skill Gaps from Job Descriptions
Review the companies that offer competitive salaries and assess the skills they seek. For example, software developers might find a demand for specific tech stacks, while sales personnel might identify a need for proficiency in Spanish. Understanding these requirements can guide your skill development over the next year.
Consider Transitioning to a High-Value Role
Don't hesitate to broaden your search if you find a role with higher earning potential. For instance, a retail customer service representative might transition to a customer success role in tech for a better salary.
While identifying skill or knowledge gaps may take time and networking, pivoting your career is often easier than it seems. A diverse career experience can yield benefits down the line.
This article aims to equip you with data-driven insights to assess your compensation and alleviate some of the emotional challenges that arise when discussing salary.
About the Author
With six years of experience transitioning from recruitment to data analytics and subsequently to product management, I bring a unique perspective to the topic of salary. I hope you found my insights valuable, and if so, feel free to explore additional articles I’ve written on the subject of work.
The first video, "What To Do If You Think You're Underpaid," offers practical advice on addressing salary concerns and validating your worth in the workplace.
The second video, "How To Handle Being UNDERPAID At Work & Increase Your Salary FAST," provides strategies for negotiating raises and improving your compensation quickly.