Most people feel they are underpaid. This feeling is (mostly) a product of illusory superiority. The average person can think of at least one individual that out-earns them despite a lack of any obvious qualities on the part of said person that should cause this to be the case. Ergo, they arrive at the conclusion that they’re somehow being shortchanged.
In truth, however, there is a market for every job and most of them have considerably wide pay ranges. This phenomenon reflects the reality that there is significant disparity in the skills and experiences people bring to their jobs. These differences (often) impact performance, and as such have compensable value.
With that said, even controlling for experience and skill-set there are a number of variables that can lead to disparity in pay for two people doing identical work:
Company Pay Philosophy (Job Based vs. Skill Based): Some companies don’t pay a wage premium for skills and education if those tools don’t impact the job being performed. Ergo, two people with MBAs can be doing the same job (that doesn’t require an MBA) at different companies, but if one company pays a wage premium (skill based) for the degree while another does not (job based) then there may be significant disparity between the individual’s wages.
Peer Group : Depending on the peer group and market percentile that a company uses to benchmark wages, there can be dramatic differences in what is considered a “competitive” market rate. Furthermore, some employers are more market sensitive to pay than others – with many choosing to valuate jobs based on their internal worth to the organization, while others look at what a particular skill set or degree could fetch on the open market.
Salary Compression: Sometimes, a company may realize it isn’t paying competitively for a specific job, but if paying new hires at a more competitive market rate would see those hires out-earning longer tenured / more experienced employees, the expense of bringing the entire employee population to market competitive rates may simply be too large a cost for the organization to incur.
Performance: There are sometimes significant differences in performance between two employees doing the same work. Those differences may not be readily apparent on the surface, but this does not mean they don’t exist. A manager will often be in a better position to determine this than individual colleagues observing one another’s performance.
Job Complexity and Scale/ Scope: Often two jobs that seem similar in content may vary considerably in complexity and scale.
Poor Market Data: Sometimes a company may not have a good handle on the market. If an organization has poor market data or lacks staff that can analyze that data to assess competitive position, it can be difficult to know there is a market lag until retention becomes an issue.
Ultimately, I can say from personal experience (and anecdotes from others) that it is easy to go crazy trying to gauge if one is “underpaid”.
Instead, a better choice might be to ask a simple question: Are the wages I’m making allowing me to lead the lifestyle I want?
…If the answer to the above question is “yes” then don’t worry about the rest. There will always be someone, somewhere making more money.
As always, please share your thoughts in the comments section below.
If you have questions about something you’ve read here (or simply want to connect) you can reach me at any of the following addresses:
SomethingDifferentHR@gmail.com OR firstname.lastname@example.org