Are You Getting Paid What You Are Worth?

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getting paid what you are worth

Are You Getting Paid What You are Worth?

It’s an interesting question because we all have opinions about this.

I definitely thought I was getting overpaid during my first 9-5 job!  Ironically, just a short year later, that sentiment shifted 180 degrees and I asked for a raise.

Later on, when I was my own boss and running my IT company, I felt I was getting paid appropriately.  However, I had a chunk of employees that felt their compensation need an adjustment upwards.  In some cases, I agreed, and other times I did not.

So, I implemented a compensation model that paid our employees on performance metrics (also known as pay-for-performance, or PFP).

Pay-For-Performance

Because the majority of my employees were technical, I decided to create a PFP compensation model that would incentivize efficiency, excellent customer service, and initiative.

Let’s say we were paying an I.T. tech $70,000.  We’d take $40k and use that as a base.  The remaining $30k would be used as a target performance metric of a satisfactory job.  Depending on how the tech did that quarter, their compensation would be adjusted and prorated for the coming quarter.

It actually made a lot of sense to us as the management team and the employees seemed to like it.

However, that didn’t last long.  After an initial push towards achievement, the techs seemed to get a bit restless and stopped pursuing the higher incentives.  It was perplexing to me because why wouldn’t you want to max out your potential and do your best work?

Part of the problem was the PFP model became a bit too complex.  Our techs couldn’t follow it that easily and felt slighted when it came to their quarterly reviews.  So, after a couple of years of this model, we decided to move back to a more traditional model with a larger bonus structure based on performance.

Working Psychology

So, why is it there is typically a discrepancy of what people believe they should actually be getting paid?

Where does that discrepancy come from?  And, does it actually affect the quality of the work we do?

Once we moved back to a traditional model, I often wondered if that was the best efforts we were going to get from our employees.

Whether its valid or not, many people feel a certain amount of entitlement from their employer.  I observed that most believed they are being “underpaid” vs. “over-paid”, even if their salary was in line with going rates.

Our young professionals no longer assume they’ll be working for a single company long-term, rather they assume they’ll be working at least a few different jobs as they grow their career.  So, if their position isn’t growing, it’s dying, and potentially an inflection point to jump.

I don’t think there is anything wrong with that per se, but keeping that mentality puts you directly in conflict with the organization trying to groom employees for the long haul.

Benefits vs. Must Haves

Another area that I had trouble navigating was providing extra benefits in the office.

We thought we were a “cool” tech company by providing free drinks, snacks, and lunch once per week.

However, over time, employees began to take some of these “benefits” for granted and even complained about them insisting there should be even MORE.

As the employer, I felt slighted because these costs were company directly out of our company coffers, but we also wanted to keep the employees happy.

So, where do you draw the line?

And, as an employee, how much is enough to keep you happy (long-term)?

Different Types of People Get Paid Differently

One other observation I noticed with my employees, was that they best techs didn’t necessarily make the most money.  Why?

Well, the best techs didn’t keep asking for raises which made them mini profit centers.  These guys were like gold and only 20% of the techs exuded these qualities (no matter how much we interviewed and hired).

Certain employees were also better at negotiating, while others were more content to wait for a traditional annual review before asking anything new.

The employees that voiced their concerns the most typically got paid the most.  However, they also had to put up results, otherwise… bye-bye.

Compensation Will NEVER be Equitable

In the end, I realized that compensation will never be equitable.

As much as your employer does to try to keep everyone happy, it’s simply not possible.  Everyone’s situation and timing are a little bit different.

Rather it’s best to align your own efforts with your company’s to ensure you are both growing from the end result you are both after.

If you do not, you are only cheating yourself and getting caught up in the rat race.

Back to the Original Question

So, are YOU getting paid what you are worth?

Here is some food for thought.

You are getting paid EXACTLY what you are worth!

How do I know?  Because you are where you are and accepting a paycheck for what you do.

The good news is this.  You can change that!  You can choose to not accept what you’re getting paid and do something about it.

If your job or position doesn’t support your ideal vision, then manifest it.

Final Thoughts

Are you getting paid what you are worth?  What should you be getting paid?  How do you feel about pay-for-performance incentives?  Do they work?

For those that FIRE’d already, how did working for a paycheck affect your decision to retire early?

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Michael

Hi, I have been blessed to take an early retirement in my mid-30's so I can focus on becoming a better father, blogger, and investor.

My goal is to help you find your personal path to financial freedom, and to enjoy the entire journey.

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18 Comments on “Are You Getting Paid What You Are Worth?”

  1. It’s funny because I’ve always felt like I was overpaid. I’ve been really fortunate that salary negotiations worked in my favor (a lot of that also comes from gaining tons of experience in my industry early on). But I do agree, from an employee side, that it’s easy to feel entitled to extra benefits from the company. Sometimes I think it’s more important to focus on a good culture over tangible benefits like a free lunch. If your culture is good enough, people will work for you without those little extras because they feel satisfied.

    1. MPP, that’s wonderful that you find yourself on the other side of this equation. You must have worked hard to develop the needed experience early on. 🙂

      I agree with you on culture. It’s a delicate balance, but if done right it can rally the troops without additional compensation. That’s one thing I failed to mention here, performance is not always about $$.

    2. Feeling like you’re overpaid, I think, sounds like a good problem to have. I’ve been asking myself the same question raised in this post but don’t really know the answer. I feel like I’m a bit underpaid but also think it may be commensurate with the work that I do, not my true capability.

      I think one of the best ways to find out what salary you deserve is to apply for multiple jobs at different pay points. If you can’t totally figure out what job you’re a good fit for, the employer may be able to help you. At the end of the day, their HR dept’s job is to do just that.

      1. Ms. FAF, I really like your distinction here. Getting paid what you’re worth boils down to two factors I should have clarified better. 1. Are you getting paid properly given the job you are performing? And, 2. Are you getting paid at the level that matches your potential. There are definitely some HR depts that are good at this, but more that are not.

  2. Such a thorny question for a Tuesday, Michael! I believe it’s not so much that we are paid what we are worth, as much as it is that we are paid for the equivalent of what we are capable of producing in a given role. As you said we accept a paycheck for what we do. So in going with that I would say I am paid well for the position and responsibilities I fulfill, but not nearly enough of what I’m worth 🙂

    1. Fantastic point, Amy. Producing is huge when it comes to creating a win/win for an employee and an employer. Glad to hear you are well paid for your position!

  3. I feel like I’m underpaid. I recently was in a meeting with 25 other people and our examiners and I was definitely the least paid person in the room by 20-30k. I was speaking and answering questions for 30 minutes to an hour, while some of my other teammates weren’t asked a thing. While I’m just turning 25, I hope there’s something in the making behind the scenes…

    1. I’ve been in your shoes, Erik! When I was starting out, I thought I was getting overpaid, but quickly shifted that thought when I found out I was the smallest salary in the entire company by 20%. I also was more outspoken and eager than my fellow colleagues. But, not too worry, you’ll soon find the cream rises to the top and associated salaries as well. 😉

  4. Great post, Michael! I love your point that we are all paid exactly what we’re worth because we accept the job and the paycheck. i am fortunate enough to have a good salary that is sufficient to pay the bills each month, but I have worked hard for years to put myself in this position. I think that pay-for-performance programs can be a great tool in industries where there is a measurable, tangible activity being performed. I know I would work much harder knowing it would have a direct impact on my paycheck. Thanks for sharing!

    Ryan

    1. Thanks for your thoughts, Ryan! Working hard over the course of a few years is definitely one way to ensure a good salary. Employers aren’t dumb and want to keep the “best” employees happy. It’s the guys that are “wishy-washy” that through them for a loop! PFP is definitely one way to bridge that gap with those types of individuals and reward the best ones. Sounds like you’re in the later group. 😉

  5. Very interesting to hear the boss’s perspective! When you first mentioned PFP, I knew it wasn’t going to end well. Seems most people don’t respond that way.

    I definitely recommend the book Drive for anyone in the manager position: https://www.amazon.com/Drive-Surprising-Truth-About-Motivates/dp/1594484805

    And for someone in the employee position, Ramit Sethi has some great stuff on how to ask for a raise: http://www.iwillteachyoutoberich.com/guides/ultimate-guide-to-asking-for-a-raise-and-negotiating-salary/

    1. Hey Brian, I wished I had read “Drive” back before I implemented the PFP model! It would have saved me a lot of heartaches. 😉

      One the primary reasons this model doesn’t work for the masses is that people are emotional creatures. We tend to make decisions based on emotions and then back it up with data, vs. the other way around (even though this way seems more logical).

  6. Interesting prospective from a business owner’s side. I do agree with your final assessment though, you are worth what you are getting paid. Otherwise you would not be getting paid.

    I am in medicine and the modern trend is to pay for performance. What is our performance measures? Well things like patient satisfaction, timeliness on chart completion, and frequency which we make contact with patients are all monitored. Do they make for a better physician? Likely not. They probably lead to increased burn out but some of it is important to implement…

    1. EJ, that’s interesting to hear this is being implemented in medicine. After my own fumbles with PFP, I agree it may not make for a better physician. Like many things, I think balance is the best approach. People’s demeanors ebb and flow, so being flexible is important too.

  7. I’ve seen this from both sides as I both negotiated my own salary as well as determined everyone else’s once I became the boss. In both what I approved for others and what I negotiated for myself the only tactic that worked consistently was how much the loss of a key employee scared the decision maker. Fair or not if you are average or easily replaced then companies will not spend more than average on your compensation. It is the same reason the quarterback gets the big contract. It is neither fair nor unfair, it is just economics 101. The market sets your value, not how hard you work, not how nice you are and not how much you need a raise.

    1. Thanks for the comment, Steve. I agree. Teams are not created with players that are all equal. So, it’s always beneficial to make yourself as valuable as you can in your particular position.

      In the beginning, great marketers (interviewees) can create discrepancies in their market salaries (i.e. too high). Over time this is adjusted, but those anomalies can last for quite awhile sometimes.

      If I ever run a company with employees again, I’m going to stick to my guns with – hire slow, fire fast!

  8. I am definitely underpaid. How do I know? Well the big reason would be the company even told me as much… My company for whatever reason posts pay ranges for given jobs and tells employees where they sit on that scale. Below a certain point it triggers an almost automatic raise.

    But I digress. Here is the thing about pay for performance. The problem is studies have shown that people get use to the bonuses and raises they receive. As such its really the change in raise or bonus not that actual raise or salary that motivates. That presents a problem for pay for performance measures. Usually your performers are relatively consistent. You can’t grow their salary every year by a larger change.

    1. Whoa, that’s interesting FTF. I’ve never heard of a company listing the pay ranges, although we do see that often with government jobs.

      I think you hit the nail on the head. The performers perform regardless of incentive. They simply adhere to a better self-standard.

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