Not Getting Paid What You Deserve Costs Even More Than You Realize
Anastasia Martin,* a 24-year-old social media manager for a New York City college, will never forget the moment she realized that she was underpaid.
Earlier this year, she was chatting with colleagues who held the same position at neighboring schools when the subject of salary came up. Martin revealed her earnings—and her friends’ jaws hit the floor.
“You’re crazy! Why would you accept a job that paid so little, especially considering everything you’ve accomplished for them?” one exclaimed.
The words stung as the truth sank in: Martin was making $40,000—more than 20% less than the going rate of $49,000 to $62,000.
Many can probably relate to Martin’s pain. According to a 2014 Glassdoor survey, 39% of Americans believe they’re earning less than they deserve.
Sound familiar? Then consider this informational primer your official wake-up call!
There are serious financial and even career consequences to bringing home less than your fair share of the bacon. But here’s the silver lining: It is possible to reverse course...if you make a change today.
Sluggish Salaries: Who Are Today’s Under-earners?
If you’re wondering how so many people ended up with depressed paychecks, you can (partially) blame the Great Recession.
“When the supply of candidates was greater than the demand for work, organizations found themselves in a position of dominance,” says Roy Cohen, a career coach and author of The Wall Street Professional’s Survival Guide. “That sense of corporate entitlement still exists, with many companies only granting a pay bump every two or three years.”
Still, we can’t blame it all on the economy—certain demographics also play a role in under-earning.
Let’s look at the under-earning divide between men and women first. “Women are less willing to negotiate and are less assertive than men,” says Robin Pinkley, PhD, a management professor at Southern Methodist University’s Cox School of Business and author of Get Paid What You’re Worth. “They often anticipate that organizations will accurately evaluate their potential, and pay them accordingly. Men, on the other hand, believe that it is up to them to explain to the company what they’re worth.”
This difference in outlook contributes to a massive earnings disparity: In 2012, women made an average of just 81% of the median income of male full-time workers.
A more surprising group of under-earners? Gen Y. Despite their characteristic confidence and outspokenness, young adults are also at risk of making less than they should.
“Millennials tend to have a strong focus on fairness, with the notion that resources should be distributed evenly,” Pinkley says. “As a result, making the ask during negotiations is very hard for them.”
Of course, the reality is that it’s possible for anyone to land a position that pays less than they deserve—but realizing it may not be as easy as you’d think. To find out how your salary really stacks up requires finesse, since there are both internal and external factors at work.
“[The first step is to] calibrate your performance relative to co-workers,” Pinkley says. “The extent to which you’re bringing true, sustainable value to the organization, compared with others, is your internal equity and should in part drive your paycheck.”
Your yearly evaluation can give you an idea of where you stand, particularly if there’s an assessment scale, such as a one to five rating. You should also take into account any direct, viable feedback you’ve received on projects.
Once you know where you stand within your organization, you can then use that info to determine where your salary should fall on the external market spectrum by comparing it to available data on sites like PayScale or Salary.com.
“Even though the results might not be completely accurate, everybody from job hunters to employers to recruiters consults these sites, so their findings inform the marketplace,” Pinkley says.
And don’t forget to tap your network for more information about the going rates. “Try joining professional organizations, and casually question colleagues there,” Cohen suggests. “Say something like, ‘Off the record, do you know what the range of compensation would look like for someone in a position like ours?’”
The more intel you can gather from a variety of sources, the better you’ll understand your salary sweet spot—and if you need a “get more money” game plan ASAP.
The Long-Lasting Effects of Under-earning
Sure, you know that making less than you should isn’t exactly great for your finances, but you may not realize exactly how much havoc it can wreak.
“Being underpaid tends to be a self-perpetuating function, and those with a lower starting salary will end up making exponentially less over time,” Pinkley says. “Employers tend to anchor your new pay on your old pay. They’ll ask about your earnings history to set a benchmark, and then offer you a standard 10% to 15% more.”
Translation: Accepting a below-market wage for your first job can dog you for the rest of your professional and money life.
Take Social Security, for example. “Your benefits are calculated based on average monthly pay over your top 35 years of earning,” says Eleanor Blayney, a CFP® based in Washington, D.C. “If you’re pulling in less than you should, that translates to a lower Social Security check when you’re ready to draw on it.”
Your retirement plan can also take a hit. Not only will you have less money to contribute, but if you have a company match, your employer will also be contributing a smaller amount to your account, compared to more flush co-workers.
“A salary difference of just $5,000 can very well add up to hundreds of thousands of dollars in retirement savings over your lifetime,” Blayney says.
In fact, assuming a 5% average annual pay increase over the course of a 40-year career, a 25-year-old drawing a salary of $55,000 will end up earning over $600,000 more than someone making $50,000.
And that’s not all. Stunted wages can even sabotage your career growth. “Potential employers use your current salary as a psychological cue to evaluate your value and skills relative to other candidates,” Pinkley says. “It’s a well-proven marketing phenomenon called the brand effect
People assume that the higher the price of a product, the better its quality—and the same holds true when assessing candidates. Even when experience and know-how are equivalent, well-compensated employees are often presumed to be more qualified than lower-paid counterparts.
How’s that for a wake-up call?
Should I Stay or Should I Go? Getting to A+ Pay
We know we’ve painted a bleak picture, but the good news is that there are smart techniques you can employ to raise your salary—pronto.
“To move forward, you must combine assertive strategies with constructive supporting arguments,” Pinkley says. “You also need to have the right timing and solid data to substantiate your request.”
Timing-wise, it’s best to schedule a meeting with your manager a few months before a performance review. “Bringing up a raise during your evaluation is too late because the decision about how to divvy up the pool has already been made,” Pinkley says.
And remember that your case will be stronger if you don’t ask for a hike every year. “Tell your boss that you’re not going to come back to the well very often, so you want a significant boost,” Pinkley says. “I have never been turned down when I’ve asked an employer for something, in part because I don’t make requests very frequently.”
That said, argue for the most generous bump you can defend—the more you can boost your salary in one shot, the better. But keep your request focused on what you’re worth as an employee, rather than what you need to, say, pay your mortgage.
“People are compensated based on performance, not lifestyle,” Blayney says. “Explain what you’ve achieved, pointing out quantifiable contributions, if possible. Then ask what it would take to earn your target amount.”
If your manager responds well, but says a substantial pay bump isn’t feasible in the near future, try to work out a longer-term solution. “Just make sure that you have a clear understanding of what the plan is—the timeline, where you will ultimately end up, and who is involved in the decision,” Pinkley warns. “Organizations can have short memories, and personnel can change.”
On the other hand, if your boss can’t give you a clear path to the salary you want, it’s time to move on.
Of course, once you’re on the hunt for a new job, the challenge is to avoid the ripple effect of being continually pegged for less than you’re worth. But heed this warning: “You shouldn’t lie about your current wages,” Blayney says, “because the hiring manager might ask your references or former employer to disclose your salary.”
Instead, you can be upfront about the fact that your paycheck isn’t cutting it, Cohen says, by saying, “With all due respect, the only reason I’m looking is that I’m underpaid, so that information isn’t pertinent because I’m working below market.”
When one of Cohen’s clients recently used this technique, the hiring manager said she understood and didn’t press the matter—proof the right employer wants to hire happy workers who know exactly what they’re worth and aren’t afraid to go after it.
*Name has been changed.
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