Do You Think You're Underpaid? What Your Work Is Really Worth

By Andrea Coombes /From Marketwatch

A majority of workers in a recent survey say they plan to leave their jobs, with many citing low pay as the reason. But market data shows most are paid the going rate or more for their work, according to a new survey by Salary.com.

Sixty-five percent of those surveyed say they're going to look for a new job in the next three months. Of those, 57% say it's because they're underpaid, according to the survey of more than 13,500 workers (not a random sample, as it includes visitors to Salary.com, plus others who've never been to the site).

But Salary.com says just 19% of that group is underpaid, while 17% appear to be overpaid and 34% are fairly compensated when compared with the firm's market data on similar positions.

"The difference between what someone is paid and what they think they should be paid is based on differences in perception of value ... and performance," said Bill Coleman, senior vice president of compensation at Salary.com, a compensation software and data provider based in Needham, Mass.

"Every company has people that say, 'Why am I getting paid less than Bob?' The reason is because the companies ... actually value Bob's contribution more," Coleman said. "We all think our own performance is better than it really is."

Salary.com bases its claim that workers are paid fairly on a comparison of what most companies pay for similar work.

"We have a database of the market values of thousands of jobs in different industries, different company sizes, different locations. We use that to help employers set their pay policies and pay people fairly," Coleman said.

Wages stagnating

Still, Coleman conceded a worker's perception of pay may have little to do with market averages and more to do with stagnating wages.

When Salary.com says people are overpaid, he said, "we're talking relative to other people who are doing effectively the same job based on current pay practices."

But nationwide, median-income earners saw hourly wages rise just 2.4% from 2003 through 2005, and low-income earners saw a rise of just 2.1% -- and inflation ate away those gains, according to the Economic Policy Institute, a liberal economic think tank in Washington. See the EPI data.

"Lack of salary increase does create the belief that you're underpaid, or certainly that you could do better elsewhere," Coleman said.

Then, "when you test the market, you find out you could get more money to go elsewhere, and that confirms people's belief that they were underpaid," Coleman said.

"The problem with that is often companies will slightly overpay to recruit you," he said. "I'll give you an extra 5% or 10% today, and then I'll let your peers catch up to you."

Title vs. job description

Another factor that contributes to workers' sense that they're underpaid: Their titles exceed their job functions, Coleman said.

Salary.com conducted telephone interviews with some of the survey respondents to find out the nature of their jobs, and to assess whether job titles matched job functions.

About 30% appear to be overtitled, Coleman said.

"A massive misconception out there is people ... assume that job titles are standardized," he said. "'If I have the title of manager of customer service, then that's my job and it doesn't matter where I work, other people with that title will have the same job as me.' That's not true."

For instance, a customer-service manager at a large department store has a different job than one who works at a small company with no other customer-service employees.

"People impute a lot of value to the title and so they'll come to Salary.com and say, 'What does a manager of customer service get paid? Oh, I'm way underpaid,'" Coleman said. Instead, "you have to read your job description" and match job content to job content.

Negotiation matters

There are situations where people doing similar jobs at companies earn different incomes -- hence, some workers' gripes about "Bob earns more" -- because some negotiated better salaries when they were hired, Coleman agreed.

"You can have a gap when people start, depending on their negotiation, but a well-managed organization will smooth those out quickly," he said.

"Companies do look at internal equity issues," he said. "If they offer me $50,000 and you get $48,000, the next pay review cycle the organization will look at that," he said. "If it turns out our performance is the same, it's very likely your salary increase will be much bigger than mine."