Let’s be clear: your employer will pay you as little as they can get away with.
Milton Friedman’s shareholder value doctrine dictates that companies prioritize profits above all else and that increasing shareholder value is their ONLY responsibility.
This, naturally includes minimizing labor costs.
In other words, if you don’t fight for your income, you’re setting yourself up to be exploited – by a system specifically designed to minimize labor costs.
Ultimately, your career advancement and financial well-being depend on your ability to advocate for yourself.
Which means, you need to be focused on maximizing your returns.
Are You Actually Being Underpaid?
Before you march into your boss’s office, you need to determine if you’re truly underpaid. Simply suspecting you are undervalued isn’t enough; you need concrete evidence.
(Note: once you have evidence, you’ll have useful ammunition to ask for a raise)
Research Your Position and Salary
Start by comparing your salary to industry standards. Use resources like the Bureau of Labor Statistics and Glassdoor to get benchmarks for your position (both for your title, as well as for similar titles).
Also, consider your experience, education, and location. Websites like PayScale and Salary.com provide more personalized insights based on your specific circumstances.
When it’s all said and done, you want to have crystal clarity about your compensation relative to the market.
For Example
Take the story of Emily, a software developer with five years of experience. Emily suspected she was being underpaid but wasn’t sure. She researched salaries for similar roles in her city and found out that the median salary for her position was $85,000, but she was only earning $70,000. Armed with this specific data, Emily knew she was indeed underpaid by $15,000 annually.
Research on Underpaid Employees
It is also worth knowing that most employees are systemically underpaid.
As a starting point, we already know that most employees feel underpaid. A study by Payscale reveals that nearly 66% of workers feel they are underpaid. Sometimes this perception is inaccurate. Other times, it is validated by market data.
But if you take a step back and look at long term trends, the problem of underpayment becomes much more obvious.
The Economic Policy Institute highlights that despite modest wage growth for many workers, there is still a significant gap between worker pay and productivity. From 1979 to 2019, net productivity (how much output is produced per hour of work) grew by 64.7%, while the hourly pay grew by just 14.8%. This demonstrates, many employees are not receiving compensation that reflects their increased productivity.
Also, a report from the National Bureau of Economic Research (NBER) provides evidence that many workers are paid below their marginal productivity. In other words, they are generating more value for their employers than they are compensated for.
Keep in mind, this “wage suppression” is particularly pronounced in sectors with lower wage transparency and weaker labor bargaining power – which is another hint for your hidden negotiating power.
Long story short, we have a systemic problem: Employees get far less out of the work arrangement in terms of value, compared to capital. This is not some socialist talking point, it’s just a side effect of the power dynamics at play. Our system prioritizes capital over labor.
But… Forget about the system..
What’s more important is… What are you going to do about it?
Next Steps
These findings highlight the importance of negotiating tooth and nail for your highest possible salary, while also demonstrating that these negotiations have real bargaining power.
That being said, we won’t sugar coat it… The picture is not good. There is a reason why employers can get away with paying this little…
Let us explain…
How Salaries Are Really Priced
Salaries aren’t just numbers pulled from thin air. They’re the result of supply and demand dynamics in the labor market. (Which is also why we spend an entire module going into the details of demand and how to capture it to boost your career in Launch Your Career)
While this is a gross simplification: High-demand skills and low supply drive up wages. Conversely, if many people can do your job, your bargaining power diminishes. And lately (not years, decades – big picture), outside of specific highly-skilled areas, the competition has been growing, driving down wages.
Understanding this fundamental economic principle will help you navigate salary negotiations with a clear, strategic mindset…
For instance, tech roles like data scientists and cybersecurity experts command high salaries due to their specialized skills and high demand. In contrast, roles with a larger pool of qualified candidates – like customer service reps or admin assistants – see more moderate pay, or even greater wage suppression.
By the way – it’s not about the difficulty of the job, or the technical challenges involved, it’s about the availability of workers.
In other words, your replaceability determines how much you get paid.
Top Performers: Unlocking the Hidden Bargain
Of course, the second dimension to consider beyond replaceability is performance, which you should know about…
Most employees get paid roughly the same for the same job title. Sure, top performers often receive higher pay than average performers, but this additional pay rarely exceeds 40%.
But here’s the kicker: top performers don’t need to settle for just a modest increase in pay. The real “Big Secret” lies in understanding that top performers are actually a bargain for employers, even if they were paid double the average salary.
Remember: top performing employees happen to be ~300% to 1000% more valuable to their employers in terms of net revenue output, and any employer that tracks numbers knows this.
As a result, according to Dr. John Sullivan, many employers are – secretly – more than open to negotiating higher compensation for their top performers. However, the majority of employees don’t even know how to ask for it!
In other words, there’s a significant opportunity for top performers to leverage their value and negotiate for higher pay. From an employer’s perspective, it’s much better business to pay you 50% more and keep you, when you are generating 10x the results. (Hint: why do you think salaries are kept private and opaque?)
What to Do When You Are Underpaid
Now that you understand how employees get paid… Let’s for the sake of argument assume you are being underpaid, and discuss next steps:
Figure Out How Much You Are Worth
First, do your homework.
Use salary calculators and industry reports to determine your market value. Knowing your worth is the cornerstone of successful negotiation.
Websites like PayScale and Glassdoor provide detailed salary reports based on job title, location, and experience.
Of course, don’t just stop there. Network with industry peers to gain insights into their compensation packages. You can learn important numbers that lead to tens of thousands of dollars of value in negotiations, by having simple conversations during industry meetups and happy hours.
Remember: in casual settings, people are much more open to discussing numbers and revealing how things really work… Talk off the record, before talking on the record.
Build Your Case
Make your case. Use our salary increase justification examples to structure your argument. Focus on metrics that matter to your employer, such as revenue growth, cost savings, or successful project completions.
This is where you need to be shrewd, specific, concrete and tangible.
Anticipate Objections and Handle Them
Prepare for potential pushbacks. Whether it’s budget constraints or timing issues, have responses ready. This shows that you’ve thought through your request and are prepared to discuss it rationally.
Create a Written Script
Draft a clear and concise script for your negotiation. You won’t take the script into the negotiation, but you will use it to prepare.
Having a script ensures you cover all critical points without forgetting important details. Your script – at a minimum – must outline your achievements, the market data supporting your request, and your desired salary range. This preparation helps you stay focused and hold strong onto your position when under pressure.
Request a Meeting With Your Boss
Once you have your script ready, request a meeting. Here’s a template to get you started:
Subject: Meeting Request to Discuss Compensation
Dear [Boss’s Name],
I hope this message finds you well. I would like to schedule a meeting to discuss my current compensation and explore potential adjustments. Please let me know a convenient time for you.
Best regards,
[Your Name]
It’s best to keep this short and specific. You aren’t making your case, you are asking for the opportunity to make your case.
Also, choose a time when your boss is less likely to be stressed or distracted. Early in the week or during less busy periods is better.
Pro Tip: It’s general courtesy to give your boss a heads up before launching into a salary negotiation. While catching them off guard and starting this conversation when they’re not expecting can seem advantageous, it can also come off as rude and hurt your relationship.
Rehearse
Practice makes perfect. Engage in mock negotiations. (Our events provide opportunities to practice with peers and mentors.)
Keep in mind, this type of rehearsal is not just about getting a positive outcome in a specific negotiation, but about developing core negotiation skills so that they become second nature. Eventually, you’ll arrive at a point where you don’t even need to write a script or read a guide like this. But getting there takes work. Role-playing different scenarios helps you get there faster.
Develop a BATNA (Best Alternative to a Negotiated Agreement)
Be ready to walk away if necessary. This applies to all negotiations.
By the way, this doesn’t mean you should quit impulsively, but mentally prepare yourself to leave if your needs aren’t met.
Also, staying on the job market and continuously looking for better opportunities, even when employed, gives you leverage. Continuously network and keep an eye on job openings to maintain your market value.
Pro Tip: We teach our students how to automate this “remaining on the market” during the Launch Your Career program.
Choose the Right Timing
Ask for a raise when your contribution is most visible. For instance, if you’ve just completed a major project successfully, your value is evident. Similarly, if your boss is personally relying on you for an upcoming critical task, because their raise is on the line – you can leverage that dependency.
The timing of your request is at least as important, if not more important, than the substance of your request.
Never Hand Down Ultimatums
A verbalized ultimatum is weak… An implied ultimatum is… well… implied! You don’t even need to think about it.
Threatening to quit if you don’t get a raise is a terrible strategy. Instead, present your case persuasively and professionally. Ultimatums backfire, damaging your relationship with your employer and potentially leading to a no-win situation. You may get your way in the short term, while also butchering your future in the long term.
The Bottom Line Is: You Need a Raise!
Most employees are systemically underpaid, and top performers are significantly underpaid.
In other words, if you are getting average pay, you are already being underpaid. And if you know that you are being underpaid compared to market averages, you are grossly underpaid!
By taking a calculated, strategic approach, you can significantly improve your chances of securing a well-deserved raise.
Remember, it’s about knowing your worth and effectively communicating it to those in charge. They have a vested interest in keeping you, especially if you time your ask right, double especially if you are a top performer.
Advocate for yourself, play the corporate game smartly, and never settle for less than you deserve.
And if you need any assistance, remember: we are here.
Above all else, we love getting our students and members paid above market conventions. 😉