Your Company Thinks You’re Overpaid

August 19, 2008

Do you think it’s time for your boss to give you a promotion, pay raise, or bonus check?  Are you working like mad and feeling like your company’s not compensating you for your efforts? Join the Club!

Raise Your Hand if You’re Underpaid!
We’ve all probably felt that way at one point or another, an annual performance increase of 2.5% seems like a small reward for all the hard work we’ve put in.  Have you ever wondered how in the world your boss comes up with your salary and raises?

How Are Raises Determined?
I’ve been curious about it for over 8 years and I finally got the scoop last week. As a manager I’m required to take certain training courses and one of them is a compensation class.  The course covered the legal aspects of compensation in addition to how the company determines the salaries and raises for employees.

Managing Compensation
What I discovered is that the company has a team of compensation analysts whose job is to determine market prices for each position in the company.  Basically, their role is to figure out how much the company needs to pay to be competitive as well as how little they can pay, in order to maximize profitability.

The whole purpose of the course was to inform managers how big an expense salaries are to the company and to convince us to manage them appropriately.  What I got out of the course is that while you’re fighting tooth and nail to squeeze a 2% raise out of your boss, there may be a team of compensation analysts somewhere working equally hard to “manage” your salary expenses.

Be Aware of Your Earnings Potential
I’m not saying what the corporation is doing is wrong from a business perspective, their goal as an enterprise is to maximize profits.  However, as an employee it is good to know how your salary is determined and what the limitation are on what you can earn and to what extent you you can be rewarded for your efforts.


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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9 Responses to Your Company Thinks You’re Overpaid

  • john

    I make 17.00 an hour, I’ve had a salary freeze for over 4 years now even though my company is making a profit and announces it each year, they only give out a few merit raises and the rest of us get like 200-300 dollars for the year after taxes. There are other people same position and only few years more experience who make 25-28 an hour just simply because the company was doing better before. In the city I’m under paid in my rural area that I live in I have a “good” job.

    Why instead of taking it over seas do something better for our country and employ the rural areas most have plenty of small towns around them, the wages would even be cheaper than compared to metropolitan areas. I’m tired of driving 2 hours to work !

    We can’t just continue to sale cheaper, but stay in debt with no real income, if I was a business owner shifting opportunity and wages somewhere else would be a bad decision for future wholesome quality, seems reputations aren’t as important anymore or can quickly be changed

  • Connie Brooks

    @ Abby – LOL. I totally agree with that. What a beautiful way to respond.

    @ Marci – Where we live, we have people who drive 45 minutes to work a just-above-minimum-wage job at Meijer. So, I get where you’re coming from. I am just thankful that there are still plenty of jobs to go around where I am, and lost of ways to earn additional income from home.

  • Ben

    marci, I agree your job situation depends largely on where you’re located and what the market is like. If jobs are hard to come by then it’s tough to be picky about wages. But if you’re in a big metropolitan area with jobs all around then you can be more selective.

    Abby, that’s a good way to put it. Many jobs are setup to pay you just enough to keep you happy. Since the corporation is taking the bigger risk of running a company and providing benefits and salaries to employees, people are willing to stick around even if they’re only paid mediocre wages.

  • Abby

    Interesting stuff.

    It reminded me of the answer my mom used to give people who pried into how much she got paid: “Oh, you know, about average.”

    If they still persisted with “And how much is that?” she replied, “A little less than I think I’m worth and a little more than they think I’m worth.”

    I think this perfectly describes the average person’s salary!

  • marci

    And if you’re in small town rural America, just be thankful for ANY job 🙂

    (in my opinion) I sure am 🙂


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