A candidate is at the end of a job interview*.
Manager: Well, that just about covers it. We'd be happy to offer you the position.
Candidate: That's great, I'd be happy to accept it. But just one question - what's the salary and benefits package?
Manager: You'll be paid in accordance with what you produce and the value you add to the company.
Candidate: What? But I can't afford to live on THAT!
This joke illustrates in a humorous way how people can think quite differently about what 'fair pay' means. Around half of people consider themselves underpaid for the work that they do. But what do they mean by ‘underpaid'? Understanding the seven different ways of deciding what a fair pay rate is can help you understand how your boss thinks, and give you an edge when negotiating your salary.
Equality. Many people believe that ‘fair' means ‘the same', or ‘roughly the same'. Experiments show that people are less satisfied with work when they find out they are less well paid than others, but not more satisfied when they find out they are paid more. So, the differences between what people get paid should not be too great.
Need. Another idea of a ‘fair' pay rate is the ideal that everyone deserves to get paid enough to live comfortably. Some people need more money to live comfortably than others (e.g. those with large families, or those that live in more expensive cities). Sometimes people apply this ideal to quite high rates of pay (e.g. I once overheard someone complaining that they deserved a pay raise because of the great difficulty of living on a salary of $75k a year, whereas the median yearly full time salary in New Zealand is more like $45k).
Qualifications and experience. People often believe that their investment in educational qualifications, years of experience on the job, or loyalty to a particular company deserve recognition in the form of higher wages.
Skill and dedication. More experienced people do not always perform better. Many believe that highly skilled and harder working people, and those who endure more unpleasant or dangerous conditions, should be paid more.
Production and economic value added. Business owners often argue that employees who produce more value for the business should be paid more. If the business owner consistently pays people more than the value they add, she will go out of business and then no-one will have a job at all.
Social value. Many employees produce social value (or harm) that is not captured by the economic value of what they produce. (Social value is an impact on people or society that is seen as important, but that people may be unable or unwilling to actually pay for.) People may see it as unfair that nurses should be paid less than investment bankers, for example.
Supply and demand. Economists have often argued that pay rates should be set by supply and demand (see here for an explanation of how this works). They cite evidence that the labour market behaves similarly to other markets and that the most economically and socially successful countries rely heavily on some sort of market system to set prices and wages.
John teaches history in high school, while his colleague Janice teaches maths. They are paid the same. Janice secretly feels underpaid compared to John, because she has a PhD in education and he only has a bachelors degree. John feels underpaid compared to Janice, because he knows that his students get much better exam scores than Janice's. Their school principal would like to pay maths teachers more than history teachers, because there is a current shortage of maths teachers and she finds them hard to hire. Still, she knows that this inequality would annoy her staff. John and Janice both think it is highly unfair that their friend Marvin, a used car salesman, earns much more than them. They believe that his job has much less social value than teaching. Marvin thinks that his pay is entirely justified by his skill and hard work as a salesman, and wishes he could take long holidays like his friends. And so on.
With at least seven different ways of deciding what a ‘fair' pay rate really is, it's no wonder that most people can muster a reasonable argument that they're underpaid. Why do these arguments often fall on deaf ears?
If you want to discuss your pay with your manager, you need to frame the discussion in a way that resonates with the way she thinks about what fair pay means (not what fair pay means to you).
Broadly speaking, managers tend to think in terms of production, economic value added, and supply and demand when deciding what to pay people (especially in the private sector). Arguments about how expensive life is these days, your years of dedication to the company and so on don't tend to make much impression. Bearing this in mind, find out from your manager what you would need to do to achieve the position or salary that you want. There are no guarantees, of course, but if your manager can't give you a clear direction on this and a high salary is important to you, maybe you'd be better off working for someone who can.
Finally, remember to take satisfaction in the social value of your work, your friendly relationships with colleagues, and your enjoyment of the work itself. The greatest value of your job may not be in your pay cheque.
Are you fairly paid? What does fair pay mean to you? Leave a comment to share your views.
* I have translated and adapted this joke from the Chilean comic ‘Condorito', although I'm unsure if it originated there.