Private companies can pay whatever they want. Here are some reasons why companies may pay below market value:
It's a Privilege to Work There
I have a marketing agency client in Houston that pays 25-30% less than market value because they feel working for them is a privilege to those who want to have a high profile marketing agency on their resume. I have been in negotiations with this client before on behalf of my candidate and no matter how I positioned it, the offer was the offer and there was NO room for negotiation. This is not uncommon, especially in smaller companies.
They Don't Care
Some companies just don't care what the market value is and set pay structures up their own way.
They Don't Know
Smaller companies may not even have an HR department and it's the owner who might be calling the shots on salaries. They don't always keep up with market value rates and may just be deciding based on past salaries of other employees. They may not even connect the dots that their high attrition is a direct result of employees feeling underpaid.
The downside when companies think this way is more turnover.
With a couple of years under your belt at this company and if your pay has not increased, you are more likely to move on where the pay is better. This happens a lot. You as the employee can look at it as "education with pay". Meaning, if you stay underpaid, use the time wisely. Learn all that you can, volunteer for new projects and ask for training on new technologies. In 2 years, if the money hasn't changed, you'll have two solid years of experience and will be able to go somewhere else. Many professionals intentionally change companies/jobs every 3 years in order increase their salary. Stay at the same company for a long time (5, 10, 15 years), and you're going to settle for the 1 to 3% merit raises every year. Switch jobs and your future employer will pay top dollar to get you, especially if you work for one of their competitors.
Advice for Next Time
- When you do this again, make sure you have them put in writing that you are to be reevaluated in 6 months and then in 1 year - performance against goals. This could be in your offer letter. Also have it written that if you meet their expectations, they will increase your salary to a number that meets at least the minimum that the market is paying for your position in your area. They may say no, but you won't know if you don't ask up front.
- Another option would be to ask for a sign on bonus. This is a lump amount of money that they give you up front. You're salary stays the same, but the sign-on bonus shows that they are serious about you. Usually with a sign-on bonus, you have to agree contractually that if you leave in the first year, you must give the sign-on bonus money back. I have seen $2,500, $5,000 and $10,000 sign-on bonuses before.
- During your negotiations and they ask you about salary, if you know the market value of your skills is between 45K and 65K, tell them you're looking between 55K and 75K. Never start with the real low number (45K). If you say 55K to 75K, they won't offer you 55K because it's insulting since it's on the low end of what you want. Rather, they will split it in the middle and usually offer you 60K or 65K.
Using 60K as the example, you could negotiate once more and say:
"I was really hoping to be closer to the 75K side. We're talking about a 15K difference I would be willing to split the difference with you which would make my salary 67,500. If that sounds fair to you, I'm ready to start immediately."
If they say no, then you say:
"Ok, then how about I say yes to the 60K with a sign-on bonus of $7,500 and at the end of one year, we can evaluate my performance against goals and discuss any salary adjustments then.
Negotiating is an art. If you give a little, you expect something in return. Then they will give a little and expect something in return. You do it layer by layer, only giving a little each time and always asking for something small in return. The end goal is often still the same (you get the salary you wanted) but it's done nice and slow.
Make sure you're using sites like glassdoor.com and indeed.com/salary to learn about the health of a company, what people have made there in the past, how much attrition they have, any negative feedback about the company, and average salaries for your role where you live.