will taking a pay cut now harm my earning potential later?

A reader writes:

Going on so many interviews lately for jobs that I am well-qualified if not overqualified for, I keep getting salary responses that would pretty much allow me to break even. Whoopidy doo.

If I ended up taking one of these jobs that pay way below what I was previously making and stayed for a year or so, would it potentially damage my chances of getting a significantly higher salary when I switch positions? Do companies base what you will make with them based on what you previously made (along with their budget and your skill sets, of course)? I was always taught that when you change jobs, you should never accept less than what you were making before. Based on the economy and job crisis, I’m not sure if that is even legit at this point.

The answer will be quite unsatisfying: It varies.

Some companies will demand to know your salary history and will resist giving you a substantial increase. Others — the more sensible ones, I would argue — will base their salary offer on the market, and could care less what you were making previously.

However, I suspect that, as you point out, the economic crisis may be rewriting the rules on this. There are a lot of people who are in the situation you describe and who will be taking pay cuts due to the sheer awfulness of the current climate. When the economy picks back up, those people should presumably be able to find jobs at higher salaries again. I think it will be quite normal to explain to a prospective employer that — like many people — you took a lower salary when jobs were scarce, but that you’ve always used the market to inform your salary expectations, and the market now says that a reasonable a salary for this job is in a higher range.

If an employer doesn’t get the logic of that, I question whether they’re an employer you should want to work for anyway.

By the way, there’s also a school of thought that says your salary history is no one’s business but your own. I tend to agree. An employer should pay based on their assessment of your value, not what their competitor thought you were worth.

{ 9 comments… read them below }

  1. U*

    While I agree with you, AAM – an acquaintance of mine in Employee Relations recently revealed that their company does indeed base candidate offers on their previous employment (salary history).

    It may be even worse depending on your industry, so having a clear idea of shifting market value over time and your own expectations/boundaries is the best defense.

  2. Hank Hill*

    I agree with AAM and will only add that I think it depends largely on the level of bureaucracy in the company.

    If you're dealing with a large defense contractor or something, it may be very difficult to get them to overlook taking a lower salary. Other companies won't care at all.

  3. Anonymous*

    It may or may not have an impact, but being aware of the issue will help prevent future problems.

    I was naive when I moved from a 20-employee company to a 50,000-employee company and didn't realize until later that big company's offer was literally something like "small-company's salary plus 3%", which was at the bottom of their budgeted range, and that the number is what my title was based on (Analyst III, Sr. Analyst IV, etc.).

    Fortunately I have a good job now (medium company this time), because even though I learned my lesson from that experience, I don't think I'd have much leverage in this type of economy/job market. Still, it may be better to have something on the resume instead of nothing…

  4. Anonymous*

    I will assume that the question came from someone without a job. In which case, he needs to be thinking about how this job compares to what he is currently making — a big fat zilch.

    A person's paycheck is based on what he can negotiate, not what his expenses are. And as times get better, there will be more competition for good employees — driving up the pay.

  5. Zig*

    "A person's paycheck is based on what he can negotiate, not what his expenses are."

    …That is somewhat an oversimplification, don't you think?

    You should definitely form what you'd like to make around your expenses. That doesn't mean you should rack up a ton of credit card debit and try to find a job that will help you pay it off, but if you have student loans (I assume most of us do), a house or rent, and all of those other bills that go along with it, why WOULDN'T you factor those in to your desired salary?

    Anonymous, I assume you have a job right now as you seem quite smug and taking digs at someone NOT having one. In case you haven't been in the job market interviewing lately, you would be surprised how little negotiation is going on.

    OP's question is one I'm sure a lot of unemployed or underemployed workers are asking themselves. Have a little compassion, sheesh.

  6. Anonymous*

    Not sure why Zig got offended by Anonymous comment, which I think totally makes sense. I am also unemployed, and like Anonymous said, it's better to earn something (as long as it's not less than my unemployment check), then waiting for a job that pays as much as my last salary. And once the market picks up, you will have an option to find something better, that pays more.

  7. Toni*

    May an exempt staff take time off (beyond vacation time)to work another paid job? And expect to get paid from us? Would they lose exempt status if we did not pay them?

    1. Ask a Manager* Post author

      It’s up to the employer whether or not they want to allow that. (Most don’t, but there’s no reason an employer couldn’t decide to.) However, exempt status wouldn’t be affected — that’s determined by the work itself.

  8. Sameboat*

    Fast forward to 2013 and I am in the same boat. I am taking a 30% cut after finally getting a job offer. I have been out of work for 6 months and out of hundreds of applications I had 4 interviews and this was the only offer. I was fully prepared to take a 20% cut but this was a shock. I need the pay and benefits so I am taking it. I worry I will never make it back to my old salary and will have to work until I’m dead at my desk.

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