Here is an alternate way of looking at it.

My experience has shown that most people are not paid what they are worth, because of point 3, thanks Nic. The reality is that most people are paid what they accept!!

If an employee is willing to accept a figure, why would the employer insist on them taking more?

It is only when an employee realizes that they are worth a good 40% more to another employer that the employee offers a real increase.

As an employer, the trick is to know what salary is acceptable to the employee, without destroying your companies cash flow, and, to know what is going to result in a productive and happy employee!

What would you accept, if you were to do the same job?

Your pay is dependant on:

1. Amount of people your job has an impact on
2. Amount of responsibility your job assumes, and
3. How many other people can do your job.

Schoolteachers don’t get paid well because they don’t have #3.

Tiger Woods and Sachin Tendulkar have all three.

Michael Phelps botched it because he forgot about #2.

The Springbok Waterpolo Captain has #2 and #3 but not #1(probably has a day job).

I think if you apply these criteria you may get closer to what you should pay someone.