Some students and early-career professionals might assume getting a higher paycheck is purely a good thing. But for some employees, earning significantly more than peers or feeling their compensation exceeds their perceived value can cause stress, guilt, and performance anxiety. In a labor market increasingly focused on pay transparency and fairness, this lesser-known aspect of compensation psychology is gaining attention.

What Does It Mean to Feel Overpaid?

Feeling overpaid doesn’t necessarily mean someone is actually earning more than they deserve, it simply means they believe they are. This might come from comparing salaries with coworkers, underestimating the value of their skills, or questioning whether their performance justifies the paycheck. It’s a form of impostor syndrome, a psychological pattern where people doubt their achievements and fear being exposed as a fraud.

In highly competitive fields like tech, consulting, or finance, where salaries are often generous, some workers internalize the idea that their paycheck is too good to be true. This feeling is intensified when pay is not clearly tied to visible output or when employees are unclear on how salaries are determined.

Sometimes, however, people find themselves in a position where their salaries exceed the going market rate. Today, in the aftermath of the pandemic-era labor shortage and hiring boom, many American workers who secured significant pay raises in the tight job market are now grappling with the realization that their current salaries may be too high.

Why Anxiety Can Follow a Raise

Being paid more can increase expectations, both real and imagined. Employees may fear being watched more closely, judged more harshly, or cut first if layoffs happen. They may feel pressured to work longer hours or constantly prove their worth. The emotional pressure can be especially intense when employees compare themselves to peers earning less or when they are promoted faster than colleagues with more experience.

This tension ties into broader concerns about pay fairness, a concept that refers to employees’ perception of how equitably compensation is distributed within an organization. If workers feel their salary isn’t aligned with effort, value, or performance, whether too high or too low, it can undermine morale, motivation, and trust.

In the context of today’s cooling job market, there is heightened anxiety among overpaid employees, who fear that their elevated salaries could make them prime targets for layoffs as companies seek to reduce costs. Some workers who job-hopped during the pandemic’s labor shortage now fear they are first in line for the chopping block. Instances have been reported where high compensation was cited as a factor in termination decisions.

The Role of Pay Transparency

With the rise of pay transparency laws in many U.S. states and countries like those in the European Union, employers are under growing pressure to disclose salary ranges and explain how pay is determined. While transparency can help reduce wage gaps and build trust, it also opens the door for uncomfortable comparisons. For employees who discover they’re earning significantly more than others in similar roles, it can lead to doubt or guilt, especially in industries where pay was previously a closely guarded secret.

Transparency also puts pressure on employers to define what justifies higher pay. Without a clear, consistent rationale, even well-intentioned raises can leave employees feeling uncertain or undeserving.

Skills-Based Pay

One way companies are trying to align pay more closely with value is through skills-based pay, a system where compensation is tied to measurable skills rather than job titles. This approach is gaining traction in industries like artificial intelligence, data science, and cybersecurity.

Supporters say skills-based pay promotes fairness and incentivizes continued learning. But it can also raise anxiety for workers who feel their skills are being over- or under-valued, or who worry that new tools (like generative AI) could soon replace them. If your salary is tied to a “premium” skill that becomes outdated, does your value decline?

Balancing Compensation with Confidence

While most employees strive for better pay, organizations are realizing that compensation satisfaction isn’t just about dollar amounts. According to recent HR research, one-third of employees still feel negatively about their current pay, even in a year when raises have outpaced inflation. A key factor is how employees feel about the fairness, consistency, and communication around compensation. This is especially relevant in an era of slowing raises.

In the Classroom

This article can be used to discuss compensating the workforce (Chapter 10: Managing Human Resources).

Discussion Questions

  1. Why might higher pay lead to increased pressure or anxiety for some employees?
  2. How might pay transparency contribute to feelings of being overpaid?
  3. What is skills-based pay, and how can it help or hurt employees’ perceptions of their compensation?

 

This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell, Linda Ferrell, and Geoff Hirt.