Honestly, the best way to obtain your newly-discovered market worth is to leave and find another job. In almost every job your only chance of negotiating a competitive salary is before you start.
Sure, you can talk to HR and your manager and perhaps see some form of bump in salary, but if you're significantly underpaid then a) it's likely other people are too and they won't want to rock the boat, b) there's a decent chance you wouldn't leave anyway, and c) even if you do chances are they can fill your position for what they're paying you now.
Agreed. Not only that, but the less people pay for your services, the less they respect those services (it doesn't feel as earned as the next guy billing twice as much).
So you pretty much have to jump. Which is likely anyways since if you were being paid less than half than everyone else around you and doing the same or better work, you'd probably be more than a little annoyed.
This is a sad fact. There are huge (irrational?) barriers for giving employees big raises or bonuses. Take Borland for example - they'd rather sue Microsoft for brain-drain (i.e. paying the employees more) than match the offers: http://news.cnet.com/2100-1023-279561.html
> There are huge (irrational?) barriers for giving employees big raises or bonuses.
Since they exist at almost every company, I think it seems probable that it's rational. Here's a simple possible argument for their rationality:
Creating big barriers to large raises/bonuses discourages employees from sharing salary info, since there's little they can do about it. Furthermore, the more your employees are worrying about their salary, the less they're working.
The easiest way is to just find another offer from another company. You're not "worth" double your current comp if you can't find it somewhere. Then you let them know that you have another offer but would prefer to stay if they can match the other offer.
Keep in mind that this happens all the time and is standard procedure in most American and European companies. As long as you act honestly, your boss will probably not hate your forever or start looking for your replacement. If your employer can't deal with negotiating over salary, you should probably just take that other offer . . .
The other option is to say that you're going to leave to go consulting. This is a harder sell because they'll think you're bluffing. You have to be ready to actually do it.
You can also use the approach suggested in "Up the Organization" where you put in your two weeks and then re-apply for your position. It's good to have, as you suggest, a best alternative to a negotiated agreement on hand (BATNA), such as a job offer from some place paying the same or more than you're getting now.
If you're going to go, go. If you're going to play employers to get more compensation, play prospective employers.
If you take a counter-offer from your current employer, they'll just put you on the shit list. First to go in any sort of rough terrain. First to get thrown under the bus if they need a body. And most importantly: you'll have set a new normal for salary discussions. That is, they'll feel they can simply say 'no' to every request until you're ready to leave again and then just match the offer.
They get to continue paying you X for however many months you give them; however many months it takes to find a job worth leaving for. Then they coast in and match someone else's 1.2X offer, having enjoyed months and months of paying your old salary and playing all that stress and frustration and work of getting another offer against you.
And you can be certain they'll be playing every social/moral game to make you think you shouldn't get it along the way [1].
Further, you'll have damaged the nascent relationship with the would-be hiring company. They invested nontrivial time and energy vetting and planning for you and will be miffed to find they were a pawn in a raise-play. Sure, it's a valid business decision to change your mind and turn down an offer. But those individuals will remember and give you less preference in the future [2]. Taking a counter offer from your current employer just isn't seen the same way as taking a competing offer from a third firm.
By all means, use a counter-offer to negotiate for more from would-be new employers [3]. But don't take the counter offer and stay put. Unless you really love searching for jobs and can dispassionately go through the "I'm going to quit." stage and that doesn't negatively impact your co-workers [4].
[1] "it's not a good time right now". "the economy has everyone really tightening down". "no-one's getting a raise this year". "i had to really push to get you guys a bonus, there's nothing left for salary". etc.
[2] They'll also see you as one of those "threatening to quit to get the best possible raise" people. Which is a negative for any manager who'd rather not go through that drama.
[3] Keep in mind that asking for a bid against a counter-offer can blow up if you have no intention of taking the counter. If you push for them to bid and they decline, accepting that job marks you as a certain type of negotiator, which isn't helpful for you. So if you really want to take this route, be prepared for the case where you need to actually accept the counter-offer, but continue your job search anyway.
[4] Remember that in any group-work situations, your co-workers will catch nontrivial shit when you move into the negotiating/quitting stage and they have to adjust and plan around your possibly not being there next month. Which they'll be forced to do, because management will ensure they can most-effectively bargain against you.
Apply for other jobs while at your current job. When you have an offer that you would like, go to your current employer and say "I have been offered a job for X". That's all.
They'll either decide they want to keep you on at Xish or not.
Now the current employer will say sure we are happy to give a raise. You decline the good job offer. One week later your manager fires you....
That's what actually happened with one guy in my previous job.
He actually came to an office party in the new company but then his previous manager asked him to come back with higher salary offer. He came back and was fired . He was very lucky that our company agreed to re-offer and accept him back
That's why you get the new job conditions in writing, i.e. a new employment contract. If your old employeer fired you, you report them to the Labour Relation Commission (or whatever body is in your juristiction (assuming you're not in the USA, who's employement law is about as good as China's democracy laws))
What's the best way to save yourself once you've realized you're worth nearly double, triple, or quad your current comp pkg?