My freelance period ended, but I wasn't ready to leave this project yet, so I became an employee, …

This is the general culture in Europe. Techies do not get promoted and do not even have a possibility to grow to management. Everything is run by humanities people and we do not even have the right words to describe this situation, although some voiced their concerns for many years, see e.g. The Two Cultures [1] from 1959. [1] https://en.wikipedia.org/wiki/The_Two_Cultures

>so I became an employee, but that turned out to be a massive step back in terms of income. Despite the fact that I worked closely with lots of stakeholders and solved complex problems for them, their internal rules didn't allow them to pay me as more than a code monkey. Surely there was a negotiation step before signing contracts? What happened there? What was the blocker that did not "allow" them to change their own internal rules that they themselves control? Surely there is a way to do that. >I left, they ruined the application (it's apparently slow as molasses now), and now I'm about to go back Then state what you want before going back, if it's important for them they will find a way. Don't accept these kinds of zero effort "oh our policy doesn't allow us to pay you more" explanations.

I think it's easy for the decision-makers to take programming talent for granted because they can't see it or estimate what it can do. If my manager comes to me with a task, he may not even know if the task is possible . If it turns out to be relatively simple and I kick out the solution in an hour, he's impressed, but he's also "learned" this this stuff is easier than he thought. That shifts his mental window of what's possible in X hours. Every time he thinks, "That must have been easy after all," the more he's likely to devalue what he thinks the work should cost. A smart manager will know better, but many don't. We could combat that tendency by taking a longer time than necessary on some tasks, basically loafing to make our work look harder, but who wants to play that game?

Your story feels unfinished. :( Advice: ask for more money or don't accept an offer. They should not by any means get the message that they can keep getting away with paying smaller salaries.