[babs474]

I wouldn't frame the question as "what did you do wrong". As other people in this thread have pointed out you may have dodged a bullet. It could very well be that this company is in the "wrong".

A better question to ask is what can you do to make yourself more attractive and increase the probability of closing the deal with the next company. Think like a salesman.

The fact that you told him you currently make close to what their interns make jumps out at me. Perhaps you think that would make you more attractive, but it may have had the opposite effect.

The head of engineering may have been told by his team that you have a lot of expertise, skill and potential and then all of a sudden he finds out you get paid at an intern level. He is going to ask himself what am I missing? If you are so good why doesn't anybody else value you at that level. People want to have a good feeling in their gut when they make a big purchase and a large previous salary gap may have unsettled that.

A better head of engineering wouldn't we swayed by previous salary, but the truth of the matter is a lot of decision makers are not perfectly rational.

My advice to you is to google strategies for dealing with the "what is your current salary" question and be better prepared for that situation.