Banning inquiries into applicant salary histories
September 29, 2016
By Dan Van Slambrook, courtesy of SBAM Approved Partner ASE
There is a growing line of thought that salary history of applicants is not relevant when negotiating salaries of new hires. In fact, the pundits believe that applicant salaries should be set based on market value determined by others with similar experience in the job being hired into regardless of previous salary. In addition, these pundits believe that women in particular are hurt by these inquiries as studies have shown that coming out of college their salaries are in general 17% less than comparable to men. This disparity continues even later in the working career. Some jurisdictions are reviewing whether to take action that would ban employers from asking previous salary history, and one has already passed a law on this situation. Does this help close the gender based wage gap?
In 1945, Massachusetts became the first state to pass an equal pay law requiring comparable pay for jobs of comparable worth. Last month, the commonwealth marked another first, passing legislation designed to address gender-based pay disparities by banning inquiries into applicants’ salary histories. Although only Massachusetts-based firms are impacted, the move has sparked national conversations.
The law, which takes effect in January 2018, received bi-partisan support from state legislators. It prohibits employers from seeking the compensation history of prospective employees—either from the applicant or from past employers—until an offer of employment has been made which specifies compensation. It also bans restrictions by employers on workers discussing or sharing their compensation details with other employees.
Those who backed the legislation hold that eliminating questions about salary history will help close the wage gap that exists between male and female employees. In Massachusetts, women are estimated to earn 85 cents for each dollar their male counterparts are paid. Since employers may be inclined to base offered salaries on historical earnings, it follows that female applicants may become caught in an ongoing cycle of receiving offers that are less than their male peers. By withholding an employer’s ability to establish a salary history, the law essentially helps female employees end that cycle and “catch up” with male employees.
Critics of the law cite a number of areas they say should be of concern to employers—and employees. The law, it’s argued, creates a roadblock for employers to utilize all information they should have at their disposal to formulate appropriate offers. For example, some firms use salary history to determine a potential employee’s “worth” by examining how previous employers valued the applicant by way of what he or she was paid. In the case of sales-focused roles where overall earnings are often heavily weighted in performance-based pay, prospective employers might evaluate and select candidates based on how much he or she earned in commissions, viewing that as an indicator of job performance and a decision making factor over other applicants. Some opponents have also argued that the law could actually be detrimental to employees, as employers may be inclined to extend “low-ball” offers in an effort not to over pay.
Regardless of their stance on the matter or current interviewing practices, employers outside of Massachusetts may find themselves at some point impacted by similar legislation. Other states and some cities, including New York, are considering bans on salary histories. A related federal bill, the Pay Equity for All Act of 2016, was submitted to the House earlier this month.
Beyond the issue of governmental compliance, employers would be wise to consider the effect their degree of pay equity has on the organization. Particularly in today’s competitive labor market, employee perceptions of fair treatment matter—to morale, to the employer brand, and ultimately, to retention. Employers who take proactive steps to police themselves—with our without government requirements to do so, will likely have a strategic advantage over those who do not.