Thursday, December 15, 2016

What Will Banning Salary History Questions Accomplish?

Probably not what is intended

Philadelphia just passed a law banning employers from asking applicants about their prior salary history. New York City banned it for city agencies’ hiring practices, and Massachusetts banned it for all employers this past summer.

The rationale behind these bans is that women and minorities have historically been paid less than men and when employers base salary offers on past history, that pay discrepancy is continued over and over again. The theory goes that if an employer does not know the applicant’s previous salary, it will base its decision on factors more relevant than past pay history.

Will this close the wage gap? While it may accomplish that in some (few?) cases, the answer really goes back to what actually causes the wage gap. I explored this in a previous post. When you look at the earnings of men and women with the same job title, at similar companies with similar levels of education and experience, women still get paid less, but the pay gap is much narrower. A recent study by Glassdoor, for instance, found women earned 95 cents for every dollar their male colleagues doing the same job were paid.

This argument also assumes that employers routinely use past salary history as a primary determining factor in deciding what they will pay a new hire. I submit that this is not the case for most employers. It’s true that this information is often used as one factor among many in this decision (along with experience, education, skills, company budget, etc.) Previous salaries can be an indication of level of experience, scope of responsibility and other factors that may not be indicated by job title alone. Further, a job title at one company is not necessarily indicative of what a job with the same title entail at another company entails; salary can help clarify those differences.

Having said all that, will these laws help at all? What effect will they have? While I’m not a proponent of government-mandated one-size-fits-all employment laws, it may be time for more businesses to rethink their reasoning and use of this question. 

I know most applicants will rejoice if they don’t have to face this question in an interview. It’s uncomfortable at the least, and feels like an invasion of privacy at worst. And in the end, shouldn’t be used as the sole determinant of what their salary offer should be.

A company decides what a particular function, and a job within that function, is worth to that company. That decision may take into account the company’s budget, its compensation strategy (to be at, below or above market), and the applicant’s education, experience, skills and other qualifications. It shouldn’t really matter all that much what the applicant’s salary history is – after all, if a company can only pay $60,000 for a job, is the fact that the applicant previously made $75,000 all that relevant? It’s not going to change the offer to $75,000 if the budget won’t allow. On the flip side, looking for a "bargain" if you find that an applicant previously made less than what you have decided the job is worth is seldom a good move. If the applicant is a good fit with all the relevant experience and qualifications, should it really matter if he/she made less in the past?

On a related topic, I do find it not only annoying, but decidedly counterproductive when companies won’t reveal the salary range for a position they’re trying to fill. The recruitment process is difficult enough for both the company and the applicant; why not cut through some of that crap and save yourself – and your applicants – some time and stress?

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