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A Loaded Question:

Five Things You Need to Consider About Salary History Bans, Coming to a State Near You

Many, many years ago, one of the hardest things for me to get used to as a young recruiter was asking a candidate to share with me his or her current compensation. I felt like I was asking if I could go rummage through someone's underwear drawer. I soon got over it, and two decades of happy rummaging later, I'm even able to pretty accurately predict exactly what numbers someone is going to tell me before they utter one number. Having current compensation information helps an executive search professional to guide and counsel clients through salary setting and negotiations when the time comes, avoid surprises and disappointment, and work towards a compensation package that feels fair for both sides in a time sensitive matter. However, things are about to change...

Following the leads taken by New York, Philadelphia, San Francisco, Oregon, Massachusetts, and Delaware, California is the latest to join the ranks of city and state governments that are banning employers from asking candidates to share their current salaries and/or salary histories. On October 12, 2017, Governor Jerry Brown signed AB 168, which affects all employers in the State of California, and will take effect on January 1, 2018. The intent of these bans, generally speaking, is to address the pernicious gender pay equity gap - the thought is that compensation information is used against a candidate, helping an employer to make the lowest offer possible, and has the "snowball effect" of keeping women and minority candidates, who tend to have historically lower compensation rates for a whole host of reasons, at the bottom of the range.

Here are five things you should be thinking about if your company operates and/or hires in any of these cities or states:
  1. Training: Not only does your recruiting team and human resources department need to be trained on new best practices and regulatory compliance, but so do your hiring executives and/or anyone involved in the interview process. Furthermore, most of these state and city bans include agents of the employer, which means that any third-party recruiting on your behalf needs to steer clear of asking about compensation directly.
  2. Time for an HR Audit: Employers might want to do a review of current hiring and pay practices in order to identify any areas of vulnerability or ways they might be inadvertently discriminating in their pay practices. Having the right auditors and lawyers on your side can make all the difference in proactively avoiding problems.
  3. Brace for a Longer Recruitment Timeline: In the case of high level executive searches in particular, having current compensation information not just from a successful candidate but also their competition allows the hiring company to target an offer that is appealing, competitive, and closes the deal. Without that information, there is a greater risk of spending months on a recruitment process only to have the numbers just not line up and be back to square one.
  4. Tables are Turned: Every negotiation has to start somewhere, and without salary information from a prospective candidate, it's up to the employer to come up with the first number. Asking recruiters and hiring managers to share compensation ranges for a position with a candidate is going to require a major cultural shift around recruiting practices. It's also possible that companies will increasingly be pressured to have greater transparency across the board with respect to the compensation of its employees, with open salary policies. Some employers have already embraced this transparency, such as Whole Foods (though the acquisition of the company by Amazon could change things) and smaller employees like Squaremouth. Under their current Whole Foods policy, staff can look up any co-worker's salary and bonus information, as well as store and regional sales data. The intention of this transparency is to create a culture that has no secrets, a high level of trust, and a deep sense of community and commitment to success.
  5. What's It All For? Women and minorities may continue to receive lower offers regardless of current compensation information; maybe even lower than if that information was shared. As noted in a somewhat depressing Harvard Business Review article, not being able to ask about salary may not do anything to combat existing biases when it comes to crafting offers for potential new employees.

Transparency around compensation does seem to be a key element in combatting pay gaps, and it looks like the burden of transparency may be shifting from employee to employer. Even if your company doesn't operate or hire in any of the affected cities or states, this could be a continuing trend that will be coming to your headquarters soon, and it will serve any hiring company to be prepared and think these issues through.

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