Salary History is History: What You Need to Know as an Employer

Last week California Governor Jerry Brown signed AB-168 into law, effectively prohibiting Hiring Managers and Recruiters from enquiring about an applicant’s salary history.

Following similar legislation in New York City, Massachusetts, Puerto Rico, Delaware, Oregon Philadelphia (pending legal challenge) and California’s own San Francisco, AB-168 promises to minimize wage discrimination by leveling the playing field for all workers.  

What does this mean for you?

No longer will you be able to rely on past salary as an anchor for future negotiations. Instead, a rigorous analysis of a candidate’s work history, accomplishments, recommendations, and experience will function as the sole justification for salary. Hiring Managers will be forced to consider each candidate purely on the basis of their own merits – something many of us have been practicing for years.

Seem scary? It definitely requires a mental shift in the way you calculate and justify wage. But it’s nothing that can’t be achieved, and the benefits certainly outweigh the negatives.

Consider the facts: a 2013 study reveals that women are paid 6.6% less than their male counterparts in their very first job, even controlling for demographics, college major, hours worked, occupation, and location.

Throughout a woman’s’ life, this first salary – “only” 6.6% lower than that of men – is inflated and compounded. Women and minorities are too often stuck making significantly less than they deserve, in large part due to one apparently inescapable salary, haunting them over the course of their professional careers.

By embracing this new salary legislation, you have the opportunity to uphold and contribute to a more merit-based system – one where people are evaluated on their work, rather than an often outdated and discriminatory salary package established from their first job.

Processes that will need to change, immediately.

As of January 1st 2018, Bill 168 will be codified into law. Companies that neglect to follow the new legislation will be met with harsh penalties – in New York City, fines are said to be in the range of $250,000 for each instance of disobedience.

Two things need to be done:

1. Scrupulously review and edit all interview material to remove any questions blatantly asking or subtly hinting at past wages. The bigger your company, the more systematic you will have to be in your approach. Consider a training session for Hiring Managers to get them clued into and on board with the new law. Make sure all of your employees are aware that AB-168 bars any questions about wages AND benefits.

2. Establish a broad but defined pay range for each position in your company. Under Bill 168, employers are required to provide a pay range to candidates “upon reasonable request.” Don’t be blindsided by this stipulation.

How will you benefit?

If you already removed salary questions from your interview repertoire previous to this bill – congratulations. Even before being officially banned, any questions regarding past salary and benefits posed the threat of discrimination accusations.

But more importantly, you’ll be leveling the playing field. Talent comes in all shapes, sizes, colours, ages, and belief systems – if you want to build the best business, you’ll want to be offering fair, unbiased opportunities to the best candidates. Happy, well-valued workers are more dedicated to the company vision. Indeed, these people are more likely to forego the latest job-switching trends – new reports by LinkedIn say that Millennials average 4 jobs before the age of 32 – and commit their best years to your company’s success.

Paying people what they deserve is an act of respect, and respect breeds respect. “Willingness to accept lower wages (even if you don’t know it)” shouldn’t be a valued trait. Reap the benefits of hiring those who deserve it based on their past record of accomplishments – not their past history of salaries and benefits.

What are the drawbacks?

Unnecessary litigation: Topping the list of potential issues is the strong possibility of extended litigation if the two steps, listed above, aren’t carefully followed. Companies will have to exercise super vigilance in training and monitoring HR departments. Failure to do so risks major legal battles – especially considering how quickly a small oversight can spread.

Say for example a question about salary is accidently left on some preliminary questionnaire. Every candidate who fills out the form would now have the right to take legal action against the company. Problems like these quickly multiply, so caution is imperative.

Free-speech laws: The question of free-speech – and whether these new laws infringe on that right – is at the center of a legal debate in Philadelphia. Though they were one of the first states to sign a wage discrimination bill into law, there is yet to be any changes in the workplace due to drawn-out court proceedings and appeals on the basis of free-speech infringement. We’ll keep you updated as the case develops.

Less transparency: It can sometimes be hard to know what the going rate for a certain position is – especially if you don’t often hire for that position in your company. Many HR professionals will ask for a candidate’s past salary as a way to gauge the market. Without the option of asking a candidate directly, it might be to your benefit to hire a recruiting firm specializing in your industry as they always keep an ear to the ground regarding competitive salaries.

Higher wages: It’s hard to say that the whole point of the law is a drawback. But if we’re being truthful, higher wages is obviously a negative. It means you’ll be spending more than you currently spend to pay the same employees. Yet think of it this way: a law that corrects a mistake that shouldn’t have happened in the first place can’t be faulted. This is the direction society is headed, and you should be proud to be part of a change for good.

Exceptions to the law.

The new legislation in no way bars candidates from talking about their past salaries. Once this knowledge has been imparted, employers are free to use the information in determining an offer. Anything the candidate says without coercion is free game.

The law also allows for questions about salary and benefits expectations, as long as no reference is made to past wages.

Next steps.

Removing a question from the interview process cannot in itself reverse wage discrimination – but it’s a fine place to start. Take this opportunity to consider your company’s own internal processes and how they can be modified to eradicate any lingering biases affecting who and how you hire.

Bringing on an experienced recruiting firm can take a lot of the guess work out of the process – it’s a recruiter’s job to be in the know about latest hiring practices, to bring the best talent to your attention, and to keep you up to date on competitive salaries in your industry.

Get in touch and let us know how we can help, or get involved at our next D&I Leadership Breakfast, hosted in partnership with Sony Electronics. RSVP and Details.