Last year, with the stroke of a pen, Governor Charlie Baker made Massachusetts the first state in the nation to ban HR departments from asking for salary history from candidates. The law, which goes into effect on July 1, 2018, also protects employees from being fired if they have open discussions with colleagues about salary. Other governments at the state and city level are following suit, including Philadelphia, California, and New York. What some herald these as government righting a wrong in standard HR practices that would otherwise continue to go unresolved, others fear the bills don’t go far enough; many believe the law is going too far.
You Are Your Salary History
A bias that favors salary history as a benchmark for financial terms in a new hire packet doesn’t make a lot of sense. We pay people to perform, not on what they made at a previous employer. And yet, starting salary sets the tone for the rest of a person’s career. It is incredibly difficult to get a substantial change in salary once you are an employee without a big event such as a promotion. A common practice during new employment negotiations is to ask for salary history. HR uses this information to determine a candidate’s offer. This practice perpetuates pay disparity among the genders. With variations based on job level, geographic location, and industry, on average, women in the US make 21 percent less than their male counterparts.
While men are more apt to negotiate terms, including salary and other compensation items, women are not. Of the 2,015 research participants analyzed in the Salary Negotiation Insights research report by Glassdoor and the Harris Poll, 68 percent of women who participated in the survey did not negotiate salary compared to 52 percent of male respondents. And, teaching women to negotiate like men tends not to work their favor. Women are viewed negatively when they negotiate.
Too Much, Too Little, Too Late
The U.S. has had federal pay equity law in place since 1963. Most states put their own legislations into place decades earlier. The challenge with these laws was that they were taken as suggestions, not mandates, and that implementing the laws was fuzzy at best. For example, pay equity, at its core, is based on role; every market director should get paid the same, every CEO should get paid the same, and so on. For most companies, jobs are not designed in an apples-to-apples kind of way; what one marketing director does will be different than what someone else with that title does in another part of the company. There are also other influences such as years with a company, years of experience, performance, and workload that also factor into take-home pay and total compensation packages.
While a law that guides specific actions such as banning salary history questions at time of hire is an important step in the right direction, it falls short. Policy making is truly political. Lots of giving-and-taking and plenty of compromise. While some governments are taking a hardline, California is leaving room for interpretation. Instead of all-out forbidding pay history questions, employers in California cannot justify pay disparity based on salary history. This does little to protect the golden state’s working population against pay disparity. The law still feels too fuzzy for both employers and the employed.
Critics who support pay equity legislation, particularly the legislations in Massachusetts, Philadelphia, and New York have rightly pointed out that the law stops short of helping an important population: existing employees. It does kind of feel like the only recourse for existing employees is to be hired somewhere new. And, let’s face it, it’s easier to start fresh than to go back and fix salaries of people already in an antiquated system.
Money is being left on the table, not just for the employees but also for the economy. By now, most have seen the research from McKinsey: $3.1 trillion will be added to the North American and Oceania economy if the women currently employed today were paid equal to their male counterparts — and that number jumps up to $12 trillion globally. It’s not too much of a leap to see how this helps everyone, including business-to-consumer companies. After all, women make up 80 percent – 90 percent of purchase decision-makers or influencers.
Where HR Goes From Here
I have never been a fan of government-mandated quotas or commercial practices. But the cold hard truth is that women will not be on par with men in terms of pay parity until 2085 if we keep up the current rate of change. The needle is not being moved on its own; the system and its occupants are not correcting the wrongs of pay inequity. If this problem were important enough to leaders, it would have been solved by now.
The new laws are putting HR at the forefront of taking necessary steps in changing the status quo of salary decisions. Retraining recruiters and hiring managers to favor pay-for-potential and pay-for-impact over pay based on previous jobs will be a long effort. Salary decisions made during the recruitment process represent the beginning in a tidal wave of change. Expect to see HR offer more visibility payroll discrepancies in their existing workforces, followed by concrete policies and practices that enable hiring managers and HR to offer the right packages based on the best criteria. Gender is not a criterion for pay level. The market expects pay parity and it’s up to HR to deliver a level playing field for all.
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