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Vol. 45, No. 2
Applicants' past salaries can reveal more about them than just their pay.
Imagine a troubled company searching for the right person to help solve its problems. An applicant who might have the needed skills and experience comes forward. Now, imagine that the company rejects his application just because he has refused to complete one section of the form—the salary history.
Tom McMath was that applicant. "They had already lost two managers, so what did it matter how much I made at my last job if I can help them save their company?" says McMath, a line manager at an information technology service company. "But they said they were sorry, I couldn't be considered. It was policy."
HR professionals and consultants say that requiring applicants to provide salary histories carries the risk of screening out good candidates but also helps HR weed through resumes, learn about applicants' responsibilities and find out what the competition pays.
"There is only one reason that HR people ask candidates for salary history, and that is to destroy the candidate's ability to negotiate a good deal," says Nick A. Corcodilos, president of North Bridge Group, Inc., a consulting and executive search company in Lebanon, N.J.
Obviously, some HR professionals disagree. "There are several reasons why asking for a person's salary history is helpful," says John G. Kitson, SPHR, senior vice president of HR for First Banks, Inc. in St. Louis, Mo. Kitson is president-elect of the Employment Management Association (EMA), a Society for Human Resource Management professional emphasis group.
Kitson says that requiring a salary history provides "a quick screen, one of the fastest ways to exclude people. And as a recruiter at a company with 2,400 employees, that is what I am trying to do—put people through the funnel and get them out so at the bottom, you have those who are the best fit for the job. Figuring out the salary requirements by using the salary history is one way to do that quickly."
More than Dollars
Salary histories can tell HR about more than just pay, says Linda Veblen, vice president of HR for financial services firm Reusch International, which has 280 employees worldwide.
"We are finding that the labor market right now is volatile. So, by asking for salary histories, we are able to better understand not only the potential employees' expectations and where they are coming from, but they also enable us to learn a little bit about the candidates' past responsibilities," says Veblen, who works at Reusch's Washington, D.C., office. "Granted, the salary history doesn't tell you everything, but it helps us judge who might be able to fill the position."
Scientific Atlanta, a telecommunications company based in Norcross, Ga., with more than 7,000 employees, always asks applicants to provide a salary history going back five years. "We learn a little bit about their track record, how they progressed through their career," explains Beth Pollard, HR director for corporate and business services. "We can see if they progressed steadily upward or if they changed direction during their career or maybe even took a step backward, which is OK. We can also tell if they have had a downward spiral, which usually indicates that there is something else going on, either in terms of their skill level or their changing focus."
Salary histories also help HR avoid paying more than is necessary to attract a candidate, Pollard adds. "Of course, that doesn't apply if they have been an engineer and are now applying to be engineer manager," she adds. "Then, the salary history has little to do with what we will pay them."
Veblen finds that applicants' salary histories open the door for more communication during the interview. "Their salary is an indicator of the level of responsibilities they had in a previous position, and it helps trigger a conversation about the kinds of things that they have done," Veblen says. "This helps us better understand whether or not they could take on the job we have open. It also lets the potential employees know if their expectations for compensation are going to match what we have in mind."
Another advantage of salary histories is that they can give a company information about what its competition pays. Most of that information can be gained through participation in salary surveys, although Corcodilos notes that survey results usually are somewhat dated by the time companies receive them. Because survey results take so long, Veblen believes that asking applicants for salary information can help you keep track of new trends in the compensation marketplace.
"The delivery of compensation has changed a lot recently," Veblen says. "It used to be that base salary was the only thing people were paid. Now, it's base salary, plus some kind of variable pay, whether it's called a bonus or incentive pay. We are finding that [variable pay] is a really important factor in setting salaries. So, when we ask people about their salary histories, we are also learning about the changes that are going on in the compensation marketplace."
Many HR professionals believe that by asking for salary histories, they also can find out a little about the integrity of the prospective employee. "Sometimes when people fill out that portion of the application, they up their pay a few thousand, though you can usually verify if it is true or not," Kitson says.
After hiring candidates, First Banks requires them to fill out a form that asks for salaries at their last jobs as well as permission for their previous employers to verify the information. "We have had to go back to some of them afterwards and show them that their employer did not list the same salary as they had, and they know that this is grounds for dismissal," Kitson says.
Expect Inflated Figures
Puffing up past salaries is not unusual, according to McMath, who as a manager and a job-seeker has been on both sides of the salary history issue. "Basically, in the last 15 years, I have found that most people don't tell me the truth about their salaries," he says. "They are either adding things in or justifying putting a higher salary down by telling themselves, 'Well, I know next year I'll be worth that much.' And, really, unless you do a salary verification or you ask to see their W2s, you can't really be sure if they are telling the truth or not."
McMath says that as a hiring manager, he has asked applicants for salary histories but has never rejected a candidate for refusing to give him that information. As a job-hunter his experience has been different. "At least 80 percent of the more than 50 companies I have applied to during the last couple of years have asked me for my salary history, and many have refused to consider me unless I provide it."
Perpetuating Inaccurate Pay?
Applicants like McMath are examples of one of the pitfalls of requiring salary histories. These applicants refuse to give the information, and potential employers that stick to strict salary history requirements reject them before learning more about them. Another problem, consultants say, is the inadequacy of salary histories as a measure of employees' worth.
"When you ask someone about his or her salary history, you are using the information so you can gauge the person's worth or value," says Corcodilos. "That helps you decide what you are going to pay the candidate. But, what you are essentially doing is judging this candidate based on what another company, probably your competition, thinks that person is worth."
"I don't think for the most part that companies pay their people accurately, so to make an offer based on that is faulty reasoning," says Barbara Mitchell, president of the EMA and principal with Millenium Group International LLC, an HR services consulting group in Vienna, Va. "Also, people who haven't had many pay increases over the past few years may have been compensated in other ways. Their company may have enhanced their 401(k) plan and may have cut increases that year as a balance. There could be all sorts of reasons that have nothing to do with the value of these people as employees."
Another complaint about salary histories is that applicants who have been making much more than the current position is offering will be disqualified from consideration just on the basis of their past salaries.
Kitson says, "If you have candidates who are more highly compensated, and are really out of your ballpark in terms of pay, you can probably take them out of the picture because nobody really wants to hire somebody who is going to take a significant pay cut—because your chances of success with them are not good. They are not going to be happy with the job long?term."
Mitchell believes that these candidates shouldn't be shut out. "I don't want to make all kinds of assumptions about these candidates before I have had a chance to talk with them," she says. "To me, people work for all kinds of reasons. For example, someone I met with recently took a buy-out, pre-retirement package from a large company. He had been making about $90,000, and he is now looking at jobs in the $70,000 to $80,000 range. What he is looking for now is a place where he can use his skills without having to carry the level of responsibility he had before. So, just because someone used to make more, that person shouldn't automatically be disqualified."
Consider Legal Implications
Corcodilos predicts that asking for someone's salary history will be illegal someday. "It is the single biggest discriminatory piece of information that a company gets," he says. "Making a judgment about someone based on a salary history is like saying, 'If I know what your ethnic background is and what your race is, then I can make some predictions about how you are going to do here.'"
Currently, no law makes it illegal for a prospective employer to ask about salaries, but there are some legal considerations when it comes to using that information, says L. Traywick Duffie, a partner with the law firm of Hunton & Williams in Atlanta.
First, the employer cannot use salary information to perpetuate the effects of past discrimination. Historically, certain minorities have been underpaid; so using their previous salaries as basis for compensation tends to perpetuate past discrimination, Duffie says.
Second, consider the Equal Pay Act, which generally requires that men and women be paid alike for substantially equal work, unless you can justify pay distinctions on the basis of a bona fide merit system, seniority system or a factor other than gender. "If the male is paid more than the female, even though you base that on prior salary history, it's going to raise a red flag," Duffie says.
To protect themselves, employers should keep an eye on salary history use and overall pay patterns. "If anyone is using past wages to set wage rates for new employees, then they have to be aware of these issues, and they have to review their wage spreads with the existing employees to make sure there is no pattern that has formed that would suggest that any particular category or subcategory of employees is being undercompensated in comparison to their co-workers," Duffie says.
Nancy Hatch Woodward is a freelance writer based in Hixson, Tenn. She is a frequent contributor to HR Magazine. She can be reached at firstname.lastname@example.org.
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