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A strictly market-based approach to pay offers could be looming
A recently enacted
Massachusetts law prohibiting employers from asking job applicants about their salary history may not yet register with hiring managers in the other 49 states, but employers should be paying attention to the issues the law raises—especially in light of a bill recently introduced in Congress that would ban salary history questions during job interviews nationwide.
Other jurisdictions, including New Jersey and New York City, are considering similar legislation, and that list is certain to grow—particularly in liberal-leaning jurisdictions where Democratic legislators are making new "equal pay" measures a political priority.
Employers should start thinking about the ramifications of stopping previous-pay discussions, whether or not their state or locality passes measures banning these inquiries, or if federal legislation doing so goes forward.
The Start of a Change?
Massachusetts Pay Equity Act, the proposed
Pay Equity for All Act of 2016 (H.R. 6030) and similar initiatives are designed to foster greater pay equality by forcing employers to develop salary offers based on job requirements and market pay levels rather than an applicant's current salary or salary history, which may be lower than current market rates for some individuals' skills and experience.
These efforts are likely to have nationwide implications for employers for several reasons:
Even if no additional legislative action takes place, the role of pre-hire salary questions in perpetuating pay inequality is likely to become more prominent, and the net result could be a more informed applicant pool. Regardless of where these applicants are located, "candidates are going to be far more hesitant to share pay history during an employment process and reluctant even to put it on a job application," said Steven Lindner, president of the Workplace Group in Florham Park, N.J.
A Good Thing?
Some companies and HR executives welcome a strictly market-based approach to making salary offers. In essence, this will require employers to "show their work" by making a clear, market-based case for what they want to offer a job candidate, which could foster greater pay transparency, said Matt Doucette, director of global talent acquisition at Monster Worldwide in Weston, Mass. "If an employer offers something lower than the midpoint for a specific job, the hiring manager can explain the reason for that, such as a lack of specific experience or a skill gap."
Not relying on salary history requires making a clear, market-based case for pay
During the interview and hiring process, "Women tend not to negotiate as strongly as men, so it will be interesting to see if the fact that they do not have to disclose their current salary [in Massachusetts] will encourage more women to be assertive in their negotiations," said Jessica Catlow, a partner with law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo in New York.
"Companies are going to have to be a lot more transparent about the pay rates for the jobs they are hiring for and what determines whether a candidate is at the lower part of that range or a higher part of that range," Lindner agreed. "The more clarity employers can provide about
their compensation philosophy and how they value jobs is probably smart practice."
A market-based approach can also help in the beginning stages of the hiring process. When managers base salary offers on a combination of an applicant's current salary and what the pay budget allows—rather than on what the market is paying for a given position, skills and experience—the hiring process is less likely to yield the best candidate. With no access to applicant salary information, employers have an opportunity to move toward a broader approach to hiring.
When employers have no specific salary information from candidates until the offer stage, "you can just focus on finding qualified candidates with the right skills, knowledge and experience," Doucette said.
Advising Hiring Managers
To help hiring managers operate in a market-focused hiring environment, employers must provide training not only in how to handle the interview process but also how to set salary levels for a specific position and candidate. At some point, employers will offer pay that falls short of applicant expectations. In these cases, the employer will have to determine whether to adjust the offer or lose out on its preferred applicant.
Relying only on the market to develop salary offers for new hires is a significant change. However, if momentum for more legislation and resistance to salary questions among applicants grows, employers may soon have no choice but to get used to it.
Joanne Sammer is a New Jersey-based business and financial writer.
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