How new legislation impacts hiring practices.
Laws banning salary inquiry—the practice of asking candidates to provide their salary history—are increasingly common at the local and state levels. It’s a trend that’s likely to pick up steam in the coming years. In Illinois, the ban was vetoed by previous governor Bruce Rauner, but with new governor J.B. Pritzker in office, the ban will likely become law statewide.
Stranberg Resource Group recently sat down with Manuel Cuevas-Trisan (LinkedIn) , the former Chief Human Resources Officer & Corporate Vice President of Employment Law & Data Protection at Motorola Solutions, to discuss the importance of the ban, how it will impact businesses, the legal and financial risks associated with the ban as well as suggestions on how to effectively discuss compensation with candidates during the interview process.
SRG: What is the background of the recent trend in legislation banning compensation inquiry?
Thus far, the ban on questioning candidates and job applicants about their salary history has passed in 13 states and 12 localities. Most recently, the City of Cincinnati passed a salary inquiry ban that also requires companies to publish the pay scale for the position.
The ban is part of a trend in legislation and corporate best practice that aims to end pay discrimination and close the gender pay gap. This law is ultimately about achieving pay equity for both women and people of color, who have historically been adversely affected by pay disparities.
The longer-term concern that these laws aim to fix is the perpetuation of wage discrimination. Consider this scenario: You are a woman making less than your male counterparts, and when recruited, you are repeatedly low-balled on salary. This has a cumulative effect over the span of your career even as you change employers, resulting in a lifetime of unequal pay.
Salary inquiry can also limit the options for individuals who are pivoting in their careers and personal lives. Here’s another example: You’re a single 34-year-old. You are highly skilled, and you’ve decided to bring your talents to a startup that offers a relatively low base salary but includes a stake in the business. This is compelling to you as there is huge upside potential and the circumstances of your life allow for the risk. But a few years later, you are married and expecting a child, so your risk tolerance has changed significantly, and you return to the job market looking to increase your base compensation to reflect your current and future needs.
Salary inquiry cannot account for the circumstances of people’s lives. And in cases like the above, it not only hurts candidates as they search for a job, it also limits the talent pool available to the company.
SRG: What specifically does the law ban? And where is the line when it comes to discussing salary and compensation in the hiring process?
The law bans companies, recruiters and agencies from asking candidates about their salary history or requiring them to disclose their most recent pay during the hiring process. However, it is legal for companies to use any data that a candidate provides on their own, without being prompted.
Best practice is for both parties, the company and candidate, to be prepared to discuss a compensation range. The company will, at a minimum, budget a pay range for the role, or have in place a internal compensation policies. The candidate, in turn, will have their own range expectations.
It is common practice today to see applications that require candidates to state their “desired compensation.” This practice is permissible but may be ill-advised if used to automatically disqualify applicants because there can be material differences in the pay structures of different companies. Some companies provide higher base pay and lower bonuses and lower long-term incentives. Others offer lower base pay and are very aggressive on short and long-term incentives. These differences are compounded by the fact that oftentimes candidates themselves are not entirely educated in the nuances of their own compensation. Thus, their desired pay range, as stated in a job application, may be more flexible than can be described by an automated form, and employers would be wise to maintain an equally flexible frame of mind, at least until the subject has been broached between the parties.
Compensation should be part of a conversation early enough in the vetting process so that neither party’s time is wasted but should also be broad enough to allow for options and ultimately negotiations.
With the law in place in a minority of states, how does the ban impact businesses with multi-state operations?
It’s always illegal to discriminate and these bans seek to achieve systemic pay equity. In states and territories where the ban is in place, there is a penalty, usually in the form of fines. And there is also the risk of lawsuits and associated negative publicity that can damage a company’s reputation.
There is a high risk of long-term damage to the company even if salary inquiry is legal where the company is located. Using salary inquiry as an impactful feature in the hiring process creates a scenario where a company can accrue a long-time liability by inheriting the pay disparities established in the first place by prior employers. This may result in wage discrimination in a pay-equity analysis during an audit.
In light of changing laws, how should companies adjust their compensation processes?
First and foremost, compensation practices cannot be driven exclusively by financial considerations. Companies are well served by having a clearly articulated compensation philosophy that aligns with its business imperatives, talent strategy and employer brand. If a company looks at pay solely as a line item in its balance sheet, it will struggle attracting and retaining talent and will be likely to perpetuate long-standing pay disparities.
Another risk, which may be less tangible but equally pernicious, is the commoditization of human talent. Selecting the “lowest bidder” might seem to be attractive in the immediate term, but because of increased transparency about pay (consider the “Glassdoor effect”), regulatory pressures and the greater access candidates and current employees have to reliable sources of pay data, a more progressive approach to pay practices is best.
Hiring is a fundamentally human process. It’s important to look all people in the eye and have a candid conversation about the job, their career and their motivations. This includes their professional background, relevant skills, education and other qualifications, but importantly it should also include their life circumstances that will inform their interest and suitability to contribute to the company.
If salary inquiry remains important to your hiring practice (assuming it’s legal where you are located), you will face another issue: candidates at all levels strongly dislike being asked this question, and social platforms like Glassdoor and Twitter are common repositories of grievances from current, past and prospective employees about company practices.
Best practice is to discuss the compensation range that is being offered for the position and allow the candidate to experience your candor and transparency. Most candidates will then convey whether this is within the range of acceptability, or ask questions related to how the total compensation package is structured. Ensure that they are fairly and thoroughly vetted for the role and make your offer contingent on a background check and verification and other relevant data points.
What is your process for hiring and interviewing?