Pay Gaps and Transparency

Let’s face it.   I think we all agree that if we want pay transparency we’ll have to clean house.   But let’s drill down and look at just what that means.  As with most things, the devil’s in the details.

Here’s one.  From my perspective, pay gaps need to be addressed for people before they even get hired, not just for employees after they’re on board. Focusing on the latter is like closing the door after the horse has left the barn. 

Example:  On most employment applications candidates are asked to provide their current salary.  If they don’t answer the question, their applications may be tossed out.

If they answer and their salaries are too high, they may not be considered further.  In truth, some candidates may be willing to take less than their current salary if the job is challenging and provides a good career path.   They never get to find out because the door has already been slammed shut.

If they answer and their salaries are too low, it may cause the company to make some unfair assumptions --- such as low pay due to poor performance.  On the other hand, the company may put a candidate at the top of the list because they can offer lower pay than they might otherwise have to offer to get the job filled.

As I see it, there are two issues involved with new hire pay gaps:

1) Potential discrimination in hiring if candidates are in a protected class

2) Pay gap problems with new hires in general if a company decides to make pay transparent

Issue #1:

The Paycheck Fairness Act was introduced and rejected by the U.S. Congress twice.  If you remember, it was designed to expand the scope of the Equal Pay Act of 1963.  Among other things it would raise the bar for the “factor other than sex” defense, meaning that companies would be required to show that any wage discrepancies are based on genuine business requirements and/or related to performance.  It would make it more difficult for employers to use legal defenses used in the past, such as alleged differences in negotiating skills or differences in pay rates at previous employers.   And . . . even if a Paycheck Fairness Act is never introduced again, there will still be transparency issues.

Issue #2:

Even if the gaps in #1 are corrected for protected class new hires, gaps for other new hires might still exist.  If companies don’t take care of these as well there won’t be legal issues but, again, there will be a transparency problem.

It wouldn’t take employees long to spot all of them and ask why.

Possible Solution 

Here is what one State is proposing that makes sense to me.  A bill recently filed in the Massachusetts Legislature aims to address situations like this by prohibiting employers from seeking job candidates’ salary histories. The bill also would require companies to disclose an open position’s minimum pay. 

If candidates are good enough to get a job, aren't they good enough to get at least the minimum pay for the job --- even more if their qualifications and experience are similar to others doing the same job with higher pay?

Pay gaps aren’t just a legal issue.   They’re a transparency issue too.  Like I said, the devil’s in the details.

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She typically works with companies that are growing overseas either organically or through acquisitions. Her expertise encompasses many areas of HR --- compensation, benefits and wellness, labor law, learning/development, strategic workforce planning and mergers and acquisitions. Her true passion is studying globalization and its current/future impact on companies and jobs. She has managed both local/ in-country national and expatriate programs and has been an expatriate twice during her career. She has certifications from HCRI, World at Work and Human Capital Institute as well as a B.S. and M.S. in Psychology and an MBA. Jacque has been a speaker in the U.S., Asia and Europe and is a regular contributor to various HR and talent management publications.

Comments

[Chris Dobyns]

Good topic, and one of my favorites, since from time-to-time, I've had something of a running "debate" with our recruiters on new hire salary setting (good-natured debate, that is . . .).

My current employer "screens" applicants with salary requirements more than we can approximate (Screens = Excludes). I'm not sure I'm thrilled about that, since whether you're being honest (or realistic) about your salary requirements, you may be willing to accept less, if you're the top candidate (versus nothing, if you're the salary-intransigent top candidate, that we make the decision to "walk away from").

And nobody wins in a game of low-ball new hire salary setting. I think that regardless of candidate "salary demands", based on the qualifications of the candidate relative to the requirements of the job, that the employer should offer a competitive salary that represents what the employer is able to pay, and what the employee should be reasonably willing to accept. That's a win-win (well, usually).

[E. James (Jim) Brennan]

A good professional HR/compensation department will impose a lower limit on how "cheap" a manager can go. Standard approach is to forbid any underwater (below grade minimum) hire. When you consider how seldom that is seen in actual practice, it tells you how few really good professional HR/comp departments there are. (Sigh!)

[Jacque Vilet]

Agree Jim but this goes beyond minimum in range. If companies look at internal equity within the range they will no doubt find problems as well. And that is just one problem that has to be resolved before there can be pay transparency.

And wouldn't it help if companies started putting the minimum salary in a posting to begin with? That eliminate the "game" of both candidate and recruiter trying to outwit each other.

[E. James (Jim) Brennan]

Yes, it would help if employers publicized their lowest entry rate, BOE. But some use the ambiguity as an expert trap, others troll for suckers and a few rascals simply run fake ads to figure out what they should pay their "irreplaceable" incumbent.