Justified Anti-Transparency Rules... When Your Past Pay is None of My Business

Asking the salary history of job applicants may become a banned question but employers could be required to publish hiring rates and stick to them.  This innovative intended regulatory intervention in recruiting practices is a pay equity initiative by (of course) California.   AB 1017 (Campos), the pay equity law proposed in February 2015, would ban employment advertising that demands salary history from job applicants; and it would require the minimum applicable hiring rate to be both published and paid or exceeded.  At first, I didn’t dream this idea would survive for long.  But the bill is advancing successfully right now.  This may be serious stuff, with broad implications for HR. 

I really don't expect it to pass, but it clarifies the growing public annoyance at the systemically discriminatory effects of low-ball offer rates that have disproportionate adverse effects on protected classes.  Women are particularly vulnerable to the negative consequences of modest pay histories.  Initial comments about the implications have have barely scratched the surface. 

It could discomfit recruiters but would please applicants.  Requiring the employer to share its pay promises should not bother comp types at all. 

Employment Recruiters:  Searches may become more laborious when past pay history can no longer be used to swiftly discard applicants.  Recruiters will have to work harder, interview more applicants and apply fewer heuristic exclusion tools… the process of elimination will become more difficult.  Fewer people will offer themselves as candidates when the real pay rates are no longer hidden.  It will end the status quo that now favors recruiters:  they can tailor their referrals towards those applicants with the highest earnings expectations, hoping to pressure the hiring managers to force HR to raise the offer rates, making their searches easier… winning more acceptances and generating higher rewards for headhunters.  It’s harder to recruit people when dangling a low offer than with a generous one, and this rule would hang your dirty laundry out for all to see.

Applicants:  Clear actual (rather than unrealistic theoretical) pay expectations will be published.  Job seekers can search more efficiently, without wasting time or having their hopes dashed unnecessarily and painfully.  Better to quickly learn that job is not worth landing rather than suffer a constant drain of your enthusiasm as you dedicate precious time and money in a losing cause.  If a job opening won’t pay enough to be minimally acceptable, there is no sense in pursuing it.  The sooner job-seekers stop chasing worthless openings, the more effectively they can preserve their dwindling optimism. 

Compensation Managers:  For a change, government becomes your ally!  The external law will force the enterprise to abide by your internal rules.  Compensation need not engage in endless contentious battles with recruiters and powerful hiring managers.  No longer will others be able to override your carefully crafted entry hiring rates.  The legal requirement to play fair according to your own rules will also strengthen the rigor of your policy standards, giving greater import to careful studies of external competitiveness and internal equity.  Any change to hiring rates will be publicized, thus becoming transparent to current incumbents and easing the otherwise frequently deferred pay reclassification and adjustment procedures.  Hiring at any “new higher rate” will compel immediate group adjustments.  Yes, it will cost more money in the short term, but it will save all the inevitable long term costs from lost morale and diminished motivation when companies drag their heels doing what is right.  Instead of peers being disgruntled over the hire of a new associate at a higher pay rate, they will rejoice at the ripple effect that raises the grade floor for all of them.

A new State law could (in this case, at least) shift the responsibility for compensation policy enforcement.  It would make compensation administration much more important and a lot easier. 

E. James (Jim) Brennan was Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. After over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.), serves on the Advisory Board of the Compensation and Benefits Review and will express his opinion on almost anything.

Image "Confidential Rubber Stamp" courtesy of Stuart Miles/FreeDigitalPhotos.net

Comments

[E. James (Jim) Brennan]

In the short period between the writing of this article and its publication, the proposed law - California AB 1017 (Campos) - has already been amended. The original double-pronged issues have been reduced to only one. Still troubling to many, of course, and the threat of externally forced equity may still reappear here or in some other proposed law, somewhere, sometime.

The proposed law continues to advance towards passage in CA, now without the minimum floor provision that would have empowered compensation departments.

[hugh]

more govt intervention please

[E. James (Jim) Brennan]

You don't even need to ask, Hugh, because they are taking the initiative fighting for you... depending on who "you" is.

[Karen Kervick]

Employers should take responsibility and do the right thing so these ideas are not even generated.

Companies who don't utilize salary structures have no formal written "minimum" and the "how low can we get them" mentality comes into play. Ironically, employers do have unwritten minimums and maximums based on what they are actually paying or willing to pay when they advertise.

It only makes sense to formalize it and create the basis for equity and consistent hiring. Even with a pay range, you have flexibility in what you can offer but at least you have a bottom threshold.

The salary structure we implemented brought clarity to the formerly unwritten hiring range, but I still fight the "they only asked for X" or "they were making x" even though they have experience that should place them at "y". Then there is the "they are currently making X so we need to match that" even though they are no more experienced than incumbents.

Education is also needed for managers about not starting everyone at minimum when the job only requires a couple of years to become proficient at which point they should be at or near midpoint. In some cases, if you start them at minimum it will take more years at the current increase levels to get them to midpoint so they need to see and use the range within the range.

This goes back to the no salary negotiation post, which advised about companies offering one fair and competitive rate with no room for negotiation. You don't need negotiation if you are offering a fair rate within a range per the candidate's level of experience and not looking at their past or present wages.

[E. James (Jim) Brennan]

Karen makes excellent accurate points about the value of equitable and consistent hiring practices. Management abuse of discretion will remain an issue, absent extensive education and engagement, if not compulsion of some kind. Wish it could be just a desire to do things right, but some require top-down pressure from the C Suite or outside laws.

The TLNT site (where this article was picked up today) featured comments veering off into the problems with "rusing." (Some employment ads are ruses, fakes, falsified for various reasons.)

Note that it is the bad actors among us who create the pressure for government interference. If HR did things right, politicians would not be tempted to impose new and often inappropriate bureaucratic rules. Maybe if we slapped them upside the head, they might pay attention. The HR folks, not the politicians, of course. It wouldn't even register on the pols' sensors.

[R Phillips]

Great discussion and on-point with challenges faced by comp professionals on a daily basis. The paragraph below summarizes the constant struggle of our team:

The salary structure we implemented brought clarity to the formerly unwritten hiring range, but I still fight the "they only asked for X" or "they were making x" even though they have experience that should place them at "y". Then there is the "they are currently making X so we need to match that" even though they are no more experienced than incumbents.

This mindset is exacerbated in large/jumbo organizations where associated silo/inconsistent practices flourish. We train continuously but without management willingness to hold folks accountable for unsanctioned actions, we become the dog chasing its tail.

[E. James (Jim) Brennan]

Reba Phillips smartly notes the current competing motives of the hiring manager: (1) expense control and (2) talent acquisition/engagement. They need another... (3) compliance with compensation policy. Won't happen until #3 is added as a Key Performance Indicator and there are consequences for the results. Thanks for the reminder!