Yes, it's OK to use salary information from new hires' previous job when you decide compensation. In a recent decision, the 9th U.S. Circuit Court of Appeals, which is in my neighborhood, overturned a lower federal court ruling which specified that the practice was discriminatory. The 9th Circuit Court's guidance to us? When we use previous salary information, we should apply it reasonably based on an articulated business policy so it is clear cut that it is "a factor other than sex."
Sound like the end of the story for the time being, with the typical soft focus guidance from the Court? Think again. In spite of the decision, the Court used an example to communicate specific expectations for all compensation decision makers.
“The current employer sets salary by considering the employee’s education, years of experience, and prior salary,” the Court noted in its opinion. “Using these factors, the employer gives both employees the same salary credit for their identical education and experience, but the employer pays the male employee a higher salary than the female employee because of his higher prior salary.” The ruling uses this example to show that, if prior salary alone accounts for the pay differential, this does not meet their guidance on applying information about previous salary "reasonably based on an articulated business policy."
Of course, they've touched on the heart of the problem. It's not hard to miss, but it is hidden by our familiar habits. Setting the hiring salary based largely on a previous pay level has been passed on as accepted practice, whether we like it or not. Yet our profession's guidance on assessment of ability has historically directed us to behaviors, skills and experience. Take a look in the mirror, the Court suggests to us.
Local and state governments across the country have moved to ban employers from asking for an employee's pay history in their efforts to rein in the compensation gender gap. More will follow. My Bay Area Compensation Association (BACA) just held a panel on Pay Equity where our legal participant advised that it's only a matter of time before it is California law, in spite of a push back from the Governor.
Our profession has received similar guidance from the Society of Human Resource Management (SHRM), "We anticipate that the trend of state and local legislation preventing employers from asking about prior salary history is likely to continue."
So don't skim over this Circuit Court's decision based on misleading headlines like, "Court Rules Gender Pay Gap Legal Based on Prior Salaries." There's a strong sense out there that the issue may make its way to the Supreme Court (that is, if we continue to insist on prior bad habits).
In the meantime, my best advice is to sit down with your colleagues and answer the telling question, "Why don't identical education and experience translate into equal compensation offers to new hires at our company?" When you've hashed that out, it will be clear how much past salary history should be weighed when you make an offer to new employees.
Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. Margaret is a Board member of the Bay Area Compensation Association (BACA). She coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at https://gumroad.com/l/everythingiscommunication.
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