Another Look at the Impact and Implications of Pay History Legislation

In an effort to end pay inequity for women, an increasing number of cities and states are moving to restrict employers, and the recruitment firms they hire, from inquiring about candidates’ past pay. The jury is still out on how well such laws serve their purpose, says a new report out of NGS Global.

January 11, 2018 – As more cities and states enact legislation to restrict employers, and their search agents, from asking candidates about their pay history, questions remain about the effectiveness of such laws, according to a new study by the recruitment firm NGS Global.

The report, “Challenges of Gathering Compensation Data on Candidates,” spearheaded by managing partners David Nosal and Paula Elmore, says the laws are still so new that their stated purpose of helping eliminate pay inequity for women is in large part untested. “There is not yet sufficient case law to understand all the ambiguities and nuances of laws restricting questions about compensation history,” said the study. “It remains to be seen whether legislation banning employers from asking for compensation history will have any positive impact in terms of women reaching pay parity with men.”

Prohibitions against asking about a job candidate’s salary history have already gone into effect, in varying forms, in the states of Delaware, Oregon, New York and California as well as in New York City, Pittsburgh and New Orleans. Similar laws will go into effect later this year in Massachusetts and Puerto Rico, among other places. Close to 20 states and the U.S. Congress have introduced salary history bills, which await approval, said the report. In some places, such as Illinois and New Jersey, salary history laws have been vetoed. In others, such as Philadelphia, they have faced legal challenge.

A central question about salary history bans revolves around what exactly the new laws seek to address. “On the one hand, if what’s happening is an unconscious bias from employers toward women who refuse to answer the question, then not being able to ask may alleviate some of the gap documented in offers to female disclosers versus refusers,” said the report.

“If, however, the real issue is around employers filling in the salary blanks differently based on gender when candidates don’t share their current salary, a ban on asking for pay history may not get the job done. What is certain is that employers and their recruiting partners must revamp what has been a key part of the hiring process and for determining market rate of compensation for a position.”

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The Value of the Position

Historically, client organizations have expected recruiters to collect information such as base salary, target and actual bonus, as well as equity (including grant and vesting information) from each candidate early in the recruiting process, said NGS Global. This helps determine whether a candidate falls within the target compensation range for a position.

Related: Wage Growth Seen in Most Recent Quarter

“The data has also been useful in helping clients understand whether the compensation targeted for a position is calibrated to the level of skill and experience the organization seeks,” said the report. “It has also helped both the candidate and the client organization understand whether embarking in an interview process is a worthwhile investment of time for both parties.”

Salary ban laws have been driven by a concern that employers may perpetuate the earnings divide between men and women by basing future salaries on previous wages, said the report. “Theoretically, by eliminating salary disclosure during the screening and interviewing process, the emphasis will be on the value of a position rather than the value of an individual based on their prior earnings,” said the report. “Thus, women should realize parity in pay with men.”

Women earn about 80 cents for every dollar earned by men, according to a 2016 Census Bureau study cited by the authors.

A Broader Hiring Approach

Proponents of such laws believe they eliminate a key factor in the cycle of gender discrimination, low pay and low raises, which compound over women’s careers. “Employers and job candidates can engage in robust salary negotiations focused on the candidate’s qualifications and the requirements for the job,” said the report. “With no access to past compensation information, employers have an opportunity to move toward a broader approach to hiring. With no information from candidates until after an offer has been accepted, recruiters can, in theory, focus solely on finding qualified candidates with the right skills, knowledge and experience, and then base salary on the position.”

NYC Law Banning Salary History Queries Set to Begin
Employers in New York City – and the executive search firms that represent them – are now prohibited from asking job candidates about their salary history. The New York City Human Rights Law, as it is known, is an effort to help bring women’s pay in line with that of their male counterparts.

Not everyone agrees, however, that the laws will have much effect on the gender wage gap. The NGS authors pointed to a Bloomberg editorial that called the salary history legislation a “gag rule that won’t help women advance.” It’s “policymaking by anecdote,” the editorial board wrote, arguing that such laws have no studies to back them up: “There is real danger, on the other hand, that such a ban could backfire. If employers are legally barred from asking about salary, they might instead guess at what an applicant earns – and guess lower if that person is female.”

Related: Salaries Rising Globally; Biggest Pay Increase In Three Years

What’s more, industry has a solid grasp on what the markets are, said the report, and will typically have tight compensation ranges, which could prevent the larger salaries that many expect. “The widely held assumption is revealing your compensation history, especially if the number is below market value, can negatively influence the offer made by the employer with whom you’re interviewing,” said NGS Global.

“However, a 2017 study by the Harvard Business Review revealed that a woman who was asked about her salary history and refused to disclose, was offered 1.8 percent less than a woman who was asked and did disclose. Meanwhile, if a man refused to disclose when asked about his compensation history, he received an offer that was 1.2 percent higher than a man who did.”

Because each state or municipality has a slightly different version of such laws, compliance could become a particular challenge for organizations that operate in multiple states, said the report. Among other issues, telecommuting could become an issue. “With remote working arrangements increasingly common, employers/recruiters and candidates located in separate states are more likely to be involved in situations where the ban applies in one state but not the other,” said NGS Global.

Common Features

Salary history laws differ slightly from place to place. But the core issue of restricting questions about prior compensation is the same, said NGS Global, and such legislation basically includes the following:

  • Employers are blocked from asking candidates about compensation history in interviews, applications, as well as from their current or former employer. Screening of applicants based on past salary is also prohibited.
  • If an employer inadvertently learns a candidate’s salary history, it may not be used for the basis of an offer.
  • If the law is in effect for states or cities where interviews and conversations take place for both candidate and interviewer, as well as where the position is located, the question of past compensation may not be asked.
  • Candidates may voluntarily disclose their salary history without being prompted by interviewer.
  • Employers may ask a candidate what compensation expectations they have for the position.
  • After an employment offer has been made and compensation terms have been defined, the law allows for confirmation of past salary. If reported by candidates, sanctions for employers unintentionally or willfully violating asking job candidates for past compensation range from fines as high as $250,000, mandated training or possible jail time.

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States and cities each have their own jurisdiction, but all require fines be levied as high as $250,000, said the report. There typically is a grace period for employers after the law has taken effect before enforcement begins. Civil actions, for example, are not permitted against employers in Oregon until January 2024.

Organizations with operations in regions impacted by salary history restrictions should evaluate what measures are necessary to comply with the new restrictions. To best manage the regulations, NGS Global said, organizations should:

  • Remove compensation questions from hiring forms, such as job applications, candidate questionnaires and background check forms.
  • Update interview and negotiation policies and procedures.
  • Train hiring managers and interviewers on the new provisions.
  • Make interviewers aware that this law has an oral component which applies to their conversations with candidates via phone or in-person.

NGS Global has offices across the Americas, Europe, Africa and Asia. The firm provides both the resources of major global executive search firm with high-touch service, accelerated completion cycles and superior candidate access made possible by a mid-sized platform without external shareholders.

Related: Increasing Demand for Talent Spurs Steady Wage Growth

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Will Schatz, Managing Editor – Hunt Scanlon Media

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