Options Group Sees Seismic Shifts in Compensation Protocols

In 2019, New York has again solidified its position as a champion for equal pay rights by passing two new laws designed to close the gender wage gap. The new legislation further amends the New York Labor Law by expanding employee pay protections and by prohibiting employers from seeking or relying upon compensation history information. Here's the latest thinking from Richard Stein, chief growth officer at Options Group.

September 9, 2019 – The new state-wide compensation history law, codified as Section 194-a of the New York Labor Law, bans employers from relying upon or inquiring about the compensation history of a job applicant or current employee in deciding whether to hire or promote, or in determining compensation levels, among other things.

The ban also expressly applies to persons or entities acting as an employment agent, recruiter, or otherwise connecting applicants with employers.

The compensation history inquiry ban does not prohibit an applicant or current employee from voluntarily disclosing their compensation history for the purposes of negotiation, so long as the disclosure was not prompted. That being said, employers should be careful not to coerce or pressure an applicant or employee into providing their compensation history.

The goal of this legislation, which becomes effective on January 6, 2020, is to prevent the perpetuation of gender bias throughout someone’s entire career. By ensuring that future wage decisions are not based on past compensation this legislation allows all candidates to enter a new position unaffected by the biases (whether conscious or not) of past employers, as reflected by previous wage levels.

“Traditionally, asking candidates about their job and compensation history was considered a routine part of the job interview process,” said Richard Stein, chief growth officer and global head of OG iQ, the intelligence platform at Options Group. “Recruiters in particular have long relied on access to candidates’ compensation histories in order to act as talent brokers. In today’s world, however, it has become clear that this model is no longer sustainable.”

Notably, this new state-wide ban is in addition to and on top of the very similar prohibitions that already exist for New York City employers. Unlike the City’s law, however, the new State ban also applies to “current employees,” though it remains unclear how this aspect of the law will be interpreted and regulated.

Expanded Equal Pay Protections

The state’s suite of new legislation also expands equal pay protections for employees. The amended law, which will be codified as Section 194 of the Labor Law, requires equal pay among all members of protected classes as defined by the New York State Human Rights Law, which includes but is not limited to, gender, age, race, creed, color, national origin, sexual orientation, gender identity and expression, military status, disability, predisposing genetic characteristics, familial status, marital status, or domestic violence victim status.

Under the revised law, employers may not pay an employee who is a member of one or more protected class or classes at a lower rate of pay than an employee without status within the same protected class or classes performing work in the same establishment for:

  • Equal work that requires equal skill, effort, and responsibility, and is performed under similar working conditions; or
  • Substantially similar work, when viewed as a composite of skill, effort, and responsibility, and is performed under similar working conditions.

Employers are permitted to have pay differentials in compensation based on seniority, merit or a system which measures earnings by quantity or quality of production. In addition, employers may have pay differentials based on a bonafide factor other than status within one of the protected classes, such as education, training, or experience, provided certain other conditions are satisfied. This equal pay law will go into effect on October 8, 2019.

Another Look at the Impact 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.

Effect on Recruitment

“Executive search firms, having already been challenged by burgeoning technological developments available to candidates and employers alike, now face another challenge,” said Mr. Stein. “In navigating the new equal pay and compensation inquiry ban laws, firms have responded by putting much more focus on areas like organizational design, leadership development, job analysis, and executive assessment. Today more than ever the best recruiters focus on all aspects of talent. Operational structure, corporate governance, culture, business goals, results, and leadership composition are just some of the many factors that the modern recruiter is now expected to juggle,” he said.

In addition to the growing emphasis on reviewing all aspects of a candidate in order to assess potential performance, recruiters must gather this information in a way that complies with the new compensation history law, said Mr. Stein. “Employers and recruiters are exposed to liability if they ask an applicant or current employee any questions about their current or previous compensation, whether in an application or an interview.”

“That being said, nothing precludes an employer or an executive recruiter from asking about a candidate’s desired or expected compensation, or even about a minimum compensation requirement for a desired position,” Mr. Stein added. “These questions are forward looking and do not address the individual’s current or former compensation. Similarly, nothing prohibits an employer or an executive recruiter from asking an applicant to justify or explain ‘based on skills, training and experience’ their requested compensation level.”

“Search firms and their clients should promptly review their internal recruitments policies, as well as any applicable direct hire contracts, to ensure compliance with these new laws,” said Mr. Stein.

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.

Effect on Employers

The impact of these new laws will continue to push employers to update their compensation practices and protocols more rapidly than in past years. Companies are carefully revisiting their compensation strategies to ensure that they are adhering to the recently passed laws. One of the unintended consequences will be to accelerate the evolution of recruiters as strategic advisors. The most influential recruiters today are seizing the opportunity to become guides in an operational environment where old borders and landmarks have been blown away. Disruptions like the new equal pay and compensation inquiry ban laws will play to their strengths.

In preparation for these new laws, according to Mr. Stein, all employers should:

  • Remove compensation history inquiries from the recruitment process: taking it off the application and training hiring managers not to ask any questions related to compensation. (bonuses, benefits, additional perks given to an employee in return for work are also included within the prohibition)
  • Review their compensation practices with their outside advisors: commit to solving any compliance questions as soon as possible.
  • Ban online searches of a candidate’s compensation history: specifically during the recruitment and interviewing process.
  • Ensure that each applicant’s and employee’s protected class status is not considered when making compensation decisions, and that there are bona fide business factors to explain any perceived compensation disparity.

Of course, employers should consider consulting their human resources and legal advisors in order to ensure compliance going forward.

Recruiters Way In

“These evolving legal requirements regarding compensation history will require an even greater consultative partnership by search firms with both clients and candidates,” said Craig Lapham, managing partner and CEO of The Lapham Group. “The high touch boutiques in particular that build trusted long-term relationships with clients and candidates will have a significant competitive advantage regarding compensation protocols over firms that approach their client and candidate relationships in a more transactional manner and through a short term lens.”

“Employers are permitted to have pay differentials in compensation based on seniority, merit or a system which measures earnings by quantity or quality of production,” said Robin Judson, managing partner and group founder of Robin Judson Partners LLC. “Merit bonuses are one way to differentiate the quality of one employee versus another.”

On Wall Street and other industries, she added, “managers have discretion in determining the ranking and relative value of one employee versus another. Additionally, those same managers have control over which employees have access to the highest-profile engagements, company management, clients and resources. Those with less access will typically receive a less enthusiastic year-end review and hence, a lower bonus. Employers can differentiate pay packages among protected and non-protected groups using access and assignments. The changes in the law disrupt the perpetuation of underpaying the base compensation of protected classes of employees while making recruiting more difficult. Once employees are on board, bonuses remain a wild card,” said Ms. Judson.

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

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