There is a lot of discussion in the HR community about the impact of new salary history laws (here is a previous list, which you should assume will change). As these laws are now “live” in certain markets, employers are confronting the changes necessary to comply. I’m also seeing and hearing a lot of conversation about how “big” the change is for HR, and the compensation function in particular.
I don’t buy a lot of what I’m hearing.
Here are a few statements I’ve read or heard that I think are a bit overstated. I won’t quote people directly, since I admit I haven’t contacted them to verify intent or ensure accuracy. But I think it’s a safe assumption you’ve heard something along these lines.
The days of “let’s make a deal” are on the way out, and now there will be a greater emphasis on market data.
This is probably the foundation of the overstatements – most others stem from this. I do not believe that this will eliminate or even reduce salary negotiations. It may change who goes first in the negotiation, but doesn’t change that it’s a negotiation. The conventional wisdom that stating your negotiating position first is a mistake may, in itself be a mistake. This Forbes article from last year illustrates how anchoring (a known psychological outcome of the first negotiating offer) can be an advantage for the candidate, if done wisely.
Let’s remember that these laws largely only address whether an employer can ask about pay history. As soon as a candidate offers any history, the law doesn’t apply. The laws are silent about an employer requesting pay expectations, but it’s hard for me to see how that can be illegal. This would imply it become illegal to negotiate salary, which doesn’t seem plausible.
As a result, the offer dialogue for most companies will start differently, but ultimately land in the same place: a conversation about whether the offered compensation is good enough for a candidate to accept the offer.
This change should shorten recruiting cycles, since there will be less back-and-forth over salary.
Um, no. I could even argue that in some cases more back-and-forth is likely to occur, since the hiring manager will be less certain about how a candidate will react to the first offer (assuming the candidate doesn’t volunteer history or expectations). Many companies have approval processes for the first offer that go beyond the hiring manager. If the first offer is too low, a revised offer might need to be re-routed for approval.
This brings the compensation function to the forefront of attracting talent.
Compensation has always been in the forefront of attracting talent, since compensation is a prominent factor in why/how the labor market clears. I would assume that the compensation function has always played a role in either providing guidance on market rates, reviewing specific offers, market pricing the role before it is posted – or other forms of giving insight to recruiters and hiring managers. This role is not likely to change. It may happen earlier in the recruiting process, and companies may choose to approach it differently to try and address some the new negotiated challenges that now exist. However, I don’t think this fundamentally changes the role of the compensation function in the recruiting process.
Of course, it does give the compensation leaders their time in the spotlight, whether they like it or not.
I expect that more employers will post pay ranges in their job postings, since this will efficiently attract the right people to the job.
There is two parts to this. First, I don’t agree that a ban on requesting salary history leads to more companies sharing pay ranges in a job posting. If you stipulate any of my previous arguments, it follows that new laws are not a catalyst to fundamentally rethink how a company approaches broader pay transparency. Posting pay ranges presents a number of new challenges that likely outweigh the benefits (which is why it’s not a common practice today).
Second, even if more companies do post pay ranges, I don’t believe it follows that this is a more efficient mechanism for attracting the right talent. It creates a scenario where certain job seekers will select themselves out of the process (those who currently make more than the posted range), and will bias the sample of applicants to those who aspire to that level of earnings. So yes, this leads to a set of applicants who are more likely to accept the role if offered. However, it’s a leap to assume that those likely to accept the role are actually the “right people” for the job. I think we all have examples where great talent emerges at a pay rate higher than what we had expected to pay – not because we priced the job incorrectly, but because we found someone capable of doing a slightly different job than we expected. Matches like this likely decrease with posted pay ranges, since those “upgrade” applicants likely self-select out of the process.
This is the step we’ve needed to solve the gender pay gap.
We need to quickly acknowledge that gender pay gap is not a simple thing to solve. See previous posts about this (a more general overview, and a recent comment about the Uber study). A meaningful portion of the gender pay gap has nothing to do with discrimination or salary history anchors, and these new salary history laws will do nothing to address the broader causes of the gender pay gap.
Could this be a step in the direction of recovering from past discrimination that may have occurred? Sure. We can see a scenario where a female who had inappropriately low earnings can recover that gap when a new offer is presented that is not biased by those past earnings. But it is important to note that this is not going to be the majority of circumstances.
While I don’t buy some of what I’m hearing, here is what we know to be true.
This will make an impact – but on the margin.
While many of the statements above are a bit too much, I do not disagree that this will make some impact. As noted above, this change will result in some gains in wage equality for those who would have been anchored by their past pay.
There is a fair amount of gray area.
Like much regulation, we don’t have a ton of details (yet). Can you ask for salary expectations? I personally believe so, but there are others who believe not. Can you verify past income once an offer has been accepted? Some laws explicitly say you can… and when you find a discrepancy what happens? Over time, we will learn more about how employers act and what practices are challenged.
Training for managers is necessary.
This does represent a new way of doing things, and managers have been programmed to build offers from past salary. Managers will need to be educated about the changes, what to say and not say, and approach making offers in a new way.