Salary Disclosure Rules – Don’t Ask, Don’t Tell?

In January 2018 California joined the growing list of states and municipalities in the U.S. that have rules in place preventing employers from asking job candidates about their compensation history (other such jurisdictions currently include Massachusetts, Delaware, Oregon, Philadelphia, New York City and state). Each law provides their own unique directions along with exceptions and “safe harbor” provisions, but the rationale for enacting them is to prevent the exploitation of historically underpaid employees, and in particular to close the “gender gap” in compensation differences between men and women (some of the laws specifically address the gender gap in their preambles). The spirit of the law is to provide equal pay for equal work, so these are positive steps toward ensuring that all employees regardless of gender, race, ethnicity or any other demographic trait are treated fairly and are not exploited.

In addition to demographic traits another segment of the work force that has been subject to potential wage exploitation consists of unemployed or transitioning workers. The thinking is that some employers will take advantage of a candidate who has no current income and offer them a wage that is at the lowest end of the designated pay scale for the job. This is exacerbated by the often-false perception that unemployed candidates are not as productive and high-performing as those who are currently working and not actively seeking a new job. Of course this is patently unfair when employees are caught in a large reduction-in-force or layoff and have no control over their employment status, particularly in the age of skyrocketing mergers and acquisitions.

So these new laws are good for us, right? Most reasonable people would agree with the rationale behind them and envision that they will become the law of the land in the U.S. in the near future. There is a danger, however, for many job-seeking candidates to assume that non-disclosure of compensation history will work to their benefit. One must remember that they are in a competition with other job-seekers for an opening and that the employer might very well select someone else for the position, and that the price tag for the employee is a relatively small part of the overall selection criteria. While there are exceptions, for the majority of candidates it will be advantageous to proactively disclose salary history information at some point in the selection process rather than keeping that information hidden.

From the employer’s perspective they are trying to find the best employee possible for their opening and pay them fairly, so that the new team member will be happy and productive in the job, and stay with the organization long-term. The job market is subject to the same supply and demand forces of other markets; if an employee is unhappy for whatever reason in their current job they can make a job change (just talk to your friendly Executive Recruiter about that . . .) One way to correct an exploitive wage situation is to find an employer who will pay fairly for top talent, and good employers know that. But what is considered “fair” compensation? For the employee it means being paid consistently with what that industry generally pays for that function. The employer follows that same direction too, but also must maintain their own “internal equity” at their organization – making sure that they don’t pay a new person more than an existing employee who has similar qualifications and experience. So there is pressure on the employer to ensure that they are offering a candidate an appropriate wage that is a win-win for both sides.

How does the employer find that appropriate offer?

In addition to monitoring industry wage trends and maintaining internal equity, the hiring manager must make an offer to the candidate that is financially incenting for personal reasons as well. Some candidates are highly motivated by money, others not as much, but all want to believe they are being treated fairly. In the new era of “don’t ask, don’t tell,” candidates will now be asked about their salary expectations at some point in the selection process, possibly more than once. As a candidate you now have an important decision to make. If you share a number that is beyond what the employer believes is reasonable for them to pay you are likely to screen yourself out of the selection process (remember, they have other candidates to consider). And if you share a number that is below what they believe is reasonable then you are leaving money on the table. That’s why I always recommend that a candidate reply to the question about salary expectations by explaining that they are seeking a compensation level that is fair and reasonable based on their qualifications. Now, if an employer already has information about the candidate’s compensation history they typically have an idea of what they would like to offer, and that reply nearly always deflects the difficult question about money that inevitably comes up in the interview process.

In the new era however, the employer (most often an HR manager) will either attempt to “pre-close” a candidate during the money conversation or be faced with a protracted negotiating process after they make an offer, which is something they don’t want. Depending on how gracefully the candidate communicates in that “negotiation” he or she may or may not get the job. I’ve seen many cases where a job offer is rescinded by an employer because of frustration with the candidate’s communication style at the point of offer. The vast majority of employers want to extend an original offer that is the “best they can do,” or very close to it. A candidate may be able to go the well one time to enhance it, but generally not more than once. The rejection of counteroffers will doom the process, and it can all be avoided with better communication earlier in the process about what is incentivizing to the candidate.

So, in responding to that question about salary expectations I will continue to recommend that most candidates disclose some of their compensation history and also provide some direction about what they are seeking for that particular position. For candidate’s who believe they have been exploited in the past for whatever reason they can explain their situation. This will give the employer the opportunity to offer something that is incentivizing and is a win-win for both sides, and avoid the potential for the candidate to create ill will or burn up political capital before they even start working at the company.

As a recruiter and broker of these deals I have observed that the more transparency and candor both sides exhibit in the process the higher the likelihood of a new hire, and of having someone remain with the company long-term. I view the new trend of non-discloser as a potential threat to the process. On the other hand, it’s likely going to be a boon for the recruiter-broker who will be called upon more than ever to optimize communication and facilitate the process.

As always, I welcome your comments or questions.