The Single Biggest Step to Pay Equity? Stop Asking About Salary History

June 30, 2020

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Pay equity is hard to achieve. It took Starbucks 10 years of concerted effort to reach pay equity for employees of all genders and races in their U.S. operations. But new research shows that banning questions about salary history can help companies move more quickly and sure-footedly toward pay equity.

In a working paper published earlier this month, researchers from Boston University’s School of Law found that in states where salary history bans have been enacted, pay for those who switched jobs increased, on average, 5% to 6% more than for those who changed jobs in other states. But the boost was even larger for African Americans, who received increases that were 13% to 16% higher, and for women, who received bumps that were 8% to 9% higher, the study reported.

James Bessen, an economist who was the principal investigator in the study, says the “use of salary-history information perpetuates inequality.”

Starting pay at a new company is the single most important factor in getting to pay equity. And getting starting pay right begins with not asking about a candidate’s previous salary, which allows companies to avoid intentionally or inadvertently “importing” previous pay inequity. The BU research suggests that while employers might not be personally biased, their actions can result in substantial inequities for groups that are discriminated against.

Salary history bans have been enacted to decrease pay inequity

In 2016, Massachusetts became the first U.S. state to enact a salary history ban. That legislation was drafted to address the gender pay gap. The law prohibits employers from using previous salaries as a screening tool and from asking candidates any salary-related questions until after they have received a job offer. Since then, another 18 states as well as Puerto Rico, the District of Columbia, and a number of U.S. cities and counties have enacted bans on employers asking salary history questions to candidates.

“What the salary history ban does,” James says, “is it takes away that bargaining advantage [from employers].”

It has also given his team a way to measure the impact of keeping previous compensation out of the interview process. James and his two coauthors analyzed data from seven years of the monthly Current Population Survey that is compiled by the Bureau of Labor Statistics and the U.S. Census Bureau.

That data let them see the significant pay boosts that salary history bans give job-switchers and helped them reach the conclusion that “a large portion of the pay gaps for women and minorities . . . goes away with salary history bans.” They also concluded that the research dispels any possibility that pay gaps arise from productivity differences.

Salary history bans drive hiring managers to consider more candidates and companies to share salary ranges

Recruiters and hiring managers sometimes use current salary as a proxy for how valuable a prospective employee is, with the belief that the more a person is being paid, the more value they must add for their company — or future company. When they are stripped of access to that information, they consider a wider group of candidates, invite more candidates in for interviews, and ask more questions of each candidate, according to a research paper published last year. Which also suggests that teams that stop looking at salary history may more successfully recruit diverse candidates.

The team at BU also found that in states that banned questions about compensation history the number of job posts that listed salary ranges tripled, from about 10% to 30%. Companies that share salary information at the start of the hiring process find that that practice has four chief benefits:

  1. It streamlines pay negotiations later.
  2. It filters out those who would later decline an offer based on pay.
  3. It allows candidate interviews to focus on other topics/
  4. And, of course, it promotes more equitable pay, which builds trust, improves talent brand, and increases attraction and retention.

And this trust is particularly important for women, blacks, and Latinos, who historically have been underpaid. “Pay transparency removes the distrust people have,” says Lesley Miley, a director of engineering at Google. “As an African American, I’m always distrustful because all the data supports that I’m going to be paid less. If you come out and say, ‘This is what our salary is, these are the ranges,’ that’s going to build trust.”

Final thoughts: Even if you’re not required to, consider discontinuing questions about previous salary

If your company does business in a state or country that still allows questions about salary history, consider dropping them and, instead, sharing your salary ranges. You’ll be on trend: When LinkedIn asked 5,000 talent professionals around the world if their companies share salary information, 27% said they did and another 22% said they were likely to over the coming five years.

For starters, candidates are increasingly turning to aggregated salary information on tools like LinkedIn Salary or PayScale. They have a pretty good idea what the ranges should be. So, by posting salary info, you can build trust and find candidates who are less likely to haggle over compensation.

When Starbucks was on its decade-long quest to reach pay equity, it not only stopped asking about previous salaries, it started sharing salary ranges with any candidate who asked for them. But beyond that, Starbucks also was very clear about telling candidates where they would fall on the range — and why.

Understandably, Starbucks felt a great deal of corporate pride when they finally achieved pay equity. Just imagine how their workforce felt.

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