Massachusetts recently passed a new law that as of 2018, will no longer allow employers to seek a prospective candidate’s compensation history and will therefore be required to provide a compensation figure upfront based on a candidate’s skills and worth to the company.
This bipartisan legislation signed into law on August 1st is a tremendous effort in closing the gender-based wage gap. Historically, men have outearned women in the same job and continue to do so: according to the Institute for Women’s Policy Research, “in 2015, female full-time workers made only 79 cents for every dollar earned by men, a gender wage gap of 21 percent. Women, on average, earn less than men in virtually every single occupation for which there is sufficient earnings data for both men and women to calculate an earnings ratio.” As a key issue ever present in the national political scene, Massachusetts’ law could set a precedent for other states.
To understand how this law will impact hiring, and recruiting in general, let’s consider the current process from both a candidate’s and an employer’s perspective and see how it will change once the law goes into effect.
Current process from lens of a candidate
- Candidate identifies potential new employer and tries to learn as much about the company, including compensation practices, from resources such as market data, friends, family, etc.
- Candidate decides to engage in the interview process.
- Typically, candidates do not bring up compensation unless asked about it. At most, they will ask about the compensation band for the role in consideration.
- If and when asked by potential employers, candidates will often share current and/or expected compensation, as well as details of competing offers. In some cases, candidates opt not to share such information out of fear of being underpaid compared to expected range or losing an opportunity for being outside of range.
- Upon receiving an offer, candidates will naturally compare against current/expected/competing packages and either make a decision, or negotiate as circumstances dictate.
Current process from lens of company
- Company identifies a potential new candidate.
- Company will assume some things about the candidate’s affordability, including past/expected/market compensation ranges.
- Company engages candidate in the interview process.
- Company typically broaches the topic of compensation as part of the qualifying process; to ensure alignment of expectations and affordability.
- To determine offer, company will either explicitly ask the candidate for an acceptable range or will decide based on internal parity, market alignment, and candidate’s compensation history. Often, a company has a range to work with and the more information available about candidate’s expectations, the better on target the initial offer; less information usually yields a more conservative initial offer.
The implications of this law present an interesting dichotomy for both the potential employer and candidate: both benefit from fair pay and see reciprocal value in basing part of the compensation decision on current/past compensation, thereby making it a mutually valuable data point. However, this new law will render this data impossible to obtain. Within the legal perimeters, “a prospective employee may provide written authorization to a prospective employer to confirm prior wages, including benefits or other compensation or salary history only after any offer of employment with compensation has been made to the prospective employee,” so, while there may still be a way to include this data in the compensation determination process, it’ll involve more steps and further negotiations.
How does the above scenario thus play out under the terms of the new law?
New process from the lens of candidate
- Candidate identifies potential new employer and tries to learn as much about the company, including compensation practices from resources such as market data, friends, family, etc.
- Candidate decides to engage in the interview process.
- Candidate will either not bring up compensation or may ask about expected range to ensure alignment. The new law does allow for candidates to confirm prior wages via written authorization so this will be an option for either the candidate or company should the use case arise to do so.
- Upon completion of interview process, company will extend offer based on internal and market parity; and prior wages upon written authorization.
- Candidate will appreciate objectivity of process and will accept if great package, negotiate if suboptimal but still within target range, or decline the offer if entirely out of range.
New process from lens of company
- Company identifies candidate.
- Company will assume some things about candidate compensation history/expectations and will proceed if it expects mutual alignment.
- Upon engaging with candidate, company will now have several options:
- Respect the spirit of the new law and not broach the topic of compensation.
- Encourage the candidate to formally authorize the sharing of past compensation.
- Engage in a compensation discussion without explicitly asking about compensation in hopes of the candidate sharing more pertinent information.
- Once it comes time to determine the offer, the company will use all information available to determine the most fair and equitable offer.
- In the event that a company isn’t able to uncover any information about past compensation, they will make an offer based purely on their understanding of internal and market parity, believing what they’ve landed on is not only fair, but also acceptable per the lens of the candidate. Perhaps some companies will use it as an opportunity to put their best foot forward, while others will extend something on the lower end of the spectrum knowing they have little to gain going higher without additional key and relevant information.
Compensation history may be an active data point the market currently considers as important, but it’s not optimal. Resources that are trusted by both candidate and employer as accurate compensation data sources can help to add more value as well as to reduce potential discriminatory practices and pressure on candidate to negotiate market value s/he is worth.
In order to alleviate this reliance on utilizing past compensation and truly move to a market where where wage gaps of any sort are a thing of the past and compensation is based on market parity, a few things will need to happen:
- Both companies and candidates will need to find peace with the fact that not every subsequent move in somebody’s career will be a net-positive in terms of compensation. Just like the price of goods goes up or down based on supply/demand, we’ll need to find mutual peace with that being the case within the talent market.
- The market needs to move towards greater compensation transparency so that both candidates and companies can find reliance and trust in objective market data sources, thereby removing the need for compensation history to be such an important determining factor.
This law is primarily about reducing the unfair wage gap between men and women and ensuring equal pay. This is about fighting discrimination and changing behaviors/practices, whether implicit or blatant, with widespread effects on the broader national economy.
If the market continues its move to a place of greater transparency (which I think it will), and employers embrace this opportunity to extend market-driven offers (which they should), this law will certainly help. If, on the other hand, there continues to be a gap between market compensation and the transparency of the market–which is very possible given privacy concerns and the general complexity of compensation packages–or if employers choose to go the lowball route and candidates continue to use past compensation as the determination of whether to accept an offer or not (hard to see this not continuing at least in the near future), then perhaps this law will help, but will unfortunately not be the silver bullet that the industry needs to move this issue forward fully.
Boris Epstein, Co-Founder of Binc Search
Author: Chris Bolte