In response to nationwide
protests, CEOs have committed to fighting discrimination and intolerance and
have renewed pledges to increase diversity and fairness within their
organizations. But how can they demonstrate that these are more than just empty
promises? New research (by Bessen, Denk, and co-author Chen Meng) shows that
CEOs can take one simple, immediate action to substantially reduce pay
disparities for Black and women employees: Stop asking job applicants about
prior pay.
We know that this policy has a
major effect on pay disparities because 14 states have banned this practice
during the last three years. We have analyzed differences between areas with
salary history bans (SHB) and neighboring counties in states without bans. We
find that these new laws generated substantial pay increases for Black (+13%)
and female (+8%) candidates who took new jobs.
Why do disadvantaged groups see
higher pay offers when employers don’t use salary history information? Simply
put, that information gives employers a bargaining advantage. Knowing that a
job applicant is currently underpaid, employers can offer a bit more than their
current pay level, confident that the applicant will accept. But the applicant
may still be paid less than they are worth. In this way, pay inequalities are
perpetuated. But when access to salary histories is limited, Black and female
job applicants see a more level playing field.
There appears to be a growing
trend towards including a salary range in help wanted advertisements, even
among employers not subject to an SHB, which suggests that many employers have
voluntarily decided to stop asking about salary histories. This is a welcome
trend, and more employers should follow it for the sake of reducing pay
disparities. An employer voluntarily deciding to stop asking about salary
history represents a deliberate, specific action that can help reduce pay
inequity and, for first movers, serve as a brand boost to make the company a
more attractive employer to women and minorities, showing that the employer is
actually taking concrete steps to combat institutional discrimination.
There have been arguments both
for and against the use of salary history information. Companies and HR professionals
have argued, for example, that knowing an applicant’s salary history was
imperative to save time for both the applicant and the company during the
interviewing process. If the company could not afford the salary the applicant
was likely to seek — typically 10-20% more than the current salary — then there
would be no sense in making an offer that was not in that range. However,
employers can — and increasingly do, as our data show — simply include a salary
range with a job posting, and allow the applicant to self-select whether that
range is acceptable to them when deciding to apply.
Employers can also gauge the
applicant’s pay expectations without asking for their salary history. Even with
a salary history ban, an employer can ask what an applicant hopes to earn. And
nothing prevents highly paid job applicants from volunteering their current
salary to set employer expectations.
Some HR professionals have also argued that the salary history was necessary to determine the applicant’s career trajectory. A track record of steadily increasing salary in previous positions would demonstrate that the applicant was worthy of increasing responsibility and pay. Of course, that information could also be determined qualitatively from the applicant’s resume and from interview questions, or quantitatively through market research of what other companies pay for that same position, or from what the company has paid previous employees in that or similar positions.
Another concern is that salary
histories might reveal the quality of the applicant generally, aside from their
career trajectory. The worry is that without this information, employers will
select lower quality candidates on average, leading to poorer job matches and
greater turnover. Our data show that this does not seem to be a significant
concern. Turnover rates have not increased in states with salary history bans
in general nor have they increased for workers who were relatively underpaid in
their previous jobs. In short, our analysis, based on the states that banned
employers from using salary histories, shows that employers can hire just as
effectively without using this information. At the same time, employers who
avoided asking for salary histories were able to significantly reduce unfair
pay differences.
Not asking about salary histories
is related to a growing trend towards greater salary transparency. Our data
show sharp increases in the use of salary ranges in job postings after
state-wide enactment of SHB legislation, and not just by employers subject to
the ban. Applicants, too, can learn about an employer’s salary range from
websites like Glassdoor, which allows current and former employees to post
information about their salary and work environment. The greater transparency
offers applicants a level playing field, thus reducing discrimination and other
inequities both in the hiring process and over time on the job.
Greater transparency benefits
both employers and applicants, and also satisfies the needs of HR professionals
and CEOs. Arguments on both sides of salary history bans saw the need for
transparency and starting the employer-employee relationship on the right foot
and in the proper spirit. Although employers are more likely to name a salary
range in a job posting because of a salary history ban, they would have not
have posted the job if they did not know what they could afford to pay for it.
The SHB simply encourages the employer to make explicit what it likely already
had in mind when posting the job. Clearly, employers can go beyond the
requirements of these laws and voluntarily provide greater information to
applicants and employees. That transparency creates a culture that sets the
right tone as open and welcoming for employees, helps attract a greater
diversity of candidates, and reduces the pay gap for women and persons of
color.
Source: 14 July, 2020
