To Ask or Not to Ask: The Salary History Question in Today’s Hiring Process

With increasing interest in the issue of gender-based pay gaps, legislation continues to make small movements to meet the challenge of eliminating pay inequity. One such movement has been recent legislation in a number of jurisdictions that bans asking job applicants / new hires about their salary histories. In this issue of Astronology®, we explore this new trend and what it means for employers.

It is heavily thought that asking an applicant his / her salary history continues the spiral of the gender-based pay gap and pay discrimination. For starters, if you begin your career with low pay at an early job, that pay rate could naturally affect the salary earned at the next job if hiring managers base their salary offers off your previous salary. In addition, historically, women tend to be offered lower salaries than men, even if the women negotiate with their employers.

This past summer, Massachusetts unanimously became the first state to enact a law that bans employers from requiring job candidates to reveal salary information, information that would be considered the basis for future pay. The law becomes effective on July 1, 2018. Jim Rooney, President and Chief Executive of the Boston Chamber of Commerce, mentions that the law does allow for candidates to be asked about salary expectations, thus providing hiring managers with an opening point for negotiations.

Another jurisdiction following Massachusetts’ lead is New York City. On April 5th, the New York City Council approved a similar law that prohibits employers from inquiring about, relying on, and verifying a job applicant’s salary history. According to a SHRM newsletter article, the new law, to be effective in six months’ time, will not apply to:

•  New York City employers acting pursuant to any federal, state or local law authorizing the disclosure or verification of salary history or requiring knowledge of salary history for employment purposes.
•  Current employees applying for an internal promotion or transfer.
• Public employee positions for which salary, benefits or other compensation are determined pursuant to procedures established in collective bargaining.

A Business Insider online article mentions that this new law amends the New York City Human Rights Law. This means that there will be two ways in which individuals can bring action against employers who violate the rule. After filing a complaint, if the City or court rules in favor of the plaintiff, damages could be awarded to the plaintiff. In addition, the City could choose to issue civil penalties to the employer. These penalties and fines can reach up to $250,000. The article also notes that since New York City houses not only national but also international organizations, there is speculation that this law could have a far reaching impact on many well beyond the five boroughs.

While we expect other cities and states to adopt similar laws, there also are cases where similar legislation is being disputed. Recently, the Chamber of Commerce for Greater Philadelphia filed a federal lawsuit to block the City’s signed wage equity law, a month before its May 23rd effective date. The lawsuit hinges on the argument that the law violates businesses’ freedom of speech and that the new law won’t do much to close gender pay gap issues. The lawsuit also suggests that the new law would deprive employers of information they could use to make effective decisions in the hiring process. We will have to keep a close watch on what happens in the “city of brotherly love” to see how this impending lawsuit affects other cities and states considering their own salary question ban laws. In the meantime, what can you do?

Organizations not subject to such a law can prepare now. Besides keeping a close eye on jurisdictions that have already passed such a law, pay attention to organizational reaction and changes that employers make in response. Proactively, review your organization’s job application to see if such a question is listed. Consider other options to the question that are in compliance with legal trends. Organizations also should consider training HR staff, line managers, and anyone involved in the hiring process on how to handle interviews after the implementation of new laws.

An additional step proactive employers should take is to ensure that their base pay compensation systems are market sensitive, up to date, and free from discrimination. As National Director Jennifer Loftus explains, “organizations should focus new hire salary offers on the value of the position, not the person’s last salary. While of course there will be natural variations in salary due to years of experience, education, or other factors deemed acceptable under the Equal Pay Act, using the job as the basis for salaries addresses the gender-based pay gap in an equitable fashion.”

Essential Success Tips for and Possible Disadvantages of Gainsharing Plans

         In our previous Astronology®, we discussed how to increase organizational success by combining gainsharing and the “Balanced Scorecard” strategic performance method. At the end of the article, two questions remained for exploration:

• “What are some critical tips in developing a strategically aligned gainshare program?” and
• “Are there any negative impacts to using such a program?”

        In this Astronology® we answer these questions, and open the floor for your insights on gainsharing plans!

The following four tips are essential for developing a strategically aligned gainshare program linked to a balanced scorecard performance document.

1. The program should be organization-wide in terms of funding and accomplishing key balanced scorecard objectives. The funding can be an increase in net income, or a decrease in operating expenses or some other quantifiable savings. A single organization-wide objective focusing on a quality, customer, or growth objective should be set as a circuit breaker. Failure to meet these objectives results in total forfeiture of any monies gained.
    
2. The program should be an annual one based on the realities of today's complex financial reporting systems and the need for employees to work towards objectives over a realistic period of time. While this may add some pressure in terms of Fair Labor Standards Act (FLSA) overtime calculations for non-exempt employees, this approach tends to be more successful in allowing employees time to correct early failures.
    
3. Place no less than a 25% share of the gain in the employee pool. Less than 25% sends a message that the employees' efforts were not considered valuable by organization management.
    
4. Have a direct linkage to the performance process. Since this process focuses primarily on contributions to strategic objectives and essential functions, base employee payout shares on this contribution. At the end of the gainshare calculation cycle, managers recommend to senior management three levels of share for employees:

• a full share for high contributors,
• a three-quarter share for contributors, and
• a quarter share for those in need of improvement.

Senior management then can make the final assessment for reward distribution.

Gainshare plans aren’t without their potential downsides, however.  Disadvantages to using gainshare plans aligned with performance processes can include the following:

• Leadership Challenges: in many cases, in order to maintain a successful gainsharing plan, leaders may need to have prior experience on how to lead a gainsharing plan.
• Time: It is suggested that it could take a company with over 100 employees close to a year to implement a gainshare plan.  Successful plans aren’t developed and implemented overnight.
• Confidential Information Sharing Concerns: For gainsharing plans to work successfully, communication is key. As employees have an even more vested interest in the success of the organization, information such as expenses, profits, projections, and employee bonuses have to be disclosed to people in senior level positions who may not have had access to this information under other circumstances.
• Employees Can Begin to Focus on the Wrong Details: A sense of entitlement, instead of motivation, can develop with the exposure to information mentioned above. Compound this with regular payments of profit sharing money in favorable times, and employees can begin to feel self-important and negatively impact the organization’s culture, ruining motivation for others.

Since the ultimate goal of using a gainshare plan in performance assessment is to increase motivation, it is prudent for leaders to review the organization’s culture prior to investing in implementing such a plan. A review will allow for proper planning, to avoid some of the potential program downsides, and to address any underlying issues the organization may already be facing.

Has your organization considered or implemented a gainsharing performance assessment program? We would love to hear your experiences! You can share your thoughts by commenting in our comments section at the end of our article, or by emailing us at: astronInfo@astronsolutions.com.