The new Law Prohibiting Companies from asking your Salary could have some Big Unintended Consequences

By Jack Kelly:

Fairly recently, New York City’s Mayor, Bill de Blasio,  signed a new law making it illegal for employers to ask job applicants about their salary.  This was kind-of forgotten about until now since it is supposed to go into effect by late October early November, 2017.

At least eight other states including Maine, Illinois, Maryland, New Jersey, Pennsylvania, Rhode Island and Vermont are either considering or have passed similar legislation.

This rule was enacted, in part, to close the controversial “gender-based pay gap” between man and women. Another rationale for the law is to address the perceived unfairness of a job applicant held prisoner to his or her current salary.

Let’s put aside the gender gap question for now, and just focus on how this new edict would work in reality.  On the positive side of the equation, this new law could greatly benefit a candidate who is at the top of their field but earning considerably less than what is being offered for a similar job with a competing firm.

The way it currently works is that before any interviews are conducted a hiring manager or human resource professional will ask a candidate how much they are earning, or require the applicant to complete an application that demands the detailing of his or her current salary and prior compensation history. This data will be heavily used to determine the amount of an offer.

In my 20 years of recruiting experience placing literally 1,000s of people, we have noticed that the salaries offered have been in a tight range of 10-20% increase to the applicants current base salary, assuming  bonuses are equal.  If you plot a bell curve the offers would fit tightly in this band.  It is only  a relatively small deviation from the norm of offers that are made under 10% of the candidates salary or exceeding  20%.

It almost seems like collusion that the offers trend in such a tight range.  When a candidate won’t have to disclose their salary, offers could greatly exceed this range. For example, if a person is working at a job earning $100,000 but has the skills, experience, and background to do another job somewhere else paying $250,000, they will not be held prisoner to their current salary. This would be fantastic news for some people who have the skills, ambition, drive, and ability to significantly change their financial life in a very meaningful manner.

There is one major logistical problem. I foresee situations in which a candidate feels that he/she is underpaid. Let’s assume the person is earning $150,000. The human resources  person does not ask about his or her salary and starts the interview process. There may then be five to seven rounds of interviews conducted over the next three to six months.  At the end of this process the HR person will proudly and excitedly announce that the firm would like to extend an offer of $120,000, thinking that it is a fantastic offer. Seeing that the offer is far below  his/her current $150,000 salary, the candidate and the company realizes that this has been a colossal waste of time.

 

This example illustrates that the new law could have serious unintended consequences when there is  a lack of transparency regarding compensation.

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