Massachusetts recently made it illegal to ask your salary in a job interview. This is big news. The law was passed to ensure equal pay for everyone. The political spotlight on equal pay for women helped drive these efforts. Fist bump to Massachusetts! You can read about it here: New York Times Article

Most companies make offers based at least partially on current salary. Of course, not all companies do this. But a lot of companies do. This will be a game changer, especially for women. Being underpaid early in a career can follow someone for a lifetime. It might just be $5k less in your first job. That turns into $10k in the next job and so on. If companies continue to offer based on current salary that becomes a huge gap 20 years into a career.

Indiana employers need to start thinking about this. Why?

• First, because it’s the right thing to do. Think about it. Why would a company ask for current salary?
  • It can be used to justify a lower offer.  “Well, you’re only making $50k…why should we offer you $60k? (meanwhile, salary range is $60k-$80k).
  • It gives them an advantage in offer negotiations.

I understand an employer wanting to pay as little as possible while still being fair. Ultimately an applicant can accept or decline. But, if the system itself is rigged and most companies employ this strategy, it can create a systematic problem. Hence the statistics showing women are on average paid less than men. Think about it this way: I might turn down a low ball offer b/c I’m confident I can find a better offer. But what if certain people don’t have that same confidence? They accept the low ball offer and it follows them for life unless a company ignores salary history and offers what they are worth.

• Second, changing this practice will help companies become or remain more competitive when it comes to attracting and retaining talent. When asking current salary consider someone who does accept a low ball offer. There’s a strong chance, especially in this market, they’ll get recruited out by another company willing to pay market. Companies that don’t pay well are recruiting targets for people like myself. Constant on boarding, training and turnover is expensive. Paying a little more up front is cheaper than the consequences.

• Lastly, asking for current salary on a job application is a practice that started years and years ago. It’s old school. It dates back to when executives and businesses had more power over employees. Fast forward to 2016 and companies still ask “because that’s how it’s always been done.”  I bet if companies were honest many would admit that it hasn’t been a conscious decision to keep asking. They just haven’t stopped asking. But times are changing. Many companies are more employee friendly than previous generations and are more concerned and interested in being fair to their employees. It’s time for employers to consider dropping this from their application process.

Indiana may never pass this law but the opinion that it’s wrong to ask about salary is spreading. More candidates are challenging the salary history question. Here’s the trickle-down effect to companies and applicants if this question is taken out of the process:

• Companies will need to better understand the market value of applicants. Human Resources will drive this process. Depending on company size they will need to do compensation studies, work with a consultant or even hire a compensation professional. (we just filled a Compensation Manager role with an Indy company: $83k+Sign-On+Bonus)
• Employers will see a rise in the average offer amounts. Average offers will rise slightly in the short-term and then even out when the market corrects itself.
• Companies will retain more of their top talent and see increased levels of engagement and loyalty.

Pro Tip: There is at least one company in Indianapolis that proactively offers what they call an equity(pay) raise if an employee is performing above their current pay scale level. So, yes, there are companies out there doing the right thing!

• When offers rise the HR team will then start hearing from CFOs/Finance! They will want to start determining the actual value the company is getting from positions. Is it worth that amount? Do we need to hire someone at that level or can we spread the work around?
• Companies will lose out on a few prospects with low ball offers while they figure out market value.
• Applicants will need to better understand their own value. Many will miss out on opportunities by over estimating their value.

Will this lead to everyone making a lot more money? Of course not. Markets have a way of correcting themselves so it’s not like a huge percentage of people are being underpaid. I mean if everyone is underpaid…are they actually underpaid? Never mind. But it will help prevent someone from being low-balled at every step of their career. It will help close the gap between women and men in terms of pay. It will also equal out the playing field when it comes to negotiating salary. What’s not to like?

This obviously won’t change over-night. So how do you handle the salary question? I wrote about that earlier this year:  What Is Your Curren Salary?

An interesting angle to this topic is that I play a role in this. When I present a resume to my clients, some will ask for current salary. Some are curious. Some require it. Others just want to know if they will be within the range we’re working with. I have a responsibility to start having conversations about this.

Here’s an even better twist: I’d like to know your salary even though employers shouldn’t ask! I know, walking contradiction. I’ll explain myself next week!