Asking About Salary History? That's History

The Big Apple is pushing employers to narrow the pay gap between men and women. Whether the strategy it and other states are using will work remains to be seen.

As of last week, employers in New York City are banned from asking job applicants about their salary histories. The new legislation, which also restricts employers’ ability to consult with previous employers and public records for a person’s salary history, means hundreds of thousands of employers may have to tweak their screening and hiring processes. But human resources experts say that, in the long run, both employees and employers could benefit from this change. “Anything that makes individuals smarter about how they talk about their pay and makes companies more thoughtful about how they value their own jobs is a win-win,” says Bob Wesselkamper, global head of rewards and benefits solutions at Korn Ferry.

New York’s new law is part of a renewed effort by many state and local governments to battle wage discrimination. Indeed, nearly half of all states are considering similar legislation, with California, Delaware, and Massachusetts set to implement similar bans over the next few months.

The rationale behind the ban is that an employer can’t ask what a candidate earns now, so as not to perpetuate any pay gap if it eventually offers a job. Not all compensation talk is off-limits; job candidates can still be asked what their salary expectations are and why they have those expectations, and a job candidate can offer their salary history “voluntarily and without prompting.” But each of these situations must be handled carefully; companies that violate the new rules face penalties of $125,000 to $250,000, depending on the offense.

Experts say employers may seek out better market data and conduct thorough internal analyses to determine what a job should pay. “What organizations need is a good, quality system of job evaluation or job grading that provides the right criteria and credibility for grouping jobs into buckets,” says Tom McMullen, senior client partner in Korn Ferry’s Total Rewards expertise group.

An analysis of external market data alone may not be enough, however. According to one study, only about half of management and professional roles can be effectively matched by job title model in the external marketplace, and that percentage is likely to decline as companies come up with new business models and job types. Experts say that by creating a system where salary is determined by market-based and internal logic, where performance is fairly rewarded, and where pay studies are periodically conducted, employers are positioning themselves for stronger employee engagement—a predictor of business success.

Many employers are skeptical whether a salary-question ban will have its intended effect. In a recent Korn Ferry Hay Group study of senior HR executives, 58% said they aren’t sure how salary-history legislation will affect their overall business effectiveness. By contrast, 28% of the talent professionals said it will have a positive business impact, and 14% said it will have a negative business impact.

Further action on pay equity is coming, with some experts predicting that large organizations will try to get ahead by changing their national policies instead of waiting for individual cities and states to pass measures. “It’s a whole new world out there, and I think that a lot of the work and discussions around pay equity are becoming a reality,” says McMullen. “Nobody’s really exempt. It’s better to be prepared than to be caught by surprise on this.”