Salary History in Hiring – An Alternative Approach
By Amy Esry, SHRM-CP, PHR
You have a job opening, and you are starting to review candidates. Is asking about salary history part of your recruiting and hiring process?
Historically, it has been quite common for hiring managers to want to know a job applicant’s salary history before making an offer. In some cases, there is logic to this. If you are thinking of offering a candidate $18/hr (for example), you want to know if this might be considerably less than what they are currently making. You don’t want the applicant to be insulted by a low offer, and you don’t want to risk losing the person if they just walk away without trying to negotiate.
Unfortunately, in some cases, employers have used salary history information to pay people as little as possible (“he was only making $15 at his last job, so we’ll offer $15.50, even though everyone else doing that job is making $17”). And this has led to disparity, particularly with certain groups. As a result, many states and cities now have laws against asking about a job applicant’s pay history.
In Wisconsin, we can still ask applicants for salary history. But that doesn’t mean we should. Instead, we should be considering two other factors in determining new hire, and current, employee wages.
First, we can look at internal equity. When we look at people who hold a similar position, we can line people up in terms of their performance and contribution, and see if pay is also in line. In low skilled positions, perhaps seniority is a better way to evaluate people. For most professional positions, where skills, knowledge, and ability grow over time, those are the factors to be considering. Your star performers (and you should have objective data to prove they are stars) should be making more than your average employees, even if their length of service is the same. Newer employees, who are growing their knowledge and skill quickly, should get bigger raises in the first few years, to move them off the bottom of the pay range. And senior people who do a fine job but are not really learning and growing much anymore, should get smaller pay increases as they get closer to the top of the pay range.
If you don’t have pay ranges, consider taking on that project. Pay ranges provide guidance in determining if your staff are paid fairly, throughout their careers. Pay ranges also provide guidance to managers, so they are not inadvertently paying too low, or too high, for their positions.
Do you spot anything odd in your lineup of performance vs pay? Are most of the men making more than most of the women, (or vice versa) regardless of performance or seniority? Are employees who worked their way up within the ranks of the company making less than those hired directly into their positions from outside the company? Those are the types of things to look for. Compare across departments. If you have positions in several departments that are similar in level of responsibility, like administrative support, is one manager paying his staff more than another? Is there business/job justification for that?
When you are contemplating a job offer for a candidate, compare that individual with the team. If Joe Applicant would be coming in with more experience than Johnny, but less than Sue, (Johnny and Sue are both current employees) perhaps you set the job offer in between Johnny and Sue.
The second factor to consider is market pricing. Getting market data can be tricky. You can look at the Bureau of Labor Statistics site (bls.gov) or other websites. You can purchase access to a compensation site that provides compensation on many jobs and locations, for a subscription fee. Or you can look for local surveys. Check your local SHRM chapter, for example, to see if they do a survey. GMA SHRM in Madison (gmashrm.org) does a Madison Area comp survey every other year that you can participate in and purchase (you do not need to be a member of GMASHRM to participate or purchase). And a final source of market data is your applicants. If you feel you should be paying $50,000 for a particular job, but all of your fully qualified applicants tell you they feel the job should pay considerably more, perhaps your expectations are off. In this highly competitive hiring market, competitive pay can shift more quickly than you might realize.
We all know that finding, hiring, and keeping talent is difficult right now. And with increasing pressure, and new laws, prohibiting inquiries about salary history, getting your compensation structure cleaned up is more important than ever. While you may never have perfect data, or a perfect salary structure, keeping an eye on your internal equity, and external market data, you can build a system that is an effective guide. You’ll be able to honestly say to your candidate: “we feel this is a fair offer.” And best of all, you don’t need to know what their last job paid.