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Key Takeaways: Pay Equity and Salary History Bans

By Eric Herrenkohl posted 04-16-2021 03:41 PM

@Lisa Scidurlo (our resident expert for all things Labor and Employment law) and I led a really interesting virtual conversation with a small number of senior HR leaders about the impact of salary history regulations on pay equity in hiring. Approximately 12 states across the US ban employers from asking job candidates about their compensation history. Another 9 ban the practice in governmental hiring and/or in specific municipalities.

What do senior human resource leaders think about these salary history bans? How do they contribute to greater pay equity. We asked our expert group, here are some key points from what they had to say:

• Employee engagement, performance and retention is tied to pay equity. If there is a perception of inequity in pay, that can be a major distraction that impacts morale and productivity.

• You have to know current market compensation to be both equitable and competitive in the labor market. This can be difficult based upon function. There is a lot of compensation information out there for engineering roles but less so for marketing/agency roles, for example.

• Cost-of-living adjustments are an important component of workable yet equitable compensation systems. An employee based in Princeton, New Jersey is going to be paid more to do the same job than somebody in Reading, PA.

• A virtual/hybrid/mobile workforce adds complexity to equitable cost-of-living pay adjustments. If somebody relocates from Manhattan to West Virginia and keeps their role with your company, do you adjust their compensation down to reflect a lower cost of living? These leaders are still working this issue through.

• Performance pay is also important in an effective and equitable pay system. One senior executive noted that in her company, pay equity means equity in base salary, but strong performers are paid bigger bonuses and therefore have higher total compensation.

• We discussed using *compensation audits* to determine if there is true pay equity in an organization. Several leaders engaged compensation audit consultants to determine/untangle the current equity of their pay practices. One noted it was not that expensive (approx. $15,000) and that the process provided real value in untangling a
complicated compensation picture.

• Several leaders noted that it is when a compensation audit reveals broader, systemic compensation pay that the heavy lifting really begins. Companies are committed to pay equity but have limited funds to immediately solve for the issue. This again is a process through which several CHROs are currently working.

• A related topic is the need to educate our current workforce so they have realistic compensation expectations. As one executive noted, websites like salary.com set unrealistic expectations and our employees need more up-to-date and relevant data to make calibrated decisions about what is equitable pay.

• When recruiting for a company that is complying with salary history bans, it is critical that recruiters and hiring managers clarify compensation expectations with candidates early in the recruitment process. If not, it is easy to spend a lot of time seeking to recruiting someone currently making $300K base for a role that will not pay more than $225K annually, for example.

• A distinction and question from the conversation: often, newly recruited employees are paid top dollar in order to attract them into a role. They then make more than long-term employees in the same job. Is this equitable? Leaders are working this issue through.

• Several of us saw value in exploring further how compensation audits are integrated into larger DEI initiatives. If a compensation audit detects systemic compensation inequities, how do we create tangible change by integrating the results of such an audit into a larger diversity, equity, and inclusion strategy?

Pay equity is a tangible expression of a commitment to overcoming bias in the workplace.  A number of C-suite leaders have real passion for removing salary history from the recruitment conversation. By so doing, these leaders believe that the best talent will rise to the top – and be compensated as it should – without being held back by historical compensation inequities.​