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Much has been made about New York City's upcoming ban on private employers requesting a candidate's salary history. Philadelphia passed a similar bill in January and it will go into effect in May. Proponents feel this will help address several issues including gender pay gaps. Business groups opposed the bill, I assume, to save a couple of extra dollars. I kid...but not really. Usually, companies, regardless of salary range for a position, tend to consider a candidate's current compensation when making offers. Candidates that are underpaid, tend to stay underpaid. This includes women, who on average make less than men. So when firms base offers on current salaries, its hard for the underpaid to become not-underpaid (esp. when you consider that several studies have shown that women are less likely to negotiate a higher salary during the salary negotiation process).
Agency recruiters are trained to ask candidates for both desired AND current salary. You may ask yourself, "What does it matter what I am making now if the job pays $X salary range?" Well, employers typically do not like to give candidates "too much" of a raise. In fact, I can't tell you how many times I have heard from a candidate "I understand the market value, but I am not giving this person a 30% raise." Over the years, this has been a common request from firms: "Talk them down...explain they can't get that kind of raise. Its not my fault they are underpaid. I like them, but they can't expect me to make up for someone else's decisions." Or my favorite "No one made them accept their salary...they willingly took it."
Here is the problem: Once a candidate is "underpaid" its almost impossible to get compensation back up to market value. And the reason is solely because employers want to get a person as cheap as they can, and for some reason refuse to give people "too much" of a raise in an offer. I have heard several reasons for this: To not give them too much at once ( to keep them hungry for more raises); because the rest of the department is underpaid and a market rate would create resentment; and it would disqualify the candidate from future raises as they would be at the top of the range. I disagree with all of those. They all may be technically accurate for the firm, but market rate is market rate, and underpaid is underpaid. In fact, some people don't even know they are underpaid. Firms LOVE those candidates. They look like saints for offering them a modest raise, even though they are still severely under market value.
Recently I had someone with 5 yrs exp in US taxation (she was from India), all with the same employer, in the NYC metro area. I asked her what her desired compensation range was and she replied "$40,000 and over" because she was making...$37,000. $37k!! Now, if I were to submit her to my clients for "Desired $40k+" literally every client would of been interested, and I don't doubt there would have been a little bidding war and she would have gotten like $45-46k, and I would of walked away with a quick and easy little fee...leaving my candidate underpaid. Instead, I sent her to two firms, and I said she was looking for market rate for her experience. One firm asked me what she was currently making, and I said $40k range. The client responded that the most they would give her was a 20% raise, because that was their policy (in their defense, they said that maybe they would "stretch it" to a $50k offer if she was good. How kind of them). The other firm did not ask me her current salary, met her, and offered her $75k. This right here is why this new law is so important.
I'm sure both recruiters and candidates can relate to this next scenario. You have a Manager making $140k. Their firm gets sold and potential employers know the candidate has to find a new job...so they offer a lateral ($140k) or less ($120-139k), under the argument of quality of life, benefits, commute, etc. But they know they don't have to beat a current salary, since there will be no more current salary. Or you could have someone laid off, and since they aren't working, the companies get greedy and offer $115k. Say the candidate takes an offer for $115-120k because they need to work and are afraid of gaps in employment (usually because a recruiter is just beating that fear into them). Because of the lesser salary, it will be hard for the candidate to get back up to market value in a new role. They are now doomed to make less, for probably the rest of their careers.
With the new rules I worry that companies/firms will resort to leaning on the agency recruiters to find out salary info. Specifically in Philadelphia, they consider recruiting agencies to be included in "Employers." But I don't doubt firms will ask recruiters to figure it out. Maybe to ask around any contacts they have at the current firm. Perhaps they know other people at the candidate's firm who have the same job...what do they make? Maybe in the middle of a conversation a recruiter can get the candidates to offer up the information. There will be agencies that WILL give companies salary info in order to become a preferred vendor, selling out the candidate's potential lifetime earnings in the process. This much I'm sure of.
This new law is a huge win for candidates/employees. No longer do you have to accept $X, because that is all a firm wants to give you based on your current salary. You can actually be paid based on how much the company values your experience...not for how cheap they can get you. And no longer will recruiters try to beat candidates down by saying "You can't get $X anywhere based on what you are making. If you are going to make a move, it has to be for $Y." The recruiters will have incentive to actually help the candidate find what the CANDIDATE needs/wants.
For the most part, I have never been big on asking current salaries. I have always started out by asking how much someone wants to make. I usually follow it up with, "why do you think you are not making that now?" They might feel underpaid; they might feel that the growth opportunity isn't at the current firm. Candidates always ask me if what they are making is market value (I expect a lot of these calls now that these bills are being passed). I am consistently asked what I think someone's experience is worth on the market. And I always answer the same way: There is market value, and there is what a firm is willing to pay for you. At least now the compensation will be based on what value a new firm places on your skills & experience...not just what another firm paid you.
What do you think about this? Do you think this will help underpaid candidates? Do you think firms will "trick" candidates into salary discussions? Have you ever been low balled in an offer because of your current level of compensation?
As a reminder, my website www.karpiakconsulting.com has a new section were you can find all of my past articles.