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Employment Practices & Wage Gaps: Keeping Salary History Off the Table When Hiring

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CEO Marc Benioff of Salesforce, the San Francisco-based maker of cloud software for businesses, appeared on a recent 60 Minutes episode where he discussed his company’s reckoning with pay inequality in the workforce. After his head of HR raised the topic of potentially unfair pay practices, Benioff agreed to an audit to determine if there was indeed a disparity between what men and women get paid at Salesforce.

The audit, to Benioff’s surprise, uncovered a statistical difference in pay between men and women. “It was everywhere,” Benioff told 60 Minutes. “It was throughout the whole company, every department, every division, every geography.” He fixed the issue by bumping up pay for women earning less for the same work as men, which ended up costing Salesforce $3 million. He also created a new rule that would make it more likely that women would be promoted and seen as leaders. A second audit the following year still unearthed a pay gap, which cost the company another $3 million to rectify.

Benioff is not alone in looking to close wage gaps in the workforce. Hiring practices are shifting away from asking potential candidates about salary history or benefits, a traditional indicator for setting future pay. In fact, this move stems from new laws being passed across the U.S. to help deal with the wage gap. The theory behind these laws is that using past salaries to benchmark future pay can perpetuate unfairly high or low wages that workers carry from job to job.

According to a recent article in the Wall Street Journal (WSJ), New York City and Massachusetts passed rules in 2016 prohibiting employers in those regions from pressing job seekers to disclose salary history. Since then, more than a dozen other cities and states have followed with their own wage-setting and wage-inquiry rules for employers, including California, New Jersey, New Orleans and Pittsburgh. As a result, big companies like Amazon Inc., Bank of America Corp. and Wells Fargo & Co. say they have instructed recruiters not to ask about salary or benefits a candidate received in other positions.

Proponents of the new laws say withholding information about past wages encourages employers to judge the value of a job, rather than the applicant. The companies say providing candidates with a salary range based on factors like skills and experience can help correct inconsistencies in how different employees, including women and people of color, were valued in another role or setting.

Pay disparities often continue when people are hired at lower salaries at the onset of their careers and then that compensation becomes the root of future salary negotiations. The gap can widen due to differences in candidates’ willingness to negotiate and success rates in those talks.

The U.S. Court of Appeals for the Ninth Circuit in early April determined that businesses may be held liable for discrepancies in their workers’ pay even if the imbalance stems from a previous employer, adding further pressure to correct pay gaps based on gender, race or other non-performance related factors.

There has been push back on these new laws, however. The Philadelphia Chamber of Commerce, according to the WSJ article, for one, sued to halt the rollout of Philadelphia’s salary-history ban, which was scheduled to take effect last spring. The organization argued the ordinance infringed upon businesses’ free-speech rights. “The group expressed concern that a blanket restriction could create new problems, such as not knowing how rich a salary it would take to lure a high-level executive from her current employer,” cited the article. The rule’s implementation has been temporarily suspended until a final decision is made.

The move toward fair market value for talent is being adopted by more companies. It’s important that all companies review their HR policies and procedures and employment practices. Part of this should involve taking a look at a company’s Employment Practices Liability Insurance (EPLI) policy, as well. RPS can assist you in providing insureds with comprehensive EPLI coverage. Just give us a call.

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