It was once common practice for an interviewer to ask a candidate: “how much is your current salary?”
In recent years, this question has fallen out of favor and may even be prohibited by law in your area.
Twenty-one American states have banned salary history inquiries, and so has the Canadian province of Ontario. With more pay equity and pay transparency legislation in the works, a federal salary history ban might not be far behind.
But even if it is not yet illegal in your jurisdiction, there are very good reasons why you might want to stop asking candidates about their past compensation.
Why ask about salary history in the first place?
The reason that employers ask this question is to figure out the salary that an employee might accept for a job.
Some organizations want to ensure that their job offer is well above a candidate’s current salary to increase the chances they’ll accept. For some, it can be an adversarial approach, where an employer is trying to figure out the lowest salary than a potential employee might accept.
Some companies use past salary as a measure of past success or an indicator of seniority or career progression. And some use it instead of benchmarking data or having an overall compensation strategy to determine what the salary should be for a role.
But instead of helping you figure out the right salary, this question can actually have a negative impact on your company and your employees.
3 reasons not to ask about salary history
1. It perpetuates the pay gap
In America, women earn an average of $0.83 for every $1 earned by men. Black men earn an average of $0.87 for every $1 earned by white men. Women and people of color routinely face systemic barriers and discrimination that leads to lower pay.
Asking for a candidate’s salary history and using it to inform future pay decisions can perpetuate this pay gap. A candidate who has previously been underpaid might be perceived as less qualified or less successful due to their lower salary. Someone who has been underpaid in the past is likely to receive a lower offer in the future.
Women and people of color are already less likely to be successful in salary negotiations due to unconscious bias, but a known low past or current salary can create an anchoring effect that makes negotiations even harder.
The Harvard Business Review reports that not asking for salary history is the most impactful thing that companies can do to immediately reduce the pay gap.
2. It discourages candidates
Requesting a salary history can make a candidate uncomfortable and discourage them from completing a job application or interview process.
There are dozens of articles and forum posts online in which job-seekers look for advice on how to sidestep this question, ranging from carefully wording their answer to leaving the question blank on a job application.
Candidates are increasingly educated about their right to privacy or non-disclosure. And with the rise of publicly available and crowd-sourced pay data, they’re increasingly able to spot an employer who is trying to lowball them.
3. It’s not a predictor of quality
One common misconception about doing away with salary history is that a candidate’s past salary is an indicator of their career trajectory or quality of work. Some organizations feel that without past pay history, they might be exposed to hiring lower quality employees.
But research shows that employees who were underpaid in their previous role had the same turnover rates as other employees (who were not underpaid). This is just one way of extrapolating that previous pay does not predict future performance.
How to make pay decisions without salary history
When it comes to banning salary history inquiries, the biggest question is: what should you do instead? How do you determine the right salary for a candidate without asking about their past compensation?
Ask about salary expectations instead
You can ask a candidate about their expectations or requirements for future compensation, without anchoring to their past or current salary. This gives you a better sense of whether a candidate’s desired pay is within range of your job’s pay band.
You can also go further to ask, “beyond salary, are there other elements that are important to you in your next career move?”
The goal of this question is to uncover their expectations about total compensation (e.g. bonus, equity), but also their wishes for paid time off, specific benefits, and career aspirations. This allows you to sell your total rewards package and your entire employer value proposition more effectively. Whereas asking about current or previous pay keeps the discussion at the cash compensation level.
But just as using salary history can be problematic, it can be equally troubling to use salary expectations alone to determine what to offer a candidate. On average, women and people of color are likely to have lower expectations. This can perpetuate the pay gap in exactly the same way.
Salary expectations are more powerful when you aggregate the data. If you consistently hear that candidates expect more than your salary range for a role, this might be a sign you’re not paying competitively to market and it’s time to update your pay bands.
Share your salary ranges
If you’re worried that you’re going to waste time on candidates whose salary expectations are out of line with your job’s pay band, you can avoid this by proactively disclosing your salary ranges.
This is becoming increasingly common among forward-thinking companies. It’s a great recruitment strategy, because candidates love this increased transparency.
For smaller companies, candidates might assume that you can’t pay as well as companies with big employer brand recognition. Sharing your ranges may increase the quality of your candidate pool, as applicants are able to self-select for the roles that meet their pay requirements.
And in some states, like New York and Colorado, new pay transparency legislation means it is actually legally required for companies to list salary ranges on job postings.
Stay consistent with your compensation philosophy
At the end of the day, the best way to figure out the right salary for a candidate is to make offers that are consistent with your organization’s compensation philosophy.
This means that you need to decide the “why” behind how you pay, do your benchmarking research to figure out the market rate of pay, build out your job levels and pay bands, and then make offers that fit within this pay structure.
Ultimately, having a clear and consistent approach to pay within your organization is far more powerful than adjusting your offer based on an individual’s past salary or their salary expectations alone.
Farewell to the salary history
As pay equity continues to be an important priority for businesses, the salary history question has come under fire for perpetuating the pay gap.
In a study of American states that have banned salary history inquiries, researchers found that the pay of women rose by 6.2% and the pay of people of color rose by 5.9%. Turnover rates remained the same, suggesting that employers can hire great people just as effectively without this prejudicial data.
Instead of asking about a candidate’s past salary, you can ask about their expectations or requirements for their future role. Use this data, along with more traditional benchmarking data, to build out a fair and consistent pay structure to guide all your job offers.
Regardless of whether asking about salary history is legal in your jurisdiction, removing this thorny question from your recruitment process can be a positive step forward for your company and your candidates alike.