In early August, the state of Massachusetts enacted a groundbreaking law that will prohibit companies from asking job applicants about their wages at prior positions.
The intent of the legislation is to eliminate an unfair bias against an applicant and aid underpaid individuals in achieving an appropriate pay rate rather than letting an initial salary follow them throughout their career and job changes. The law’s ultimate goal is to take a step in the direction of closing the pay gap between men and women.
The HR perspective – how could this impact hiring?
For companies currently following HR best practices to analyze their own compensation structure and seeking to actively avoid pay compression? Nothing is likely to change.
Of course, some hiring managers do not follow current hiring best practices. However consciously or unconsciously, an individual’s personal preference could be influencing compensation decisions. This new law disallows the question and makes those organizations who continue to ask about past salary open to legal liability.
The language recent articles have employed when describing the impact of this law centers around a shift to determine a compensation package based on a prospective employee’s “value” to the company rather than their job history. This value consideration adds a bit of nuance, as the value of a position of the same title will vary at different organizations. Ultimately, it should be roughly based on a competitive wage range gleaned from salary surveys, but some inconsistency is likely to be seen. Additional factors still allowable for an employer to take into account include experience, education, an applicant’s stated preferred salary, and more.
Compensation is a big topic in businesses nationwide – but why?
As the post-recession economy is recovering, it’s natural that employees and employers alike are starting to initiate conversations around compensation and look to market data to see whether fair compensation is occurring within their organizations. Also, while it’s been observed that there is much variance in what different generations want from their work – with studies showing that millennials are more interested in culture fit and work-life balance versus studies showing earlier generations are typically more interested in benefits and compensation – all of these “wants” are encompassed by the total rewards package of a company, of which compensation is a foundation. Identifying a key compensation strategy and sticking to it is essential to satisfying your entire employee population.
What could happen next?
As this legislation passed with bipartisan support in Massachusetts, it’s probable that other states will begin to follow suit. Companies cannot prevent employees from discussing their pay, so many are opting to become intentionally transparent about pay across their organization. With more and more companies pledging to conduct an annual pay equity review of their employees, it’s possible we may see that pledge take the form of a law or regulation at some point.
