It is axiomatic in the field of negotiation that knowledge is power. A car buyer has more leverage when she knows the previous selling prices of that vehicle. A home seller has a greater advantage when he knows what the buyer can afford.
And short of the threat of joblessness, nothing gives an employer more negotiating power than knowing what a job candidate is currently earning.
Pay history has become such a standard background question that companies often ask it and candidates often answer it without really questioning whether asking it is right or answering it is wise. Sometimes we’re sheep. If the form says, “All fields must be completed,” we assume there must be some legitimate reason for each of those fields. The form is, after all, official.
When an applicant surrenders that confidential information, she creates what behavioral economists call an “anchor,” a number that has an outsized effect on the final result. The truth is that pay is more arbitrary than we like to admit. As The Wall Street Journal recently reported, “When it comes to pay, most companies are making things up as they go.”
Compensation does increase and decrease with market pressures, particularly in hard-to-fill positions like coding, but for most people who coughed up that number, their pay from their current boss was largely determined by their pay from their former boss, and the one before that, and the one before that. Career coaches increasingly say not to disclose the information, which is more easily said by a well-compensated advisor than done by a job candidate who really needs the job to stay current on the mortgage.
Unless one lives in Massachusetts.
Beginning in July 2018, people applying to companies there no longer need to worry that the legacy of frugal or discriminatory past employers will haunt them for the rest of their careers. A bipartisan bill, signed this month by Republican Governor Charlie Baker, makes it illegal “for an employer to ... seek the wage or salary history of a prospective employee from the prospective employee or a current or former employer or to require that a prospective employee’s prior wage or salary history meet certain criteria.” So, for 2.1% of the United States population, their past pay will soon be none of their new employers’ business. Don’t be surprised if large, national companies, to avoid violating the Massachusetts law, eliminate the pay question everywhere they do business.
The provision was included in a law designed to fix inequities in the pay between men and women. All things considered, women are more likely to arrive at a new employer with a lower current salary and less impressive trajectory, and therefore, so the thinking goes, removing those anchors will make them less likely to weigh down women’s future pay.
There is no guarantee the pay secrecy provision will work. Without a reference point of past pay, employees will be asked more about their “target pay level,” and there’s every reason to suspect that, on average, men will be more assertive in asking for money. A new study showing that men are often their own favorite experts on a given subject is the latest piece of evidence that guys have relatively inflated opinions of themselves and therefore might push harder for higher pay.
The Massachusetts provision is also interesting because it attempts to keep private an individual’s pay against the larger tide of making pay more transparent. Starting next year, publicly held companies must start disclosing the ratio of their CEOs’ pay to the median compensation of their employees. Two years ago, President Obama directed the Department of Labor to collect more information on what federal contractors pay their employees, in hopes of better spotting discrimination. He also signed an executive order prohibiting federal contractors from punishing employees who disclose their pay to each other. (Those conversations are already protected by a 1935 law.)
If the candidate applying for job in Massachusetts is currently a California government employee or a member of military, there’s no need to ask about current pay; his or her current compensation or pay grade is already public. And when the employee’s pay isn’t made public by law, someone could always make a fairly good guess by looking up his or her current employer on Glassdoor. The United States is still a long way from Sweden, Norway, and Finland, which make everyone’s tax returns public, but bit by bit, the American tradition of pay privacy is disintegrating.
In the quest for better pay schemes, we can’t seem to make up our minds. Your pay is no one’s business – or perhaps it’s everyone’s. We’re still experimenting, which means things will stay messy. The new Massachusetts provision is a good and well-intended idea, certainly worth a shot in several states to see if it works as advertised to correct gender pay disparities.
The potential breakthrough in the law is that that it makes it illegal to ask about anyone’s past pay – man or woman. Say, for example, that a man took one or two jobs for love rather than money. (Most journalists qualify.) Allowing him to keep his past pay his business would let him more easily do the reverse – work for money rather than love. The law might help to spark some needed wage inflation for both sexes, something businesses could legitimately be against if it were not for the disproportionate pay increases they’ve given to their top executives.
In any case, for a savvy job candidate, it tilts the negotiation process a bit more in his or her favor and pushes companies to be more methodical in deciding what to pay their new hires than using their past compensation as an unreliable anchor.
