Salary history bans present a problem.
“What salary did you make in your most recent position?” A favorite go-to question for many hiring managers is actually unlawful in many places throughout the US. There are now 11 states and 10 localities that have made asking the pay history of a job candidate illegal. These laws were enacted to combat pay inequality for women and minorities. They bolster the Federal law, The Equal Pay Act of 1963, by preventing employers from offering less money based on what women and minorities were previously making. Despite the underlying reasoning, the ban itself applies to all candidates, not just women and minorities.
To some, these laws may be seen as a major annoyance or even a roadblock to effective hiring. “How do I know what someone is worth today if I don’t know what they were making before?” Good news! There are several better things you can do to select the best candidate without overpaying.
Manage candidate expectations
It’s no secret that expectations around pay can make or break the employee experience. You need to hire the most talented team members who are likely to stay with your company long term. To do this, you must effectively manage pay expectations early in the hiring process.
Know what the position is worth to your company
Many hiring managers attempt to pay for a person vs a position. In theory, any job function, whether it’s hitting sales targets or filing a stack of paperwork, has a set value to the company. That value is what the company is willing to pay, based on the extent to which the position contributes to the company’s overall success. But there is usually a pain threshold in the form of a salary range. The company may have to pay less or more within that range based on external market factors, but there is still a maximum amount a company is willing or able pay for each position. Rather than focusing on the value of the position, many hiring managers use the pay range to hire people based on what they think each person is worth. So, a perfectly qualified candidate might get the top of the range, and a barely qualified candidate might get the bottom of the range. Despite good intentions, this approach tends to be subjective without set criteria for who is offered what, and it is almost always undermined by unmanaged candidate expectations. And basing your offer on what you think a person is worth can result in all kinds of issues ranging from future wage compression and poor staff morale to discrimination claims.
Don’t dangle large numbers. Only post the salary you are willing to offer
Rather than casting a net to see who you can catch, go into hiring already knowing what you are willing to pay. This can take a bit more research on the frontend, but it will help you hire more successfully. Avoid posting a broad salary range unless you are willing to give any candidate you hire the top of that range. It doesn’t matter that you don’t think they are worth the higher pay rate. If they see it, they’ll want and expect it. This is partly because candidates tend to overestimate their abilities, which causes them to overvalue their contributions to a company. According to a study by social psychologists David Dunning and Justin Kruger, the least competent performers tend to inflate their abilities the most. This results in not-so-great candidates thinking they’re perfect for the job and great candidates thinking they might be okay for the job. Dunning and Kruger found that ignorance was the main cause of this disconnect. With just a small amount of coaching, the subjects’ competence level increased significantly because they better understood what it would take for them to meet expectations. By clearing communicating the pay rate and the job objectives and key results (OKRs) upfront, you will better align expectations with reality. This gets you the best candidates for the rate you are willing to pay.
Only make promises you can keep
Some hiring mangers heavily emphasize the “potential” for a large bonus to help offset lower pay rates. At best, the candidate completely passes on job, and, at worst, you seriously disappoint and lose a valued employee after a few months to a year. Find out what your candidate really wants and focus on those benefits. Many people prefer flexible work schedules, remote work, ample time off, quality company-paid health benefits, and other benefits to a high salary.
Ask the right question
Instead of asking a job candidate what she made previously, ask her what she’s looking to make. Questions like, “What are you hoping to make?” Or “What salary do you need to be excited about this role with us long-term?” can be highly effective. This is because what they want to make is much more relevant than what they made previously. Maybe they were grossly underpaid at their last job, or maybe they made more but the job was horrible. Whatever their reasons for wanting their target salary, you need to know upfront if you can meet their pay expectation. If what they want and what you are willing to pay is too far apart, then there is no reason to proceed with that candidate. Asking the right question will save you time and money and will help you identify the true best fit for your opening.