Trending Now, But Which Way? New Salary Ordinance Hits California

Salary Negotiations Will Change, But The Real Question is 'Will The New Law Be Effective?' 

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- by Jessica Vann, CEO & Founder

From Oregon to New York, “Parity in Pay” laws prohibiting the consideration of salary history information in the hiring process are becoming more common. Effective January 2018, California is on board, followed by San Francisco’s rollout in July, 2018 (San Francisco Police Code 3300J.3, 3300J.4). These laws prohibit employers from asking candidates about current or previous salary, compensation, or benefits, and also from relying on that information in making hiring or salary determinations.

I like to think of these laws as “Do the Right Thing Laws,” essentially putting pressure on employers to pay people according to their experience and merits as opposed to a number that, depending on the circumstances, may or may not reflect that individual’s true value. But the real question is this: Just how effective will these laws will be? Read on for our thoughts.

The prevailing assumption behind these laws is that current and past earnings largely dictate one’s future earnings. Moreover, the intention behind these laws is to prevent salary inequities from being perpetuated as people move from role to role. Perhaps you were underpaid in your last role because the company you most recently worked for wasn’t well-capitalized. Should you forever be penalized as you move to your next position? Or, more nefarious, you were discriminated against for any of the commonly-recognized and oft-discussed reasons certain segments of the employee population frequently receive less pay. Should that continue to burden your future earning potential as it has your past?

For Employers, No Net Change

At the end of the day, regardless of the ask, it’s the employer’s prerogative to decide if they want to play the game or not. For those employers with a standardized and disciplined approach to hiring, such as the use of salary bands and market data through services like Radford and Equilar, I’d anticipate very little change to how they compensate incoming employees. If a candidate’s salary expectations exceed what the company’s compensation band allows for a particular role, it will be a very straightforward “take it or leave it” type of discussion. I could also anticipate this new law putting downward pressure on employees who have historically been overpaid for the very same reason, but in reverse. It’s all well and good to have a “pie in the sky” salary expectation, but if the data doesn’t support it, a candidate could face downward salary pressure as salaries normalize within the broader marketplace.

May the Best Negotiator Win

While the intention of these laws is to force equality of compensation among the sexes and races, or any other person who has been undervalued for whatever reason, it does nothing to address the reality that salary negotiating skills are still going to be paramount in any salary conversation. You are what you eat, and you get what you negotiate. This isn’t going to change.

Even without the inclusion of past compensation in a salary discussion, a person who lacks the confidence, skills, or knowledge to ask for what they deserve is not going to derive any benefit from these new laws. All the legislation in the world can’t help you if you don’t know how to ask for what you deserve.

This reality is a fundamental flaw that will ultimately erode the efficacy of these laws. Ironically, the people this law aims to support are, in all likelihood, the people least equipped to handle these negotiations successfully and in a manner that will yield the desired outcome of this legislation. While it may work in some instances, it’s a charming fallacy and an over-simplification of the societal issues and internalized self-doubt that affect many people, particularly those who have historically been subordinated or discriminated against, to assume that by eliminating salary history from a salary negotiation we can simply wave a magic-wand and all will be equalized.

In summary: to the employers, I say the marketplace and the forces of supply and demand are still going to exert the strongest hand in where salaries come to rest. And, ultimately, you’ll have to make offers that gel with your business model, your internal equity, and your budget. To the employees who have historically been under-valued, I say San Francisco and California are giving you a shot to catch up, but it will be incumbent upon you to know the market and your value in it and to practice the behaviors and techniques that will allow you to manifest a better outcome for yourself.