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HR & Finance
Powered by Battery  |  February 15, 2018
Are You Ready for California’s New Compensation Law? What Employers and Job Seekers Need to Know

A far-reaching new California law dealing with employee compensation went into effect last month, and it could dramatically change the hiring process for employers, recruiters and people seeking jobs in the state. New practices mandated by the law could also spread nationwide – similar laws already are going in effect in Massachusetts, Oregon, Delaware, New Orleans and New York City.

The new California law, AB168, bars employers from inquiring about a job candidate’s salary history. In fact, under the law, it is a misdemeanor for interviewers to ask prospective candidates anything about current or past compensation, whether in writing (including email) or orally. The law also requires employers to provide candidates a pay range for a prospective job, upon request. The only question interviewers can ask about compensation is the candidate’s pay expectations for the role.

The law in California applies to all jobseekers, from hourly workers to CEOs, and affects California offices of companies based elsewhere. Given how many other states and municipalities have already adopted similar laws, this law is fast becoming the new norm in recruiting. Here are some points those hiring for, and seeking, jobs should consider.

Why the law is going into effect

By prohibiting employers and recruiters from asking about compensation history, lawmakers hope to give candidates traditionally at a disadvantage in the workplace – namely women and minorities – a fairer shot at equitable compensation. If a female candidate historically has earned less than market value, or less than her male counterparts, sharing her salary history in an interview could theoretically undermine her request for more compensation. It’s common knowledge that, in the U.S., women earn about 83 cents for every dollar men do in equivalent jobs. And recent research suggests the pay gap actually widens in top-paying jobs.

The law seems well meaning. I’ve seen throughout my career as an executive recruiter that pay inequality has systemic roots. I’ve even experienced this inequality personally: In one job I learned I was being paid less than males colleagues in the same role who had less experience than me. Certainly, traditionally underpaid candidates deserve a level playing field when interviewing for new jobs and trying to advance their careers.

In my view, this law will be particularly helpful to younger, less-experienced candidates. They may lack the personal networks and skills to comprehensively research pay data for new, higher-level positions, and are therefore can be at a disadvantage when they negotiate. At the same time, my own experience makes me question whether eliminating comp history from interviews will be a silver bullet that can fix the problem of unequal pay—and whether it could actually have some unintended effects.

Specifically, because employers could have less information about job candidates under the law, it’s possible that candidates with lower past salaries could still be penalized. How? Because when employers can’t verify a real, compensation baseline for a candidate, it becomes difficult to keep inflated, self-reported compensation in check. In other words, many people fib on their resumes or in job interviews when asked how much they currently make. Three out of four HR managers report having caught a lie on a resume, according to 2017 CareerBuilder survey, indicating that some people may also be dishonest when discussing pay.

Most recruiters ask about a candidate’s pay history to make sure the expectations of the company and the candidate are aligned, to craft a suitable offer and to verify that the candidate’s self-reported compensation is accurate. But various studies confirm people lie about finances and job qualifications more than one might suppose. Asking for, and validating, compensation history can help employers avoid this problem and promote greater pay equality.

So while some pay inequality results from unconscious bias, some is related to other dynamics. This new law can’t fix that.

What recruiters and employers should do now

Regardless, for those hiring in California and elsewhere, these new laws completely change the way you’ll negotiate compensation packages. This means employers may need to enact significantly new internal hiring and interviewing policies—and enforce them. Other best practices could include preparing a pay scale for each position upfront, since recruiters won’t be able to ask about past salary, and also making it a point to ask candidates about their expectations for total compensation in a new role.

This question about expectations—as opposed to actual, past pay–is still allowed in interviews, and it helps candidates and employers determine if they’re in the same ballpark as far as pay. It can also open up a productive discussion about what really matters to the candidate in terms of pay because compensation encompasses much more than a paycheck. Discussing all the elements of a pay package—from bonuses to healthcare to paid time off– can lead to a valuable exchange, even without specific numbers on salary.

Hiring managers should also know candidates are free to volunteer comp-history information, which can of course be very helpful.

For job-seekers, the new law means they need to do more research going into salary negotiations. If you believe you’re worth more than you’ve previously been paid, know why. I recommend talking to peers with similar job titles to ferret out this information. Educating yourself will help you negotiate intelligently but also realistically.

If you’re fighting hard for higher pay, use facts and numbers to build your case—and, where possible, think about salary in ROI terms. What evidence can you offer that paying you that big salary will justify itself in potential revenue, cost savings or other efficiencies? And obviously ask about the compensation range for the position you’re looking at and express your compensation expectations directly. Volunteer only the past salary information you’re comfortable with. If you don’t think it will help your case, don’t volunteer. But always be honest.

Pay inequality is a continuing challenge, and these new compensation laws are at least trying to address this issue. The best you can do as a recruiter, an employer, or a candidate is to come to future job interviews and salary negotiations prepared—and with an honest, prepared and fair mindset.

The information contained herein is based solely on the opinions of Powered by Battery and nothing should be construed as investment advice. This material is provided for informational purposes, and it is not, and may not be relied on in any manner as, legal, tax or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any fund or investment vehicle managed by Battery Ventures or any other Battery entity.

This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and is for educational purposes. The anecdotal examples throughout are intended for an audience of entrepreneurs in their attempt to build their businesses and not recommendations or endorsements of any particular business.

Content obtained from third-party sources, although believed to be reliable, has not been independently verified as to its accuracy or completeness and cannot be guaranteed. Battery Ventures has no obligation to update, modify or amend the content of this post nor notify its readers in the event that any information, opinion, projection, forecast or estimate included, changes or subsequently becomes inaccurate.

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