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We appear to have reached the tipping point with regard to whether employers can ask job seekers about their current compensation. In addition to the various jurisdictions that have passed legislation prohibiting such inquiries (California, Massachusetts, New Jersey, Delaware, Oregon, Puerto Rico, New York City, New Orleans, with more to come), many companies, such as Amazon, Wells Fargo and Bank of America, have instituted companywide policies prohibiting them. And many law firms have done the same — even those that have little or no operations in the jurisdictions noted above.
The question now is: What will the impact be?
There are mixed views on whether salary disclosure laws will accomplish their stated goals — to reduce the historic wage gap between men and women. However, these laws and the policies being developed as a result will have a significant impact on the hiring process, particularly in the legal industry. And it looks like it will affect partner, associate and administrative hiring across the board.
Lateral partners. At first blush, one might think these laws have no bearing on lateral partner hiring, because of the partnership title. However, recent litigation related to discrimination claims involving Sidley Austin and Chadbourne raise the issue of when law firm “partners” can be considered “employees” as defined by these laws. In the Chadbourne case, the judge noted that the U.S. Supreme Court had previously set forth a six-part test as to whether someone was an owner rather than an employee. Those factors are:
Only the last two factors seem to support the idea that today’s law firm equity partner is an owner per se. And, of course, the above test would strongly indicate that income or nonequity partners would be classified as employees. At the very least, law firms will have to tread lightly on asking lateral partner candidates about their current compensation. That means the questionnaires used by most firms in evaluating such candidates may have to be modified.
Associates. The initial reaction might well be that associate hiring will not be impacted by the laws, given that most large firms have lock-step compensation systems dictating salary levels by class year. Yet smaller firms tend to have a more subjective compensation system, so the new laws will likely have an impact. Even at big firms, internal recruiters report they often ask candidates about their current compensation, particularly if they are coming out of smaller firms, government or in-house. Moreover, they say, asking for current compensation helps guide them as to whether their current salary bands are competitive with the market.
Administrators and managers. The most immediate impact will be in the hiring process for administrative and management positions, which will mirror what is happening in the corporate sector.
No matter what type of hire is involved, the new laws and policies will have some impact on the hiring process itself. Here are five observations.
1. The law will force employers to revamp their application forms. These forms almost universally request current compensation information. At the same time, the law will cause employers to probe more deeply into questions about desired compensation. As it now stands, savvy candidates deflect this question because it essentially asks them to bargain against themselves. One possible outcome will be for certain candidates to decide to voluntarily disclose their current compensation to “set a marker” for the compensation discussion. That said, care must be taken not to discount candidates who decline to voluntarily disclose. According to a Harvard Business Review study, women who declined to disclose their salaries were offered less than those who did disclose, but men who refused to disclose received offers higher than men who did.
2. The law might incentivize employers to lower base salaries and concentrate on bonus programs. In this way, employers can still hope to attract candidates who are at the top end or outside the salary ranges, while generally maintaining pay equity among current employees.
3. Written job descriptions and summaries of required qualifications will be more important. These factors will likely become the primary determinants of how particular candidates are compensated. That could restrict the flexibility of employers to consider “alternative” candidates who might not satisfy all the criteria of the job, but who have impressed employers with their potential. At the very least, employers might be forced to issue a revised job description at a potentially lower salary range.
4. Candidates will be harder to close on compensation, leading to more turndowns. When faced with desired compensation questions, many candidates, particularly for midlevel administrative positions, will inevitably err on the low side to keep their candidacy alive. In the end, however, those candidates may hold out for a significantly higher figure.
5. Outside recruiters will become more valuable as intermediaries. Good recruiters can earn the trust of candidates and better understand their motivations when it comes to compensation issues. They also can effectively probe into a candidate’s rationale for a desired compensation package. Recruiters with these skills and a real-world perspective on salary trends can often determine the acceptable target range more accurately than an employer.
Regardless of location, firms would be wise to get ahead of this change. Make necessary adjustments to your hiring process now to ensure you can continue to attract top talent.
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