On October 31st, 2017, the Mayor of NYC Bill de Blasio signed the new Law, prohibiting companies in New York City from asking, searching or verifying a job applicant’s salary history during the hiring process. From now on, violation of this law, by any NYC-based employer, will be viewed as an “unlawful discriminatory practice.”
(Please, read more about the NYC Salary History Ban.)
Below are some potential, real-life consequences of this Law, as it applies to any employees-candidates and any NYC-based employing organizations:
- If an individual has worked for a long time at the same company and, while there, has acquired a lot of practical experience/skill set, but unfortunately was not able to secure compensation that was a fair reflection of her capabilities/contribution, she may now seek an employment at another company with an increased self-confidence and without worrying that prior, unfairly low compensation, will be a low benchmark for her future offer.
- If an individual is a self-starter/entrepreneur who has acquired a lot of knowledge/experience in ways, other than formal employment (e.g. self-paid study or research) and by doing so, has significantly increased her professional maturity, she may more confidently leverage these rightfully owned credentials , when negotiating a salary with her next employer.
- If an individual’s goal has always been to remain as a hands-on contributor (she loved what she did, and did not want to lose her practical skills) and was never aspired to seek a promotional/managerial position – something that usually leads to higher compensation, she may do so more freely, without worrying that she will miss out on a “compensation-bargaining-chip”, at her next job interview. This also means that employees will be more experience/knowledge-seeking and less promotion-seeking, as it is really an experience, not prior organizational position that define their true value. (note: often, promotions are associated with loss of hands-on expertise, in favor of managerial/administrative responsibilities).
- If an individual’s full compensation consists of base salary and discretionary bonus (the latter, often being too subjective, as it is based on individual performance appraisals, efficiency of which have been proven as ineffective for decades), with a bonus, representing a significant chunk of her full salary, she does not have to be concerned so much with her next employer, trying to count in only her base salary, as as a ‘benchmark’ , while making an offer. This will also, hopefully, drive companies towards paying higher base salaries, and away from subjective bonuses.
- Recruiting agencies and staffing firms will have fewer opportunities to ask unethical questions (“how much were/are you making at your prior/current job?”), something that is often delegated to them by companies’ HR departments, with the ladder not wanting to be directly associated with unethical behaviors. Further, this may lead to more transparency and direct interaction between hiring managers and candidates.
- Companies-employers would have to improve their vetting/interviewing/hiring approaches significantly, by incorporating validation methods and more reliable/objective assessments of candidates, to prevent under-qualified, low-skilled individuals (some of whom may have strong self-selling/negotiations skills and expertise with “talking the talk”) from slipping through companies’ doors and causing internal problems. This may require conducting more practical tests, real-life simulations and hands-on exercises, administered directly by hiring areas and peers-coworkers. Further, this could also, reduce the amount of subjective/administrative, error-prone and often unnecessary screening processes, usually handled by companies’ departments that are least benefited from hiring high-quality candidates, and at the same time, most benefited from creating and administering actual processes.
In all the above situations, the main compensation-determining factors will be:
- From an employee’s perspective: her professional competency, skill/mind set, ability to produce tangible results and deliver business value
- From an employer’s perspective: ability to properly assess a candidate for what she is worth (not for what she was price-tagged in her past) AND clear understanding of how much an employer is willing to pay for a given job/to a given candidate
Lastly, does the new Law have any relevance to internal hiring situations (when employees move around a company)?
According to the Employer Fact Sheet, the Law does not apply directly to internal re-employment (also, for most companies, employees’ compensation is transparent to hiring managers of the same company).
However…. There could be some indirect implication: NYC-based employers will probably realize that properly educated (know the Law) employees will have more confidence to ask for a more significant compensation increase, when they seek a new employment internally. The new “compensation-bargaining chip” for employees will be their increased self-confidence and assurance that they will have a better chance of getting higher compensation elsewhere, irrespective of their current compensation, should their internal efforts not materialize. As a result, to avoid losing good people to their competitors, employers will probably revisit their compensation increase standards, for internally transferred employees.