In recent years, some U.S. states have passed fair-pay laws that affect salary negotiations in the workplace. California, for example, passed a law in 2015 that requires all employers operating in the state to prove they pay employees of different genders equally for “substantially similar” work, according to the Wall Street Journal.
Such laws aim to prevent gender bias from creeping into the salary-negotiation process to the disadvantage of women, who have long been paid less than men for similar work. They have also opened the door to negotiation strategies that both employers and job candidates might try to increase the efficiency and effectiveness of salary negotiations.
Toward Greater Analysis
Only 38% of employers have a formal compensation structure or philosophy underlying their salary decisions, according to a PayScale analysis of 7,600 firms. “When it comes to pay, most companies are making things up as they go along,” writes Lauren Weber in the Journal. But, spurred in part by fair-pay laws, companies—including 34% of those surveyed by PayScale—are starting to adopt formal strategies for setting and negotiating pay.
Organizations typically strive to pay at the 50th percentile of the range that similar employers pay for a given role, with leeway to move 20% below or above that amount based on an individual’s experience and skills, compensation expert Steve Gross told the Journal. In fields where workers are scarce, organizations might set pay above the median; Web-services firm GoDaddy, for instance, starts talks with engineers at the 70th percentile of the market rate.
Weber describes how GoDaddy, which has 5,000 employees, overhauled its haphazard pay structure. The company mapped out job descriptions and created levels for each job title; each level was given a pay grade with a wide salary range pegged at a market rate (for example, $101,000 to $165,000 for “Software Developer III”). Hiring managers discuss with job candidates where their skills and experience place them in this range. About 6% of GoDaddy’s workforce received salary increases to bring them up to the proper pay grade.
Should Past Pay Stay in the Past?
Because women often earn lower salaries than men in their first jobs, gender inequities can widen over time if employers anchor employees’ pay on what they earned at their previous job. For this reason, many states have passed laws that prevent employers from asking prospective employees about their past salaries.
If asking about past pay is still legal in your state or area, how should you respond in an interview if an employer asks how much you earned at your last job? Ask whether the company has a formal pay-grade system that you should consult. Explain that you believe broader benchmarks offer a more accurate snapshot of your current worth. If no benchmarks are available, be sure you have researched pay for comparable jobs in your industry to move the discussion in a more relevant direction.
The Benefits of Transparency
Employees, particularly younger ones active on social media, are increasingly open about their earnings. Websites such as Glassdoor.com and Salary.com, where workers can post their salaries and other job information, have become a popular resource for job seekers.
Recent pay-transparency laws in some states require employers to make salary information public. Salary transparency raises wages, Washington University in St. Louis professor Jake Rosenfeld has found in his research, in part by legitimizing employees’ arguments in salary negotiations and improving women’s wages.
That said, when salaries are made public, employees need to be aware of the common tendency to think that they deserve more than others. If you find out a colleague with a similar job earns more than you do, remember that they could have experience or responsibilities of which you’re unaware.
Toward More Rational Salary Negotiations
Fair-pay laws should motivate both sides in salary negotiations to navigate the process with greater foresight and analysis.
Advice for employers. Employers can improve salary negotiations with new employees by auditing existing pay practices to determine if decision-makers are relying too much on intuition. The audit may lead organizations to standardize pay or to leave room for case-by-case negotiation within pay-grade ranges. When salary negotiations become more analytical, employers will benefit from more satisfied employees and from the knowledge that a significant expenditure—employee pay—is being determined more rationally.
Advice for would-be employees. For job candidates, negotiating starting salary is likely to become more methodical. You can help make your own salary negotiations more rational by researching pay thoroughly and by encouraging potential employers to analyze salaries for comparable hires rather than using your past pay as a benchmark. And if you have another great offer, mention this BATNA, or best alternative to a negotiated agreement, to try to increase your pay.
Broadening the discussion. Employers and potential hires alike can improve both sides’ satisfaction by broadening the compensation discussion beyond salary. Either side can suggest improving the candidate’s job compensation package by negotiating issues such as bonuses, shares in the company, retirement contributions, and insurance plans. By doing so, you may be able to reach a creative solution that avoids an impasse.
What other trends in salary negotiations have you observed recently?