Can Pay Transparency Alone Close the Gender Gap?

Can Pay Transparency Alone Close the Gender Gap?

University of Baltimore law professor Nancy Modesitt doubts it. Writing at The Conversation, she argues that “a company’s attitude toward the wage gap and its causes may be more significant in eliminating it than putting in place a transparent pay policy”:

Consider the fact that differences in an employee’s initial salary contributes to the gender wage gap. Is this caused by differences in previous salary? Or that men are usually rewarded for negotiating a better salary – while women are penalized for doing the same? Pay transparency would reveal a gap in starting salary, but the company could decide that it is not due to gender but “market forces” – e.g., the man had to be paid more to take the job in order to avoid a wage cut – or because of his negotiating ability. That would make it less likely that the company would take action.

To take another example, women take off more time than men do after the birth of a child. A “gender neutral” policy of basing raises on seniority will result in women having lower salaries over time than men do. Pay transparency will reveal this difference.

Yet seniority is generally considered a neutral, nongendered reason for a wage gap, and a company can explain away any differences based on this, claiming that it has nothing to do with sex. But isn’t a pay gap based on gender if it is caused by the fact that women have babies or that they stay home with sick children more often than men?

One tangible step employers can take to help close the gap is to stop asking job candidates for salary histories—in a sense, to demand less transparency on their part—Google’s senior vice president of people operations Laszlo Bock explains at the Washington Post:

We are all susceptible to something called anchoring bias, where our brains get stuck on an initial number. … When it comes to making pay decisions, we anchor too much on someone’s current salary instead of what the job is worth. Imagine hiring two accountants. One (call her Eliza) currently makes $50,000 and the other (Alexander) makes $58,000. And let’s say the average accountant in your company makes $60,000. It feels natural to offer Alexander a salary of $60,000, just like everyone else gets. But for most managers, it feels wrong to give Eliza the same salary. After all, that’s a $10,000 raise! Wouldn’t that be unfair to Alexander, who only got a $2,000 raise? And why not save a few bucks by paying people based on their past salaries?

But that approach ignores the reality that women are consistently, and unjustly, paid less than men for the same work.

What’s the alternative? Bock goes on to describe how Google handles salary offers:

First, avoid anchoring to someone’s current salary. Instead, pay for what the job is worth by setting a pay target for each job when hiring and promoting. At Google, recruiters typically ask about salary as a data point, but neither they nor hiring managers make decisions about pay. Instead, offers are determined by our “people operations” team, which provides a bulwark of objectivity and fairness. If a candidate’s current pay is below our target for that job, we simply ignore the prior salary and offer our target. …

Second, make sure your system continues to work as intended. Even if pay is fair upon hire or promotion, what if women are promoted more slowly than men? What if bias creeps into pay for people who aren’t promoted? We watch for these issues, and correct them if they arise. We’re making information available now about how organizations can run their own pay equity analyses.

In a point/counterpoint on salary histories at SHRM last month, Katie Donovan made a similar argument about the deleterious effect of salary histories on diversity:

Negotiating based on salary history assumes that pay is a neutral scale that can be used to rate people. But compensation varies from industry to industry, region to region and employer to employer; it is hardly objective. And that’s not to mention known racial pay gaps as big as 50 percent and a gender pay gap of 22 percent.

One legitimate business purpose HR professionals will give for using salary history is to save time. Eliminating those who earn more or less than the budgeted salary can help to quickly cut a pool of 250 applicants down to a much more manageable five or 10. Unfortunately, however, what organizations save in time, they may be losing in diversity—which could wind up costing them far more in the long run.

This debate over salary histories illustrates how pay transparency is a double-edged sword, depending on who has the information. While transparency is often cited as a solution to pay inequality and something employees want more of so they understand their pay better, in a world where an individual’s pay history is searchable by recruiters and hiring managers, individuals who had one bad performance year or were the victims of pay discrimination could end up perpetually underpaid.

Donovan’s adversary, Sylvia Francis, makes the case for salary histories partly from the angle of transparency, arguing that they are “helpful in clarifying expectations” and enable HR “to negotiate the best deal for both employee and employer.” But the purpose of pay transparency is to help employees and job candidates (and watchdogs) know where they stand and ensure pay is fair. Employers already have a structural advantage in most negotiations with candidates (after all, they’re not the ones in need of a job), so if “transparency” in this case only serves to further unbalance negotiations, candidates should at least have the option of keeping their current or previous salary secret.

Francis also insists that “refusing to provide salary information is often not an option,” but job candidates can find abundant advice online about how them do just that: The answer is often to deflect, provide a range, or spin the question around on the interviewer (the one “don’t do,” of course, is to lie outright). The fact that this is such a palpable concern for candidates means that many employers asking for salary histories are probably already not getting the information they want, and that anti-salary-history advocates like Bock and Donovan are likely to win this argument in the long run.

If you’re still not convinced that it’s time to put this interview question to bed, Forbes’s Liz Ryan responds to some conventional wisdom with a clever takedown of the most common reasons recruiters give for still requiring salary histories:

I need to know their salary details so I can see whether the job-seeker’s salary is in line with our job opening.

False! You know the hiring salary range, so just tell the job-seeker what the range is and ask “Does this salary range work for you?”

But if I tell a candidate the salary range — say, $70 – $75K — they’re going to say “Yes, that range works for me” even if they were only paid $55K in their last job.

So, are you saying that you lack the experience and judgment to talk to a job-seeker and to be able to assess his or her job-market value? If that is the case, why are you working as a recruiter?

And even if recruiters and hiring managers do feel that they need this information to make an informed decision, it’s increasingly clear that they are contributing to larger systemic discrimination and inequality, without even realizing it. As Ryan points out, there’s a better way, though it requires more work: You have to build your own ability to price jobs to the market.