Anchoring Pay on Previous Pay

Is asking, “So how much did you make?” ok? Is it a legal issue — deceptive and unlawful — or is it just natural behavior with consequences? We agree you shouldn’t anchor on prior starting pay, but there is a place for determining someone’s salary expectations.

While I am not a lawyer, I am the CEO of Syndio, a company committed to eradicating pay disparities in the workplace and this issue is very related and important.

DHH put this on my radar today with his statement on the practice of anchoring pay negotiations on prior pay.

There is no federal law prohibiting the ask for prior pay, but several states prohibit the question and many nationwide employers have banned the practice. The well-intentioned take on this is that it makes sense for employers to want to understand candidates expectations. The problem is that it incorporates existing disparities and brings them forward, company after company. And because starting pay is the most important contributor to pay over time, basing current salary on prior salary perpetuates the pay gap for women and other under represented classes.

For the ill-intentioned companies (who view labor as a cost and not an asset), this is purely a lever to secure the best talent at the lowest possible cost. But there’s another reason that is much more neutral. Companies have to monitor hiring practices and look at who they are hiring vs. the applicant pool. Let’s say I’m hiring a product manager and the top of my range for this position is 100K, and the applicant has expressed her desire for at least $150K. Most companies would not consider her a “qualified applicant” because she seeks more than they are able to pay. She would be excluded from the applicant pool when the companies is analyzing whether it is hiring fairly.

The reality is, this is a two-sided coin that is best solved by ongoing pay analyses to set fair pay across similar work. I support fair pay and supporting those who will not negotiate for themselves. The government regulations, however, can make it more difficult for employers to accurately reflect the real applicant pool. The key to answering both sides is to support and encourage more pay transparency across the board.

If current employees doing substantially similar work are paid more based on tenure (time with the company), there is an easy mathematical equation to derive fair starting pay for a tenure of zero. In fact, there’s even software that exists to do this for you.

(Oh, and by the way, we actually are hiring a product manager — DM me if interested).