Blog: Pay disclosure – good or bad?

Back in 2010 the new Equality Act outlawed any contractual clause that seeks to prohibit an employee from discussing their pay with a colleague. Nowadays we all need to assume that employees in every type of organisation are potentially discussing and comparing their pay, and it’s only likely to increase, as general awareness amongst workforces of the gender pay gap and of equal pay rights steadily grows.

New US law

And now there’s a new angle on pay disclosure, which is gaining significant momentum in the United States: a ban on employers being able to ask about current/most recent salary when interviewing job candidates.

This has already become the state law in Massachusetts, California, Delaware, Oregon and Puerto Rico, and I understand it is also being considered by many other US states, as well as having been put into practice on a local scale in some of the largest US cities.

Just like the ban in the UK on asking about health or disability before making a job offer, the new US law makes it illegal for the interviewer to ask about “wage or salary history” – at least until the job has been offered and its pay has been agreed. (Voluntary disclosure by the candidate is not a problem.)

Why?

The reason behind this (which will not surprise you) is because studies suggest that such disclosure tends to perpetuate the gender pay gap. Unless an employer sticks to a rigorous job evaluation or salary benchmarking scheme (or similar), it would understandably be very tempting to take financial advantage of an ‘underpaid’ candidate (regardless of gender) when you come across one. Come on – who hasn’t, at least one or twice? The problem for gender equality is that it is more likely to be a woman who does poorly out of that outcome than a man.

So, at first blush, this new trend for a ban on pay disclosure at interview seems a sensible response in terms of promoting pay equality. It’s a great example of using clever behavioural design to get around a potential bias problem (whether conscious or unconscious). I’m really fascinated by this sort of behavioural design and will talk about it more in future blogs.

Will it work?

But for now, back to the ban on pay disclosure at interview. A recent Harvard Business School article suggests that women who are asked about their salary at interview and refuse to disclose it actually tend to end up with a lower salary offer than women who agree to disclose it. This arises out of the same ‘social cost’ that women incur when they try to negotiate their pay: they are ‘punished’ for it (presumably mostly unconsciously, nowadays) by both male and female employers. Perhaps it’s also partly down to the fact that the employer may assume that someone who refuses to disclose their current pay is earning less than the average. The article concludes that female candidates are indeed ending up with, on average, lower salaries in the new job as a result of being asked their current pay, but not as a result of them disclosing their pay – rather, it’s as a result of them not disclosing it. I like research that seeks to turn assumptions on their head.

Fascinating as that apparent indication from the research may be, however, I don’t see it as undermining the good behavioural design in this new US law. Because once you outlaw the asking of the question, it seems to me that you then avoid altogether the possibility of a woman suffering a penalty (conscious or unconscious on the part of the employer) for not answering the question.

It will be interesting to compare over the next few years how the gender pay gap of those US states which operate this law changes in comparison with those that don’t. I feel fairly confident that it will have some tangible effect, and that of course raises the prospect of it being tried in the UK too, before too long.

Meanwhile…

In the meantime, here’s a suggestion. When looking for ways to close your own organisation’s gender pay gap, and reduce your equal pay risk, the gathering of useful data and experimenting with behavioural design are key steps. So, now that you’ve calculated and analysed your 2017 gender pay gap, my challenge to you is to introduce your own ban on asking about salary at interview, and look out for the difference it makes to your 2018 and 2019 GPG figures. It’s one simple, easy step to take, and also happens to be entirely free to implement and doesn’t involve any training. You can probably avoid interviewers sneakily asking the question anyway by explaining to candidates beforehand that your policy is not to ask.

I would very much welcome your thoughts about this.

And of course, if you’ve not yet tackled your gender pay gap calculations and are suddenly very conscious of how little time there is left to do it all, do let me and my Pay & Reward team do it for you!

Luke Menzies
Director

email Luke or call 0117 325 0921