Feb 14, 2018

The Basic Salary Question

The 'salary' question

Working agency-side for over 10-years, you get very used to asking the question - "..and what's your current basic salary?" before moving onto the next phase of the conversation about salary expectation and what the opportunity (that you've introduced) is offering.

As an agency recruitment consultant, you learn (very quickly!) to ask this question towards the end of the introductory conversation as it's a rapport-killer - it feels like you're on a metaphorical first date and at the end of the meal you're saying - "if you're not going to finish that, could I have it", then reaching over, invading your date's personal space, and scraping the food off their plate.

As the recruiter, part of your responsibility as the 'talent broker' is to ascertain this information to present to your client alongside the other key information you have gleaned that isn't stated on the CV. In short, your client expects you to provide a holistic picture of the individual and the salary information forms part of the report.

For the applicant, this question can feel like you're immediately being quantified, assigned to a 'box' and your negotiating position becomes null void. I say this because I have also been the recipient of this question. In short, your 'monetary value' has been determined by your current employer and your potential future employer is using this information to inform their decision.

For all the talk about your future potential, you - as an applicant - are still being benchmarked, in part, on historic data.

The 'loaded' agenda

It my agency days, it was widely touted that a basic salary increase between 10%-15% was the standard when moving to a new job.

Any increase above this percentage was reserved for senior or exceptional talent.

Where did this rule come from? - I have no idea.

What I do know is that the agency model was sustained by protecting the margin it charged the client for services delivered. The client perpetuated this by providing the recruitment agency with a salary range that they deemed suitable to pay for a particular role profile. The combination of these two factors meant that a potential candidate was already subject to a financial scale irrespective of their skills and experience. The conversation agenda was, essentially, already loaded towards the salary question.

Banned in the USA

On January 9th 2017, the State of New York passed legislation into law banning state agencies and departments from requesting salary history from applicants until after an offer of employment is extended. Furthermore, if an applicant's prior compensation was discovered or offered by the candidate, that information could not be relied upon in determining the candidate’s salary, unless required by law or a collective bargaining agreement.

And so it began...

As of August 2018, there are 11 State-wide and 9 local bans that are a result of the adoption of the laws and regulations that prohibit employers from requesting salary history information from job applicants. Why?

These laws are aimed at ending the cycle of pay discrimination in terms of the gender pay gap, and to some degree, ethnicity and ageism. To illustrate that point, a half a century after the US passed the Equal Pay Act, American women still face a substantial gender wage gap across the spectrum.

Today, on average, a woman earns 80.5 cents for every dollar a man earns, and women's median annual earnings are $10,086 less than men's, according to data from the US Census Bureau.

UK versus USA

Whilst gathering significant pace in the USA, the ban on asking applicants for their basic salary information hasn't reached the shores of the UK. There has been some press attention on this subject in the Independent and one of the UK's 'red top' publications.

Aside from that, I haven't noticed any serious Ministerial interest in this as part of the Gender Pay Gap; in fact, in the report on Actions to close the gender pay gap, they encourage the complete opposite action by 'encouraging salary negotiation by showing salary ranges' owing to a perceived notion that "women are less likely to negotiate their pay".

From the perspective of a negotiation, both parties should start on an equal footing; if the employer is transparent and states the salary they are offering, how does that empower the applicant to negotiate if the benchmark has already been set?

Recruiting in the UK

If the US legislation starts to gather momentum in the UK and Europe, what would that mean for the recruitment industry?

For Applicants

The prospect of not having to provide your current salary information may improve the negotiating position of the individual - in short, the compensation you negotiate could be based on the skills, experience and your output during the interview process as opposed to being benchmarked by the salary your currently securing with the company you're planning to leave.

In addition, by not having to divulge this information to a recruitment agency, you could choose to discuss remuneration with the client directly at a stage in the process where there is meaningful engagement.

A point raised in an article written by John Feldmann in Forbes raised the question of whether an applicant (and employee) might both be disappointed if they progressed through an entire recruitment process to find out, at the end, that they were completely misaligned about the basic salary on offer (from the employee) and required by the applicant.

In this situation, I think it's perfectly reasonable for the employer to be transparent about the basic salary on offer as long as they acknowledge that there may be a negotiation (upwards) at the point of offer.

This may inform two approaches, employers low-balling salaries from the beginning of the process (which may impact application levels), or they set a realistic upper limit that they are prepared to pay that they operate within.

My question to any employer would be this - what would the cost to your business by not hiring great people as opposed to trying to keep to rigid salary model? - I understand cost models, however, great people = increased productivity = increased profits, =increased budget for more great hires.

For Employers

What about those applicants that try to game-the-system and negotiate ridiculously high salary increases? - my counter to this is, if you know the role you're recruiting for and the skills and experience you require, then the 1st interview stage should screen-out the individuals with limited experience or are unable to articulate their experience in relation to the role. In addition, with all the data available regarding current market salaries, we are all in an informed position anyway. The prospect of not being able to ask for current salary information actually asks the employer to start to be more creative in terms of the recruitment assessment process.

The major concern for employers would be their current salary structure; how would this be impacted if they started to bring in new employees potentially on higher salaries than existing employees in the same grade. Equally, would current employees see this as an opportunity to negotiate improved salaries? - I think this will actually act as a positive catalyst that will bring the subject of compensation to the forefront. How often have you, as an employee, sat in an end of year review waiting for the opportunity to discuss a remuneration and have felt as though it's a taboo subject or it is completely related to your current performance (and less about the skills you have gained and your future performance).

There is another option - pay all your employees the same basic salary like Dan Price. Completely remove the need for negotiation as the basic salary is transparent and the same for everyone; then surely you would know that applicants are focusing on more than just the money on offer.

For Recruitment Agencies

This will be interesting to observe should this legislation become a reality in the UK. The majority of agency models still leverage off the fact that they are the 'broker' between the applicant and the client; by finding and negotiating with the applicant before the CV/application is passed to the client or HR team, the agency provides 'value' by having the conversation(s) that the client doesn't want to or feels will have a negative impact on the introductory conversation with an applicant.

Removing the power of the recruitment agency to negotiate with the applicant, removes a critical part of their function.

Whilst UK recruitment agencies continue to develop their solutions and offerings by offering psychometric and skills assessments, increased levels of pre-screening (i.e. video interviews such as RecRight) and employment pre-screening (i.e. Disclosure Scotland); if the agency hasn't developed these offerings and the prospect of negotiating with the applicant on behalf of the client over salary is removed - does this reduce them to little more than a CV-parsing offering? - would the client not be best positioned to have the conversation instead?

Salary Data Companies

There are established companies in the UK that charge extortionate amounts in subscriptions or one-off payments to gain access to data they have collated (through scraping other people's data). What would this mean for their business models - or at least the way they gather their data. How would they pivot in an economy where salary data wasn't as valuable?

Assessment and Training Companies

Providing assurance of a potential employees skills, experience, cultural fit and mindset would become more of a critical part of the recruitment process in a world where how much someone earned was used as a benchmark of assurance as to their credibility and suitability. The days of "well, they were paid that much by X so that must mean they are good at their job".

Talent management companies that can access and provide meaningful data to employers about the current and future potential of potential employees would become the safest way of mitigating against a poor hire. With the confidence in the ability of the potential employee, surely the investment (basic salary) would be more than worthwhile.

Moral Compass

When it comes to any negotiation, trust underpins the process - whether consciously or unconsciously; the feeling that you are agreeing to a deal that is mutually beneficial. That is a purely human emotion and not one an assessment or test can inform...other than a lie-detector test...and I'm not sure we're quite ready for that to be introduced into a recruitment process yet.

With that in mind, and if the question of basic salary is removed, we default to the question of trust. In this scenario, building trust comes with giving trust, through developing meaningful working and professional relationships. Perhaps the question of basic salary isn't so much about 'are you good enough', perhaps is more about 'do I / we trust you'. In this situation, I personally always start with a 'yes' until you provide me with a reason to think otherwise.

💡 Sources of information