Salary History Bans Lead to Salary Structures to Reduce Gender Pay Gap

Recently, policymakers in multiple states, including Illinois, have been pressing to ban employers from asking applicants to provide their salary history. This has been a question asked by many hiring managers for years in order to quickly screen applicants that may have pay expectations above their budget and to identify those who are qualified to do the job and may accept a lower rate of pay.

The question becomes, “why are policymakers getting involved in the hiring practices of employers?” Their reasoning lies in the statistics around inequality of pay in America. The belief is that if employers continue to make salary offers based on the candidate’s previous salary history, women will perpetually be paid at a lower rate than their male counterparts.

According to the Department of Labor, the gender earnings ratio (women’s earnings as a percentage of men’s) for full-time, year-round workers is approximately 80%. The earnings disparity between women and men is narrowest for young workers ages 25-34 and widest for workers ages 55 to 64. While the biggest discrepancy is experienced by Black and Hispanic women who are also out-earned by White non-Hispanic and Asian women.

With the candidates’ salary history off the table, employers are relying more heavily upon benchmarking using market data and creating a formal Salary Structure to ensure they are competitive externally and paying equitably internally for the knowledge, skills and abilities of their employees.

A Salary Structure is developed by using job descriptions to create a grid using market data and/or an internal equity method (ranking or point system), to ensure that each position is compensated fairly compared to the value of the jobs above and below it in a hierarchy. A salary structure allows management to reward performance while controlling overall base salary cost by providing a cap on the range paid for each position.

By equipping hiring managers with a formal Salary Structure, they will be better prepared to level the playing field for pay equity. Rather than considering what an applicant was earning, they can make a job offer by reviewing the range for the position within the Salary Structure then focus solely on the specific knowledge, skills and abilities of the candidate to determine fair pay with their company’s stated pay range for the position.