Last week, I read a news item at www.nytimes.com , which averted my mind, again, to this question: what has an applicant’s salary history got to do with the applicant’s worth to a potential employer?
The New York Times reported on a bipartisan law that has been passed by the state of Massachusetts in the United States. The law requires that employers no longer ask job applicants about salary history during job interviews.
According to the New York Times, “the law requires hiring managers to state a compensation figure upfront – based on what an applicant’s worth is to the company, rather than on what he or she made in a previous position”.
The law ensures that lower wages and salaries assigned to women and minorities do not follow them for their entire careers.
Imagine a situation where Ama joined company A as a graduate trainee with no experience. While with company A, Ama gained experience in her line of work, and took some relevant training programs. Inspite of becoming more experienced, obtaining current relevant knowledge in her field and perhaps attaining higher relevant academic qualifications and thereby very likely delivering more value, the company could not afford to improve Ama’s compensation. She therefore decides to find a job that could compensate for her value.
Ama interviews with company B. At the tail end of the interview she is asked how much she earns with her present employers. I hope you see the picture being painted. Ama could decide not to answer the question but that may have an adverse impact on her being the selected candidate. Yet if she answered, the amount quoted will not reflect the experience that she has garnered over the years nor the relevant training she had undergone.
In this article, I advance arguments supporting why a similar law should be made in Ghana barring employers from posing this question to Ama and other job applicants.
First, why do employers ask from this question? Employers primarily ask this question so that the previous salary can be used as a baseline in setting salaries for new hires. However, this approach is inherently flawed. Should my value to an organisation be informed by my value to a previous employer? I think not. My background and practice in human resources tells me that organisational efficiency requires that companies categorize jobs and roles. Informed by factors such as the centrality of the role to the organization, market benchmark and internal relativity, organisations establish a salary range for its jobs and roles.
Thus, for each role, employers very often have a base salary. Employers are also in the position, based on their assessment of an applicant, to place a value on what that applicant is worth to the organisation. Informed by these, rather than asking an applicant what she or he earned in a previous job, employers should set the salary floor for the negotiations.
Second, with their resources, employers are in a better position to gather salary information and thus better placed to set the floor for negotiations. Very likely, the only reference point for an applicant is his/or her salary history and the value the applicant places on himself. In my experience, applicants are wary of putting the right value on themselves out of fear of not clinching the right job for quoting too high an amount. This leads to the third point.
Third, In a country like Ghana where supply of labour is in excess of demand, if an employer cannot afford Applicant A, it is most certain there would be applicant B down to Z who are substantially similarly qualified as A and in line for the job. Because the supply of labour outstrips demand, labour is generally cheap in Ghana. Thus asking an applicant about salary history and setting salaries for new hires with previous salary history as a benchmark perpetuates the low salary levels.
Closely related to the preceding point is the relative bargaining power of the parties. Again, in a country where supply of labour far outstrips demand, those on the supply side would, very often, take a job even if it does not compensate them for their value. It is better to have an underpaying job than to have no job at all, so the argument goes – I respect this kind of pragmatism. However, what it means is that except for highly skilled persons and individuals with rare expertise, the organisation usually has more leverage than the job applicant. Being the party with the more leverage, the organisation is in the position to ask about salary history.
After all if applicant A would not disclose the information, applicants B-Z are in tow for the job. As negotiation theorists suggest, the party with the higher bargaining position should use it to set the tone for the negotiation. Another support for my view that the organisation should first put its criteria based base salary on the table.
It is in the very interest of organisations to compensate based on objective criteria. A motivated and well psyched workforce will likely be more loyal, committed and thereby deliver greater value. However, this is jeopardized when employees realize that they have been short-changed perhaps because of their salary history.
According to behavioural psychological studies conducted by Christian Elger and Armin Falk of the University of Bonn when a person’s life is improving in absolute terms, one sees very little psychological benefit when one’s life isn’t improving relative to that of one’s neighbour. In simple terms “your absolute size of the pie is less important than your relative slice of the pie”. Organisations, be the first to put your base figure on the table.
For these reasons, it seems to me an imperative that to fairly compensate labour in our country, employers ought to stop asking about salary history. The organisation should make an offer based on how it has valued the role in question and what the applicant’s worth is to the organisation. Negotiations should then proceed from there.
After all each one of us just wants to earn an honest keep that is dignified with fair and equitable compensation.