What has an applicant’s salary history got to do with it?

A while back, 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. In spite of becoming more experienced, obtaining 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 adversely affect her chance of success. 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 to support why a similar law should be made in Ghana to bar employers from posing this question to Ama and other job applicants.

First, why do employers ask 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. An applicant’s value to an organisation should not be informed by the value put on that applicant by a previous employer.

My background and practice in human resources tell 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 salary ranges for job 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 an organisation. Further, with their resources, employers are better placed to gather salary information and thus set the salary floor for negotiations.

Very likely, the only reference point for an applicant is his/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 next point.

In a country like Ghana where the supply of labour is in excess of demand if an employer cannot afford Applicant A, it is almost certain that there would be applicant B down to Z who are substantially similarly qualified as A and in line for the job. 

And, since 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 based on previous salary history perpetuates low salary levels.

Closely related to the preceding point is the relative bargaining power of the parties. Again, in a country where the 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, the popular 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.

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”.  Hence, an employee who was otherwise satisfied with the salary offered at the start of his or her employment (based on salary history) will very likely start to be less loyal, committed and motivated when he or she later discovers that a similarly placed employee is earning substantially more than him or her supposing that other employee had a better salary history. 

For these reasons, it seems to me an imperative that to fairly compensate labour in our country, employers should desist from asking about salary history. The organisation should make an offer based on how it has valued the role and what the applicant’s worth is to the organisation.

Negotiations should proceed from there. In the end, each one of us just wants to earn an honest keep that is dignified, fair and equitable.