America’s got talent: A practical solution to the gender pay gap

The headlines from the USA at the moment don’t always suggest a progressive society – where equality and diversity are top of the agenda. That being said over the last few months various US cities and states have quietly enacted some of the most powerful legislation globally to tackle the gender pay-gap – and this could have significant ramifications for any global business which has operations in the US, or might consider hiring American talent into their organisation elsewhere in the world.

In summary, the legislation bans employers or their agents (i.e. head hunters) asking potential candidates about their current or past remuneration. Additionally, it specifically prevents employers from relying on a candidate’s past compensation to determine their new package.

So, what are American legislators hoping to achieve with these new laws? Nothing less than a significant erosion of the gender pay gap. When employers use previous remuneration as the basis to set a new package it simply entrenches and even exaggerates any existing disparities in pay – so these new laws are designed to protect against that, and force employers to set the ‘value’ of the role at the level they consider appropriate for the position they are hiring for.

When you look at the data, the need for an intervention is clear. Analysis shows that across the US workforce as a whole, women can typically expect to earn 80¢ for every $1 a man might earn and a similar picture emerges when you consider other forms of ‘protected status’. Since it became a legal requirement for UK businesses of scale to publicly disclose a range of pay gap data in April this year, we know that the situation here is similar. Indeed, our own MBS research, looking at the publicly-disclosed base salaries of executives across a sample of consumer-facing companies in the S&P 500 and FTSE 100, shows a gender pay gap of 18% – rising to 31% when you look at total compensation. Further, a recently published report by the Young Women’s Trust utilising ONS statistics argued that ‘the salary question’ was a key factor in perpetuating the pay gap in the UK.

The extent of the problem is clear, and in our view, the new US legislation is answering the right question. But is it the right answer?

On the one hand, we applaud US legislators for putting the issue on the global agenda. The principal of deciding the ‘value’ of the role and determining the ‘worth’ of a specific candidate in said role is wholly correct – and in many ways, will force companies to think differently and more robustly about salaries and compensation for different positions.

Additionally, it will remove salary as a data-point that many employers use to assess a candidate’s suitability for a role. We’re all accustomed to using salary to determine the scale, scope and seniority of a candidate’s experience – and more often than not, it is a useful indicator. But often enough, it is not – particularly with candidates who may have taken some time out of the workplace or have taken a less traditional career path.

However, on a practical level, the legislation in the US is somewhat piecemeal and inconsistent. The cause of the confusion is that these laws are not federal laws; rather, they’re enacted individually by a relatively small but growing number of cities, counties and states – and in each territory the legislation is different. For example, in Delaware the penalty for asking a candidate to reveal their current compensation is upwards of $1,000 per transgression, while in New York City it can reach as much as $250,000!

Another layer of complexity is when the laws did or do come into force and even who the legislation applies to. As well as the location of the candidate or proposed job, it can even depend on where the interview or a conversation about pay history took place!

Readers of the MBS News from outside of the US may well be thinking this legislation doesn’t apply to them – however, it could if:

  • You are conducting global searches, which includes US citizens of any of the cities/states covered by this new legislation

  • You have offices or entities in any of the cities/states covered by the legislation – even if they are not directly involved in the recruitment process

  • You are using US-based head-hunters/agents for any aspect of a global search

Given the size of the potential fines you might incur, and indeed the possible reputational damage that might result, we would suggest it is well worth taking specialist advice to ensure you are compliant with the relevant legislation.

Whilst this legislation is definitely imperfect and piecemeal, we at the MBS Group believe the intention of the legislation is wholly positive – and, over time, will be a significant factor in enabling the gender pay-gap to be closed. We will be challenged to truly understand the value of each hire – and not simply apply an increase to current earnings. In the US, over the coming years, there will need to be a significant mind-shift in hiring – and an unlearning of old habits – across the entire recruitment process. The results could, however, be dramatic for gender equality in the US – and the real question is, will Europe follow America’s lead here? | @TheMBSGroup