What is Salary History and why do companies ask for it?

You apply for the job, your resume is selected, your interview is good, and then you go to the most important part: the salary discussion. For both the interviewers and candidates, this is perhaps the time when both parties turn into the best negotiator versions of themselves. The candidate wants to eke out as much money as possible, and the interviewer’s job is to avoid that. This is where the salary history comes into play.

Salary history is perhaps one of the most important factors that can determine the future salary of the candidate. However, just like any other thing, there are certain advantages and disadvantages of salary history  . This is why there are certain ways candidates should approach this issue. However, before we delve into that, we first need to understand the concept of salary history.

What is Salary History?

Salary history is a record of a candidate’s previous salary. Using this, the company then presents them with a compensation offer that they think is a fair increment on the previous salary. The interviewer could also request the company’s anime, the candidate’s role, and the details of the increment (if given) at these companies.

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Why do companies ask for salary history?

Companies can ask for salary history for various reasons. However, candidates must know that asking for salary history is prohibited in some parts of the world and is considered controversial 

Even where the practice is not legally disbarred, it has been controversial. 

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Benchmark compensation 

The primary reason companies ask for salary history is simple: to benchmark compensation. Suppose a company has a maximum budget of 75k per year for a role and the candidate applying is for a 100k job. They will most probably not accept the job offer. Similarly, they can also alter their offer in the opposite scenario.

So, asking for salary history helps companies weed out candidates who might not accept the job offer, which would waste the company’s resources on unsuitable candidates. 

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Helps in identifying skills

Suppose you, as an interviewer, are hiring for the role of a manager, and you are presented with two salary histories. The first employee was paid 75k per year, and the second was paid 130k per year. This is ample proof that the second employee skills-wise has excelled in their field.

As a recruiter, suppose you have been given the directive to hire an exceptional candidate who could help the company grow with a large budget for the role. Then, you will be more inclined to hire the second CV. However, if you have been given a limited budget, you can opt for the first candidate, making your job as a recruiter easy.

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Gives company leverage 

Companies often use salary history to gain an upper hand in negotiations. Companies, at the end of the day, are motivated by one thing: profit. And the organization always aims to reduce costs. So, what is an effective way to reduce costs? You hire a candidate with the same talent at a lower price.

This is where companies use salary history as a marker. When faced with the decision of selecting one from many potential resumes with the same skills, companies use salary history to hire the talent at the lowest cost possible.

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Helps in hiring for a new role 

Suppose you are a recruiter facing a challenge: hire a web designer. The problem is that your company has never hired one, as the work was given to a third-party agency. However, due to budgetary constraints, the job is being shifted internally. As a recruiter, you don’t know the correct salary details for the role.

This is where a salary history can help the recruiter identify the kind of pay that will be suitable for the role, ensuring that they are not underpaying or overpaying for the role.

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The problem with salary history 

Considering the above reasons, one can already gauge that asking for salary history has far more advantages for the company than it does for the employees. This is why there are now serious discussions around whether companies have the right to ask for a salary history from a candidate. Asking for salary history also creates a host of other problems.

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Creates discrimination in the workplace 

One of the major disadvantages of salary history is that it discriminates against certain sections of people who have been marginalized in the workplace. This includes women, people with disabilities, and minorities. So, companies can exploit this wage gap to exploit these marginalized groups by quoting them a lower salary as compared to other candidates from the nonmarginalized groups. 

This helps the company hire the same talent at a lower cost, saving them resources while increasing profits. However, this then starts to create a wage gap within the company between employees with the same talent

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Makes the salary negotiation lopsided 

Asking for salary history always helps the company adjust and tailor their offer, helping them hire the best talent at the lowest wage. So, candidates who give their salary histories are always forced by companies to accept wages near their previous offer. However, this situation does not account for changes in role or responsibilities in the new job that warrant a bigger increment.

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Limits upward mobility 

Judging a candidate by salary history also creates a limited image of their talent and skill in the interviewer’s mind. However, this disregards the ability and potential of the candidate who might have been underpaid in their previous role. Thus, asking for a previous salary is a stumbling block for talented candidates who want to move up the corporate ladder rapidly.

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Introduces bias in hiring 

One of the greatest enemies of a good recruitment process is bias, and companies go to great lengths to ensure that their process is devoid of any discrimination. However, salary history can be used by the interviewer to weigh a candidate’s talent. This could also lead to interviewers disqualifying competent candidates from the role because of their higher pay at their previous jobs.

Legal risks for companies 

As mentioned earlier in the article, there are several regions in the world where asking for previous pay is legally an offense. And if companies don’t follow such rules, they are prone to lawsuits. One of the most famous cases is the Fresno County Office of Education (Rizo v. Yovino). In this case, Aileen Rico was being paid less than her male colleagues for the same job. In their ruling, The United States Court of Appeals for the Ninth Circuit stated that using previous salary to offer an employee less pay than a colleague is not a defense to a pay discrimination claim under the federal Equal Pay Act (EPA).

What are the alternatives to salary history

Market-based compensation 

The easiest solution to salary history is to use market-based compensation while sending a candidate their job offer. Whatever a candidate’s previous salary might have been, offering them market-based compensation is a great way to start. The skills and responsibilities of a job should be matched by the pay irrespective of what the candidate’s previous salary was.

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Pay for the skills

Companies should always alter their wage offer according to a candidate’s skills. Asking for a previous salary often overlooks several factors that might explain the candidate’s salary from their previous job, which should be the basis for their getting a lower pay for the same job.

Post salary in the job description 

Often, companies don’t post the salary while posting their job descriptions in hopes of attracting all sorts of talent. However, this means that they also end up wasting manpower on recruiting candidates who might eventually not accept the job offer. Thus, posting salary ranges during the job description can help both potential candidates and recruiters.

The issue of salary issues can be easily avoided with a robust recruitment process. And one important component of it is having a good hiring tool.

This is why companies are now moving towards Artificial intelligence-backed interview platforms for hiring talented employees suitable for the job. We have got you covered with our state-of-the-art interview tool, BarRaiser. With our software, interviewers can prepare an efficient interview plan for candidates.

Interviewees can use our tool to form a detailed interview plan in a Structured interview format. This means that all candidates are judged on the same metric. During the interview, our AI Interview Copilot helps track the interview process. It alerts the recruiter if they have spent too much time on a specific part of the interview, sending them alerts to speed up the process.

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We also emphasize the interview process’s impartiality. This is why our AI Interview Copilot transcribes and records interviews and raises an alert if the interviewer uses any language that might be discriminatory toward the candidate.

BarRaiser also provides Interviewer training for companies to ensure that their interviewers are well-trained to operate on our software. For companies that don’t have the manpower to do so we also provide interview as a service  where we will take over the entire recruitment process. We have a pool of over 1500 expert interviewers, rigorously trained on our tool.

Using BarRaiser, we guarantee you Quality hiring that will also bolster Diversity and inclusion. BarRaiser is the best AI Interview platform that features Structured interviews and tools to ensure quality hiring while eliminating biases from the recruitment process. With BarRaiser’s support, you’ll be well-equipped to build a strong team of sales associates who will drive sales and deliver exceptional customer service.