Will Gender Pay Equity Impact Salary Negotiations?

By: John Rossheim

The half-century-old Equal Pay Act notwithstanding, in the 2010s women are still paid less than men for comparable work. That’s why California, New York, Maryland and Massachusetts, which collectively represent 22 percent of the U.S. population, recently enacted gender pay equity laws that significantly increase pressure on employers to rectify these disparities. 

What employers are just beginning to find out is how compliance with these measures might affect salary negotiations.

Some provisions of these laws explicitly aim to improve the bargaining position of women by prohibiting employers from banning employee discussions of what they are paid. The Massachusetts equal pay law, set to take effect July 1, 2018, is the first to bar companies from asking job candidates for their salary history.

More states will likely follow suit with similar laws promoting equitable pay. “This is a trend we’re going to see spread through the nation,” says Nannina Angioni, a California labor and employment attorney and partner with law firm Kaedian LLP. Angioni thinks it’s only a matter of time until each state implements measures that are similar to California’s Equal Pay Act.
 
Here are some ways that these laws could impact compensation trends going forward. 

Employers feel pressure to rationalize their compensation structures. Many employers in the affected states are revisiting their compensation plans. “The California law forces companies to look at how they are setting pay, day in and day out,” says Angioni. “These laws require employers to implement objective criteria to calculate salaries, which ultimately means there’s a greater focus on the position and duties than on the candidate, to ensure there’s a non-gender-based explanation for disparities.”

Companies in affected states undertake internal compensation audits. Although compliance has varied, employers have long been mandated to pay equally for equal work, though not necessarily for comparable work, as the new laws often require. 

“Companies audit internally to determine whether employees are being paid identically for the exact same job,” says Dana Hooper, a partner a law firm Greenberg Traurig in Phoenix. “But now they need to go further.”

Incumbent salaries are in play. Employers in states with stricter pay-equity laws may be required to apply salary offers to job candidates as well as existing employee salaries. “Companies making offers now are looking back and asking if they need to give raises to incumbent employees,” says Angioni. 

“Existing internal salaries will be one of the pieces of information that employers rely on to calculate salary offers,” says Robin Pinkley, professor of management and organizations at the Southern Methodist University Cox School of Business and author of Get Paid What You’re Worth: The Expert Negotiators’ Guide to Salary and Compensation.. 

“Employers have an opportunity to decrease pay disparities. If women are more hesitant to negotiate than men, they’re more likely to accept a job offer and the disparities will continue.”

‘Substantial similarity’ sets a higher bar for employers. Newer state measures such as the Massachusetts statute raise the bar for gender equity by requiring employers to pay workers equally when their work is substantially similar, even if it isn’t identical. 

“Employers have homework to figure out what ‘substantially similar’ means,” says Hooper. “Substantial similarity can mean different things to different people.”

New laws leave less room for companies to maneuver. Employers in states with new gender-pay equity measures cannot legally offer female candidates the pay they ask for if that amount is less than the pay of male employees doing similar work, according to Angioni. 

“These laws can limit employers’ negotiating power with job applicants and limit wiggle room,” she says. “In some ways this is a positive development to narrow the gender gap; in other ways the laws might be too restrictive in practice."

Savvy candidates will adjust their negotiation strategies. “The new laws don’t necessarily guarantee equity of pay offers,” says Pinkley. “But they do increase opportunities for candidates to change their own strategies, to bring their own information to the negotiation.”

Younger workers may be the first to leverage new rights to discuss pay. Recently enacted pay-equity measures typically give workers the right to divulge and discuss what they’re paid and therefore to use that information in salary negotiations. 

“Millennial workers are more likely to have conversations about pay than the generations that came before them,” says Pinkley.

Laws are being tested in court. The full effects of pay-equity measures will be determined only in their interpretation in court and by state labor relations agencies. Cases have been filed based on the California law, which took effect Jan. 1, 2016. But it will be years before they go to trial, Angioni says. 

“Our California clients are focusing on compliance, trying to get ahead of lawsuits. Employers who want to be proactive on the pay-equity law are already incurring compliance costs.”