Pay transparency and salary history rules aim to close gender wage gap for women

When a woman interviewed for a job at OrCam Technologies in New York City last year, a company official inquired about her salary history. Then, the company rejected her. But the story did not end there.

The NYC Commission on Human Rights found that OrCam, which makes reading assistive technology for the visually impaired, had violated a two-year-old city labour law that bars employers from asking about a job applicant’s prior pay, or using salary history as “a factor” in calculating the offers they make.

OrCam, which also has offices in Jerusalem, London and Cologne, agreed to settle, paying the rejected job candidate, who had reported the company to the Commission, $5,000 in emotional distress damages and $10,000 in civil penalties. It also agreed to retrain employees about the salary history ban — which is intended to break the cycle of inequitable pay for women and people of colour — and to take other steps to reduce the likelihood of violations.

At least 18 types of pay transparency policies exist in 32 countries, including 71 per cent of OECD members, according to Zoë Cullen, a Harvard Business School professor

Since November, NYC law in this area has become still tighter. If any company with more than four employees wants to hire staff, it is now required not only to refrain from inquiring about applicants’ prior pay but also to share “good faith” ranges of the expected salary in its job adverts.

These two rules are part of a broad package of initiatives, mostly centred on pay transparency, that are winning acceptance in cities and states across the US, as well as in the UK and globally.

Their aim is to narrow a well-documented gender-based pay gap: according to the International Labour Organization, women globally earn 20 per cent less than men, and US Census data shows a similar disparity among US employees.

Some 21 municipalities and 21 states in the US have enacted salary history bans, according to HR Drive, a website covering the human resources industry. And, worldwide, at least 18 types of pay transparency policies now exist in 32 countries, including 71 per cent of OECD members, says Zoë Cullen, a Harvard Business School professor.

The most common such policy — implemented in 14 countries, including the UK — requires employers to report on their internal gender-based wage gaps; others go only as far as barring organisations from punishing workers who share their salary information, Cullen says.

Multiple studies show that the policies have helped narrow gender-based pay gaps. In Denmark, for example, legislation was adopted in 2006 that obliges employers with more than 35 employees to provide them with annual gender-based wage data. Researchers found that the pay gap closed by about two more percentage points in companies covered by the law than in exempted businesses.

After California enacted the first statewide salary history ban in the US in 2018, the earnings ratio — the amount women earn relative to men — increased by about 1 percentage point, according to a study published by the National Bureau of Economic Research, with older women and mothers of children over the age of five gaining still more. The co-authors predicted that the ban “could close the gender earnings gap by over 20 per cent for those switching jobs”.

These policies, however, remain a work in progress worldwide and have been enacted inconsistently. “We’re sort of in a period of experimentation with trying different things,” says Stephanie Bornstein, professor of law at the University of Florida.

Although the UK has yet to follow US jurisdictions in instituting a salary history ban, its requirement that companies with more than 250 employees publish pay gap metrics far exceeds the US government’s stumbling data collection efforts.

The Trump administration halted the implementation of an Obama-era regulation that demanded comprehensive data collection, before a court order forced it to backtrack. Data for 2017 and 2018 were accordingly gathered but the initiative was then discontinued and has yet to be restarted.

When women, particularly mothers, no longer remain underpaid, the economic outlook for all people will improve, says Stephanie Bornstein, University of Florida

Some employers’ advocates argue that market forces plus cultural shifts will be more effective than government action at closing pay gaps. “It really is going to be organisations looking internally and doing something about making sure that they’re promoting people fairly,” says Denise Visconti, a lawyer with Littler, who defends employers against job discrimination claims.

Concerns also persist about the unintended consequences of pay transparency mandates — including the potential for lower wage growth in the long run. Employers have responded to the requirements “by bargaining aggressively, lowering average wages”, although unions’ collective bargaining counters that compression, Cullen says.

Another problem is that pay transparency laws address only salaries and fail to account for other forms of remuneration such as bonuses, according to Peter Bamberger, a professor at Tel Aviv University’s Coller School of Management and author of a new book on pay transparency, Exposing Pay. While the regulations flatten salaries across a workforce, they also often increase differences in other benefits, and US women have historically been short-changed in this area, Bamberger says.

But such concerns rank as “outliers” and miss “the point of these laws”, Bornstein insists. When women, particularly mothers, no longer remain underpaid, the economic outlook for all people will improve, she says.

Without transparency laws, insight into pay gaps is often lacking. A study carried out by Cullen and a colleague found that less than one-third of a big bank’s employees guessed with­in 5 per cent accuracy the average salary of co-workers in the same post and location — even when they stood to win two weeks’ salary for a correct answer.