On Wall Street, pay negotiations going into a new job are an art form - a cat and mouse game where an employer tries to low ball and the lead candidate tries to inflate their worth as much as possible. This could all change. A new law passed in New York in May prevents employers from asking about salary history. Suddenly, there's a new game to play in the search for a new finance job.
The new law comes into force in November and, as we've pointed to previously, Alan Johnson, the founder of compensation consultancy Johnson Associates, believes this will lead to Wall Street firms low-balling candidates. But it could also lead to sell-side and buy-side firms in the U.S. standardising what they pay their employees, according to Steven Gold, a partner at recruitment firm Green Key Resources.
“This will provide a greater challenge for recruiters to manage the process on behalf of their clients and may result in a much longer negotiation process,” Gold says. “Firms in general will need to have more depth in the candidate pool because it may be hard to achieve an acceptance, and candidates may go off the market during a lengthy negotiation process.
“Offers may be less likely to be accepted by candidates as they could be affected by expectations that may be too high and clients may not want to make an offer that matches that number,” he adds. “This may create a more adversarial negotiating relationship, which is not an ideal way to start a new job."
Employment attorneys are singing its praises, however, suggesting that it will help level the playing field for women, as well as candidates of color and other minorities.
“While the gender pay gap may be narrowing in the U.S., women on Wall Street, especially minority women, still earn less than their male counterparts,” says Raquel Alvarenga, a labor and employment associate at the Cohen, Tauber, Spievack & Wagner law firm. “This new law assists in bridging these gender and racial wage gaps.
“This new law takes aim at the glass ceiling by preventing a woman’s prior salary from impeding her higher earning potential,” she says. “The new law encourages pay equity by eliminating employers’ oftentimes myopic focus on pay history in determining a new hire's compensation structure."
Mark Shirian, the founding partner of the Mark David Shirian law firm, an NFL agent and an NFLPA-certified contract advisor, agrees with that assessment.
“This new law will give prospective employees more bargaining power by limiting any possible contentious salary negotiations,” he says. “Employers will now have to change the way they recruit new talent and will have to update job applications and how they gather data to determine market salaries."
Others are decidedly less sunny.
“This will lead to litigation – it’s going to be a nightmare,” Johnson says. “You better keep written records of this – if you’re going to make a candidate an offer, document it in writing, having them sign a form, ‘no, you did not ask me my past compensation history.’
“A year from now or five years from now who’s going to remember a conversation?” he says. “A lawsuit could claim it was tainted from the day the candidate got there. Many of the people will be gone, left the company for different jobs, so it’s important to document that – you didn’t ask [about salary history] but the candidate may or may not have volunteered that information.”
Is there a workaround that recruiters and hiring managers are likely to employ? Asking about pay expectations will become the standard. The law does not allow employers to ask applicants for salary or any compensation or benefit history. However, prospective employers will be able to ask the candidate about their desired compensation.
The percentage raise over their current level of compensation candidates should ask for will be on case-by-case basis and driven by a variety of factors, including supply/demand for a particular role and unique market skill sets, Gold says.
“I do believe job applicants will have to be more forthright with their expectations supported by quantitative and qualitative arguments as a basis for their expectations,” he says. “In the long run, the compensation will be based on the position’s value to the firm and whether the candidate’s expectations fit within their budget.”
While hiring managers and recruiters can’t ask, you can offer, for example, responding to an offer by saying, “That’s nice, but I actually make X” and then the real discussions will begin.
“It will actually be worse than it was before – the problems that it was intended to cure will get worse,” Johnson says. “[Recruiters] can certainly ask their salary expectations, and the better the negotiator you are, the further you’ll get with that, but the truth is, most candidates don’t really know [how much they should be paid].
“You’d be smart not to say anything rather than volunteer what you got paid – instead, say, ‘I expect to be paid competitively, and I expect you do make me a competitive offer; I expect more money than I’m making now,’” he says. “Candidates are almost always better off putting it back on the company, and if they offer more, great – if not, tell them no, you need to pay more.
“It’s going to be awkward on both sides – it’s going to be clumsy for everyone, like a first date.”
Be reluctant about volunteering what your compensation expectations are, but if pushed, you’ve got to have a number. And if you do reveal your compensation history, be honest with them, because they can check that.
“This will require more negotiating than before, because on Wall Street there is no fixed pay grade based on title – it could range from very little to a lot for the same role,” Johnson says. “Recruiters will think, ‘Without the pay reference point, we’re guessing, and we’re going to guess low and we’ll see what they say.’
“Don’t be insulted [by a low-ball offer],” he says. “It’s the only real way for the company to attack this.”
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