If you haven’t found a new job on Wall Street already this year, you might soon be too late. Although banks are still bringing in senior fixed income traders now, their enthusiasm for senior front office hires is likely to wane as the summer progresses. – No one wants to hand out a guaranteed bonus for the whole of 2017 to a new hire who only arrives in October. This being so, you might find yourself moving in 2018. And if you’re looking for a job in NYC in 2018, there’s going to be a big difference.
That difference is the new salary history rule signed into existence by New York Mayor Bill Blasio last month. Due to come into effect in November 2017, the salary rule will prohibit any employer (banks included) from asking new hires for their pay history and then using that pay history to frame a new offer.
The rule has the potential to cause chaos. Pay for a vice president (VP) on Wall Street can range between $375k and $925k depending upon performance. – When a bank’s recruiting a new VP from a rival, how does it know where that VP’s historic pay falls within this range?
Michael Karp, CEO of Wall Street search firm Options Group, says there’s already a degree of consternation about the rule. “There are a lot of conversations going on about this. I’m having a lot of discussions with HR people in U.S. banks about this issue.”
Fortunately, however, the rule is flawed. While banks are prohibited from asking candidates how much they were paid in their last jobs, Wall Street compensation specialist Alan Johnson says there’s nothing to stop candidates themselves volunteering how much they earned.
Johnson says this can only have one outcome. “Banks are going to make low-ball offers,” says Johnson. “They’re going to put out offers at the very low end of the range and it will then be up to candidates to come back and say they’re making twice as much that.”
The new rule is intended to create a level playing for “bad negotiators” who’ve been paid less (women in particular) and who will in future be liberated from the shackles of their historic low pay. However, by encouraging banks to come in with incredibly low offers in an attempt to flush out pay levels, Johnson says legislators will simply make existing discrepancies worse.
For their part, banks will need to carefully document the process leading to candidates disclosing their pay levels voluntarily. – There are fines of $250k for organizations which actively ask candidates to provide the information. “Banks are going to need a paper trail,” says Johnson. “- You’ll have lawsuits over this. Three years later, banks will need to be able to point to a signed declaration saying the employee gave his or her information willingly.”
So far, so good. Except there’s a lingering problem. – Even if a candidate discloses the information willingly, under the new rule it’s not clear whether the bank is able to validate it. What if a trader earning $300k claims to have been earning $450k? – Is this open to investigation? Lawyers are understood to be looking into the issue ahead of November.
In a worst case scenario, hiring banks will be compelled to base all their offers to new hires on standardized pay tables. This looks good for the likes of McLagan Partners, who provide those tables. It also looks good for anyone who’s pay is significantly below the normal distribution. But if your pay is higher than the industry norm, you might want to move jobs as soon as possible – before the rule takes effect.