On June 7, we wrote that Governor Kate Brown signed the Oregon Equal Pay Act of 2017, which the Oregon Legislature passed in May. The law is scheduled to go into effect January 1, 2019. Essentially, this new law will prohibit employers from asking candidates for compensation history during the recruiting process. You can read more details about the law here.
What the Oregon Equal Pay Act Means for Employers
This law may require a significant shift in behavior from employers during the recruiting process. When asking prospective employees about previous work history, most employers also ask about previous pay. Employers then compare applicants’ pay histories to what they are willing to pay for the position, eventually settling on an offer they feel comfortable with.
Without this pay history, employers may be left scrambling to find salary data so they can benchmark their offer against what other businesses pay for similar positions. Or, they may simply base proposed pay on what they feel is an appropriate budget for the position, which significantly increases the risk of internal pay inequities.
How Employers Can Use This Law to Their Advantage
Employers could use this new law as an opportunity to restructure their methods for establishing offers by basing pay decisions on company compensation philosophies and on analyzed market pay data. After all, being proactive about pay structures gives an employer a competitive advantage and helps them attract and retain top talent.
At Xenium, we recommend developing philosophies regarding compensation first. This allows employers to identify gaps in their current programs and develop strategies to maximize talent acquisition and retention. Without a philosophy and strategy, an employer tackles each position on a case-by-case basis, which often results in compensation issues, such as pay compression, across the organization downstream. An employer’s philosophy and strategy become their compass for how they pay all their people. But these are helpful in another way, too: employees appreciate these philosophies because they make employers’ intentions regarding employee pay transparent.
Once employers establish their compensation philosophies, they need market-based wage data. With this new law, employers can’t rely solely on candidates’ pay histories when making offers, so they must acquire market data by position if they want to pay their people according to what other employers pay for similar positions. An offer should always be based on duties for the open position or the potential employee’s current position anyway, not on, for example, previous jobs that may have had the same title but had completely different duties and were in completely different industries. Luckily, there are many partners, including Xenium, who have access to several wage data sources and can consult employers on compensation strategy and developing unique compensation structures.
In competitive industries in which employers fight to acquire top talent, laws like the Oregon Equal Pay Act shouldn’t have adverse effects on hiring and compensation practices. All the law is really doing is requiring a shift from employers. Starting in January, they must be more strategic about how they pay people—but they should have been doing that all along.