Opinion: I’m a Small Business Owner, and I Don’t Ask Applicants for Their Salary History

I’m a small business owner in Frederick. I’ve often been suspicious of new regulations from Annapolis that are touted as business friendly.

Right now, there’s a “Salary History” bill before Maryland’s General Assembly (HB 123/SB 217) that would prohibit employers from forcing job applicants to disclose their salary history. A decade ago, I would have seen this bill as unnecessary. But since then, I’ve had a significant change of heart.

Over the past 30 years, I have hired many people — and I know firsthand that hiring the right staff is crucial to building a successful business. In the past 20 years, I’ve grown a small information technology business from a handful of employees to a staff of nearly 100.

Our employees have always been the company’s most valued resource. The company has been recognized as a Maryland Technology Council Firm of the Year and a Top 5 Best Places to Work in Maryland.

For years, my business and other companies where I worked required all job applicants to provide their salary history as a standard part of the application process. We routinely viewed applicants with low previous salaries as potential “bargains” that could be recruited for under the going rate.

We were bargain hunters. And we assumed that an applicant’s salary history was an essential component in determining a “reasonable” salary range for any position—as opposed to basing a new hire’s pay scale solely on their expertise and experience. We didn’t believe this because we were “bad people;” this is just what we were trained to do.

But a decade ago, I spotted negative side effects of this approach. Employees whose pay negotiations were anchored at the low end, due to their prior salary, often exhibited less positive outlooks than their peers. Retention rates and employee loyalty were also lower.

Relying on salary history to set pay meant that employees in similar positions and job duties could end up receiving drastically different salaries. I saw how difficult it was for employees who were recruited this way to ever “dig out” of this financial rut. I also observed the negative effects of this inequity in the lower rates many of these employees contributed to their 401K accounts or pursued additional educational opportunities.

For years, I accepted salary history as a good, or at worst, neutral business practice. But, eventually, I saw that relying on salary history was harming not only my employees, but it was harming my business.

My senior staff and I saw the pattern of negative effects of salary history on our business and, in 2010, we took action: we eliminated the requirement for job applicants to share their salary history.

We quickly noticed benefits: New employees showed positive morale and employee loyalty and team productivity throughout the company increased. We eliminated inconsistencies and problems in our pay scales and retention rates leveled out across employee groups. Morale increased as our staff shared their positive work experiences with each other.

Adopting this approach has helped my firm comply with Maryland’s Equal Pay for Equal Work law. In Maryland, women are typically paid 86 cents on the dollar paid to men. The salaries of my staff are now more closely tied to job duties and work performance, not systemic gender disparities. Ditching salary history helped insulate our business from wage gaps and liability.

Even in my small business without a formal HR department, it was easy to adopt this change. Employers are already prohibited from asking job applicants questions about their age and marital status, for example. So it was easy to simply add our new practice of not asking for salary history to this list.

My company — and no company — needs salary history to determine the salary range for any position. In fact, an applicant’s previous salary has little to do with how the market currently values those skills, let alone what a business can afford to pay. Like many small businesses, my firm uses a combination of personal experience, salary surveys (freely available online) and — most importantly — our own budget to internally set a salary range before a position is ever advertised.

My senior staff and I are not alone in understanding how salary history hurts businesses and working people. Thirteen states, including Delaware and New Jersey, have passed laws that bar employers from relying on salary history to set pay. And research into one of the states shows that the recent legislation has already narrowed gender wage gaps in the state.

I enthusiastically support the salary history bill because it makes smart business sense — and it gives all Maryland businesses a practical and easy-to-implement tool to immediately start setting pay more effectively and fairly. I urge the members of the Maryland’s General Assembly to stop the outmoded and harmful practice of relying on applicants’ salary history. Marylanders have waited long enough.

— JIM RACHEFF

The writer is owner of Racheff Enterprises in Frederick and founder of The ParVit Company in Baltimore.

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