When a candidate proposed a lower-than-average salary, one employer was transparent that the role paid more. “The person was very surprised.”
Published April 19, 2022 by Katie Clarey
At Magoosh, making candidates a good offer is nonnegotiable. Literally. The company doesn’t allow job seekers to negotiate their salaries or benefits.
Magoosh, which provides standardized test prep, has had its no-negotiation policy in place since its founding in 2009. The practice is still standard, the company confirmed to HR Dive. Instituting the policy was a scary decision for Magoosh CEO Bhavin Parikh, he said in a 2015 blog post. But he said he believed his company would benefit from it.
Parikh argued that the practice would eliminate friction between employees in similar roles whose earnings diverged because of negotiation. And it would reinforce the idea that compensation is merit-based, not subjective.
Parikh pointed to a third reason for nixing negotiation: It would help shrink pay inequities.
Since Magoosh’s founding, attention toward pay gaps has grown significantly. Many companies have aired intentions to fix pay gaps and to achieve pay equity. Advocates for pay equity have pushed employers to pursue measures such as disregarding salary history and expectations, publishing salary ranges, and conducting pay audits.
Foregoing salary negotiation is a less common practice, to be sure. Only a few other companies — Reddit, for example — have publicly committed to the practice. But sources told HR Dive it can be a significant step toward equitable pay.
Magoosh: A case study in no negotiations
Behind Magoosh’s commitment to making candidates one nonnegotiable offer of employment is a compensation ecosystem it says is designed to compute fair pay for every candidate who comes on board.
The company started by creating salary tracks for each of its departments or functions, Parikh wrote in another blog post in 2019. Each gets two tracks: One for individual contributors and another for managers. Each track contains levels that correspond to responsibility, scope and title. Increments between those levels serve as stepping stones to reward smaller advancements. The tracks ensure all workers doing the same job get the same pay, Parikh wrote.
The company uses third-party data to determine market compensation for each level within a job function. It refreshes the numbers every year in the third quarter, and if the market rates increase for companies similar to Magoosh, it provides salary boosts to its employees.
When Magoosh sets out to make a new hire, it publishes the salary range for the open role alongside the job description. It shares its no-negotiation policy early in the process, as well.
“We realize that a no-negotiation policy can turn some folks away, especially if they erroneously believe we won’t pay a fair wage as a result. We also know that some companies use no-negotiation policies to purposefully lowball candidates,” Parikh wrote.
The company first instituted the policy as a way to show it wouldn’t compete on salary — it was small and couldn’t afford to pay more, so it wanted candidates to choose Magoosh for its mission. But after years of growth, Parikh saw the policy differently. “I’ve realized pay and passion need not be mutually exclusive. We still use our no-negotiation policy as a way to maintain pay equity and support our Diversity, Equity, & Inclusion goals,” he wrote. “But we also want to pay competitively and want employees to feel good about their compensation.”
Negotiation and pay gaps
So how can negotiation — or the lack thereof — affect pay equity?
Recent research has highlighted disproportionate outcomes of salary negotiation in terms of gender. A study released October 2021 by researchers at the University of Southern California found that women negotiating for salary against virtual humans fared no better than men in the experiment. Forty-three percent of participants did not negotiate at all, and job seekers left 20% of value on the table.
While the study found no significant differences in the negotiating behaviors of men and women, it found that women “were willing to settle for less if they thought the environment is hostile to a woman.” “This expectation didn’t impact their final outcome when the interviewer ignored their gender, as our AI was programmed to do,” Jonathan Gratch, one of the study leaders, said in a press release. “This is consistent with the story that the problem is with the men that are interviewing the women, not the women themselves.”
Other research examined the gender-associated effects of pay negotiation for incumbent employees, as opposed to candidates. A 2021 report from LeanIn.Org and McKinsey & Co. revealed similar findings, which were based on data from more than 130 companies and 34,000 men and women. The report revealed, for instance, that women negotiated for promotions and raises as often as men but faced more pushback. Researchers at the University of California, Berkeley, found that, among 2,000 graduates of an elite U.S. business school, more women than men asked for raises and promotions, but they were turned down twice as often.
Salary negotiation has been an important issue in equal pay litigation for several years, according to Matthew Gagnon, partner at Seyfarth Shaw.
If an employee sues an employer under the Equal Pay Act or another anti-discrimination law, the worker must identify another employee who was paid more for doing equal work. Then the burden shifts to the employer.
The employer must then justify why the pay disparity exists. The most commonly used defense is the “factor other than sex” defense, Gagnon said in an email to HR Dive. “As the name implies, an employer just needs to show that the disparity exists due to some factor other than sex,” he said. “Negotiation is sometimes one of those factors that an employer will rely on: the pay disparity exists because one employee negotiated for a higher salary than another employee.”
Companies are still trying to get bargains and it’s unfortunate. Bargains are bad in the world of HR today. They cause problems. And they’re morally wrong.
VP of consulting at Salary.com
Some equal pay plaintiffs have begun to challenge this defense, Gagnon said. They argue that the negotiation process itself involves gender bias.
“Plaintiffs argue that there is a disparity in how employers treat employees during the negotiation process, often arguing that a man ended up with a higher salary because they were perceived to be a ‘better’ or ‘harder’ negotiator than a woman, solely due to gender stereotypes,” Gagnon said.
This argument has had mixed success, Gagnon noted. But most of the time, it has not been successful.
Pay equity, negotiations or no negotiations
Salary negotiation can take place without discrimination, but only if the employer has a strong policy and good tools, according to David Turetsky, VP of consulting at Salary.com.
Turetsky’s No. 1 rule of salary negotiation for employers is to avoid bargains — snagging talent for a lower price than they’re worth. “Companies are still trying to get bargains and it’s unfortunate,” Turetsky told HR Dive in an interview. “Bargains are bad in the world of HR today. They cause problems. And they’re morally wrong. It takes training. It takes leadership. And it has to come from the top. This is not an HR problem — this is a business problem.”
Companies can still negotiate if they equip candidates with information, Turetsky said. Individuals need to know the company’s salary ranges, what the job pays, and what their benefits and career path would look like.
From there, the employer can disclose the starting rate in an offer, maybe $90,000 with an upcoming bonus and benefits. The employee can ask to start at $100,000 instead, and the employer will explain how that changes the extra, based on the total budget.
“That conversation can happen,” Turetsky said. “The employer needs to have the policy and the tools for the hiring manager and the recruiter to do the right thing, so there’s no bargain, but there’s a good starting place for that person to be on.”
Compensation conversations marked by openness and honesty may surprise candidates. When Turetsky was hiring for his consultant group, he identified a wage he planned to pay all consultants. When someone came in and requested a figure that was 25% less than his selected amount, Turetsky said he wouldn’t do that, he’d pay more. “The person was very surprised.”
Even though he said he believes negotiations are still possible with good compensation architecture, Turetsky said he approves of a no-negotiation policy if it’s in the name of pay equity. In fact, he encourages more organizations to pursue pay equity policies on the whole.
“I hope it doesn’t take regulation to make this happen. I hope organizations and their leadership are providing the guidance that we as organizations need to do the right thing for employees and potential employees,” he said. “We need to think pay equity, act pay equity. We need to treat everyone the same. Put blinders on.”
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Source: HR Dive