The cost of revealing your previous salary

Job applicants are routinely asked what they earned in previous positions, but answering the question may put them at a disadvantage

PUBLISHED : Monday, 11 March, 2013, 12:00am
UPDATED : Monday, 11 March, 2013, 4:26am

"What is your current or last salary?" The question makes many job seekers cringe yet it inevitably comes up in interviews.

When Lyndy Lim started her job search at the start of the year, she repeatedly faced this question from recruiters. "Practically every opportunity, whether directly from a company or through an executive search firm, I would get asked this," she says.

Lim, who has worked in human resources since the late 1990s and who specialises in compensation, found the question bewildering.

"It's irrelevant," she says, arguing that employers should be paying for the job, not the person occupying it.

It is an intriguing issue. Applicants in the middle of an interview and keen to please a prospective employer may find the question unnerving - one's pay is an intensely personal issue after all - but they would likely think an employer has the right to know this information.

An employer could ask a job applicant about how much he was paid on his previous job for all sorts of plausible reasons.

Perhaps the company wants to know whether it can match an applicant's pay expectations. Perhaps it is just sizing up the candidate. After all, a previous employer with a multiyear relationship with a worker has good visibility about his or her skills and work ethic - previous pay could plausibly be seen as an indicator of a person's fair market value.

Lim argues that a company should make a decision about how much the role is worth to the firm and how much it needs to pay to match market standards - questions about previous pay are irrelevant.

Meanwhile, many applicants perceive, correctly, that questions about previous compensation immediately put them on the wrong side of the negotiation process.

The employer will be very tempted to use the old salary as a reference point for a new offer, with many firms going by an old benchmark of offering 15 per cent more than the former job.

In other words, by answering the question about previous pay, you are volunteering critical information the hiring firm will use in the salary negotiation, weakening your position.

Indeed, some of the bigger firms will occasionally do bogus job searches, asking candidates from rival firms about their pay levels, just so they can get better information about market rates for jobs.

If you don't think the information will be used in the negotiation, try flipping the question around, and asking the employer how much has been budgeted for the position. They are likely to deflect the question because it weakens their negotiating position. The information is sensitive on both sides.

Kate Springer, a journalist originally from the United States, hates questions about her former salary. "You want to make a good impression. You want to be agreeable and answer but it's just like a trap. You tell them and then you lose your bargaining power. The feeling you're left with is that they're trying to pay the bare minimum."

Callister Koh, a regional human resources director for insurance firm AIA, says he will ask candidates about their former salaries.

"You need to pay according to the job. But you also need to pay according to the person's background. If the person's old salary is $90, and the job value is $130, maybe I can pay her $100 and then have room to raise the salary. I want [to know] how much room to move to raise her salary in the first year to keep her motivated," says Koh.

Fair enough. But, clearly, in this scenario the candidate would be better off not revealing her old salary.

Non-disclosure would force the company to make an offer pegged to job value, and not to her old compensation.

But it is even questionable whether one's previous salary is useful data for employers. Arguably, it is just bad information that muddies the hiring process. For example, a job candidate may be looking to slow down his career, and take a position with lower responsibilities, and pay. In that case the candidate's previous salary says nothing about what he or she should be paid in a new role. The information may lead an employer to overpay or to rule out a qualified candidate as too expensive.

Rose D'Souza, 26, works as a business analyst for a government health agency but is looking to move into writing. She fully expects to earn less as a writer. "Based on my work experience and salary now, I'd be tempted to say I earn less than I do during interviews. I don't want someone to say, 'She's OK, but we can go for someone who matches all the other qualifications and is cheaper.'"

Likewise, if an employer uses a low previous salary to lowball a new recruit on compensation, the person will figure this out and hold it against the firm.

"If we paid a person below the market rate, eventually the employee would find out. They would know they were being cheated," says Koh.

Applicants always have the option to politely decline to answer questions about previous pay.

Lim does not reveal her past salary to recruiters, out of her own privacy concerns and contractual obligations to previous employers (some of her employment contracts do not allow disclosure of salary). If she is asked about previous salary in an online form, she enters "0".

Employers and, in particular, head hunters may persist in asking the question and job seekers may think non-co-operation will be held against you. The more likely outcome is that, if an employer decides you are right for the job, questions about your former pay will quickly become irrelevant. The employer will then be forced to make an offer based entirely on what the job is worth. And that is the fairest possible outcome.