In presentations I have made around the country, I have occasionally raised the question of whether the practice of permitting negotiation of starting salaries is susceptible to challenge under a disparate impact theory. This article explores that question further.
Disparate impact occurs when a practice that is fair in form — because it applies equally to all employees or applicants — has a disproportionally negative impact on the terms and conditions of employment of a protected class of applicants or employees. The landmark decision establishing disparate impact as a theory of discrimination was Griggs v. Duke Power, 401 U.S. 424, 431 (1971). In that case, a high school diploma requirement that was applied to all workers in a particular job was found to disproportionately exclude Blacks from the position because statistics showed that Black high school graduation rates were lower than White graduation rates. The high school diploma requirement was fair in form because it was applied to every one. It was discriminatory in effect because Blacks were more likely to be unable to meet the requirement than their White counterparts.
Allowing applicants to negotiate starting salaries is fair in form if the opportunity to negotiate is equally available to all applicants. The potentially discriminatory impact lies in the statistical disparities that have been identified concerning the likelihood of women to engage in salary negotiation compared to men.
A November 7, 2008 article published on-line by the Washington Post quoted statistics indicating that:
- Women, on average, ask for 30 percent less money than males.
- Men are four times more likely to negotiate a first salary than women.
- Men are eight times more likely than women to negotiate their starting salary and benefits.
- Women ask for raises or promotions 85 percent less often than their male counterparts.
- In 2007, women who were full-time wage and salary workers earned 80 percent of their male counterpart’s salary.
- 20 percent of women (22 million people) say they never negotiate at all, even though they recognize negotiation as appropriate and even necessary.
- 2.5 times more women than men said they feel “a great deal of apprehension” about negotiation.
- When asked to pick metaphors for negotiations, men picked “winning a ball game match,” while women picked “going to the dentist.”
Source: Linda Babcock, Carnegie Mellon University
Professor Babcock explored this issue in depth in a book coauthored with Sara Laschever, entitled, “Women Don’t Ask.” On their website of the same name (www.womendontask.com), they estimated the following economic impacts for women because of their reluctance to negotiate.
- By not negotiating a first salary, an individual stands to lose more than $500,000 by age 60—and men are more than four times as likely as women to negotiate a first salary.
- In one study, eight times as many men as women graduating with master’s degrees from Carnegie Mellon negotiated their salaries. The men who negotiated were able to increase their starting salaries by an average of 7.4 percent, or about $4,000. In the same study, men’s starting salaries were about $4,000 higher than the women’s on average, suggesting that the gender gap between men and women might have been closed if more of the women had negotiated their starting salaries.
- Another study calculated that women who consistently negotiate their salary increases earn at least $1 million more during their careers than women who don’t.
A January 31, 2013 article entitled “Women Don’t Negotiate Because They Are Not Idiots” written by Joan Williams discusses Professor Babcock’s research and argues further that the reluctance of women to negotiate starting salaries and other job terms and benefits is because women are subjected to a disproportionately larger backlash if they engage in such negotiations. According to Williams, “Women who negotiated faced a penalty 5.5 times that faced by men.” (www.huffingtonpost.com) Williams goes on to say, “If your organization relies on incoming employees to negotiate for themselves, men will be able to negotiate without holding back for fear of alienating people but women will not.” She concludes that both women and men are less likely to want to hire or work with women who negotiate starting salaries.
Assuming for the sake of argument that the statistics offered in these publications concerning the impact of starting salary negotiations on women are accurate and provable, one could argue that the practice of allowing starting salary negotiation has a predictably disproportionate adverse impact on women’s compensation.
Under the disparate impact theory, for an employment practice that causes a disparate impact to be lawful, it must be job related and consistent with business necessity, and there must be no less discriminatory alternative for achieving the company’s legitimate business purposes. Let’s assume for the sake of argument that the practice of allowing the negotiation of starting salaries and other terms and conditions of employment is job related and consistent with business necessity. This leaves the issue of whether there is a less discriminatory alternative for setting starting salaries than permitting negotiation. A number of alternatives come to mind. The company could set an inflexible starting salary for the position. In other words, the job pays only so much and no more. Alternatively, there could be a predetermined algorithm that keys a certain level of compensation to discrete factors from the applicant’s application, such as experience, education and prior salary and generates a starting salary electronically. In this approach, starting salaries are flexible, but not negotiable. Another idea, drawn from the Williams article, is for there to be a single designated negotiator who negotiates starting salary for all candidates based on the information provided by each candidate. Perhaps, ideally this person would know everything about the candidate’s employment history except his or her gender. This potentially neutralizes the influence of the candidate’s gender in negotiation since all negotiations for all candidates are conducted by the same person, and negotiation is a routine part of all starting salary decisions.
Now let’s briefly return to the issue of job relatedness and business necessity. How you define these terms determines whether any of the alternatives suggested above really meet the employer’s needs. This is a situation where the tools of the disparate impact analysis may be too blunt to actually register the value to the business of paying the best negotiator more. It may not be possible to demonstrate using the usual methods of validation that the candidate’s success in salary negotiation translates into added value to the company even though this may ultimately prove to be the case.
Since the EEOC is the lead federal agency for civil rights, I went to its webpage to see what it had to say about disparate impact and compensation in its Compliance Manual.
- Disparate impact analysis is aimed at “practices that are fair in form, but discriminatory in operation.”(33) It is another analytical tool for determining whether compensation discrimination has occurred.(34) The focus in a disparate impact analysis is whether a neutral compensation practice or policy disadvantages employees in a protected class. In the area of compensation, practices that may fall within disparate impact analysis include: educational requirements, performance appraisals, examinations, qualification standards, and other practices or policies.
EEOC clearly views the disparate impact theory as applicable to compensation discrimination as does the OFCCP. The list of practices that may fall under the disparate impact theory is illustrative rather than exhaustive. Thus, whether the practice of permitting salary negotiations is actionable under disparate impact theory remains to be seen.
Since salary negotiation is likely prompted by the candidate rather than the company, can it be properly characterized as a company policy or practice? On this question, I turned to the Chicago Miniature Lamp Works decision 947 F.2d 292 (1991). In that case, the alleged discriminatory practice was passive use of word-of-mouth recruiting. The court held:
- The EEOC does not allege that Miniature affirmatively engaged in word-of-mouth recruitment of the kind where it told or encouraged its employees to refer applicants for entry-level jobs. Instead, it is uncontested that Miniature passively waited for applicants who typically learned of opportunities from current Miniature employees. The court erred in considering passive reliance on employee word-of-mouth recruiting as a particular employment practice for the purposes of disparate impact. The practices here are undertaken solely by employees. Therefore, disparate impact liability against Miniature must be reversed.
Critical to the decision finding that the word of mouth recruiting in that case was not an employment practice was the fact that the company took no active role in the practice. It neither told nor encouraged its employees to engage in the challenged practice. Since the word-of-mouth recruiting was not an employment practice, it could not form the basis of a disparate impact claim.
In the case of salary negotiation, it is quite likely that the company does not tell the candidate to negotiate salary. The negotiation in many instances, if not most instances, is prompted by the candidate. However, entering into salary negotiations with the candidate moves the company into a more active role than the court observed in the word-of-mouth situation in Chicago Miniature Lamp Works. Unlike word-of-mouth recruiting in the Miniature Lamp Works case, salary negotiation is not undertaken solely by employees or applicants. The candidate does not negotiate with him or herself. The negotiation practice only takes place because the company participates with the applicant in the process. It is, therefore, distinguishable from a passive “employee only” practice.
In addition, the statistics showing the increased pay that on average results from the negotiation process could reasonably be considered evidence that the company encouraged the practice. As the case suggests, practices encouraged by the company can be considered company practices subject to analysis under a disparate impact theory. The analysis of starting salary negotiation as disparate impact appears equally applicable to negotiation for any favorable term or condition of employment, if the statistics concerning women and negotiation are accurate.
Posing negotiation as a potential subject of a disparate impact allegation is, of course, significantly easier than actually proving the case. What fascinates me about this argument is how well it appears to fit the disparate impact theory. Nevertheless, something about it seems wrong to me. Negotiation is so fundamental to business. Trying to get the best deal for yourself in a free enterprise system seems part and parcel of a capitalist economy.
The statistics in the articles mentioned at the outset suggest both that women face a greater degree of backlash if they negotiate, but also that despite the backlash, women who negotiate make significantly more money over their working lifetimes than women who do not. Both men and women seem to benefit in the long run from the freedom to negotiate. Taking this opportunity to prosper away does not strike me as sound public policy.
In terms of contract compliance, it really is an open question as to whether negotiation will ever be viewed as having a disparate impact. The best you can do is keep an eye on how the process operates and get some sense of the degree to which starting salary negotiation impacts women’s salaries relative to men’s. Even if the disparate impact approach does not get applied to the negotiation of starting salaries, wide variances in the starting salaries of men and women in the same job will likely attract unwanted attention from the OFCCP.
On the disparate treatment side, there are a few things you can do. Make sure that men are not being tacitly invited to negotiate in a manner that women are not. For example, asking men if the stated salary is all right but not asking women could be viewed as disparate treatment. Learn what kinds of factors are accepted in salary negotiations as reasons for boosting starting salaries and treat those factors the same whether being raised by male or female candidates. Sensitize salary decision makers to view female salary negotiators as positively as they view male candidates who negotiate starting salaries. Careful and conscientious administration of the salary negotiation process will go a long way to ensuring the continued freedom to negotiate for both men and women while minimizing the likelihood of gender discrimination.