A new law prohibiting employers from inquiring about a candidate's salary will shake up Wall Street recruitment

  • On Halloween this year a new law takes effect in New York City prohibiting employers from inquiring about a candidate’s salary history during the hiring process.
  • It will move the spotlight away from a too-basic metric — compensation — and shine it on the most profound elements of long-term value for an organisation: motivation, cultural fit, aspiration, understanding of the business and strategic intelligence.

A few years ago Richard D. Fairbank founder, chairman and chief executive officer of Capital One Financial Corporation, told Stanford Insights, “I tell people I’m stalking them, and you’re on my short list.”

Companies that spend 2 per cent of their time recruiting, he argued, spend 75 per cent of their time managing recruiting mistakes. His implied criticism was that executives spend a lot of time managing their balance sheet even though it doesn’t represent their company’s scarcest resource: great talent.

Great CEOs are held in high regard for clever management of financial metrics. But great CEOs should be equally regarded for their management of human capital. Measured by time, talent and workforce energy it is a scarce resource. Scarcest of all is difference-making talent.

The average company considers only about 15 per cent of its employees to be difference makers. Based on my own firm’s research, inspired employees are three times more productive than dissatisfied employees. An organisation’s energy is a function of its number of inspired employees. But they are rare. Finding, developing and retaining difference-makers is tough; no wonder the business press refers to a “war” for talent. For most organisations, only one out of eight employees is described as “inspired”.

The cost of selecting the wrong person can run into hundreds of thousands, even millions of dollars, not to mention the potential negative impact to a company’s morale and productivity.

The cost of selecting the wrong person can run into hundreds of thousands, even millions of dollars, not to mention the potential negative impact to a company’s morale and productivity.

Competitive compensation policies are only the most obvious example of what it takes to win a competitive edge in the talent market. Understanding the alteration of traditional talent pools is another.

That is precisely why disruptions like New York’s equal-pay law are, perhaps ironically, a gift to those of us working in talent strategy. On Halloween this year a new law takes effect in New York City prohibiting employers from inquiring about a candidate’s salary history during the hiring process. The law is explicitly intended to untrack lifelong pay inequalities for women by uncoupling them from their salary histories. From now on any such inquires will be treated as unlawful and discriminatory.

They move the spotlight away from a too-basic metric — compensation — and shine it on the most profound elements of long-term value for an organisation: motivation, cultural fit, aspiration, understanding of the business and strategic intelligence.

Companies in our industry that take command of their evolution are strategic advisors, not resume dealers. They are seizing an opportunity to become guides in an operational environment where the old borders and landmarks have been blown away.

The leading search firms today are technology-centered and data-driven in support of a simple strategic insight. Clients want to know which candidates will thrive in their individual organisations — they want to know fit, in other words, and potential. They want to hire efficiently and accurately. Measured by the time and money saved on unsuccessful hires this is profoundly valuable intelligence for CEOs and HR executives.

Consider the case of financial-services firms. The talent they want may now be more readily found in other industries, especially Silicon Valley.

Consider the case of financial-services firms. The talent they want may now be more readily found in other industries, especially Silicon Valley.

Other firms, intent on grafting the technical innovation of Silicon Valley to their businesses, have learned the hard way that recruiting such talent is often not an issue of compensation but of competing with the creativity, lifestyle, intellectual stimulation and stability found in the Valley. Clients need guidance in understanding the ways in which quants are an entirely different breed from financial modelers. That’s one of the things a good search firm can provide.

Disruptions like the New York law will play to their strengths.

The authors of the legislation may not have intended that consequence. But we should thank them just the same.

Richard Stein is chief growth officer at Options Group in New York.

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