The inheritance of inequality—Using ‘Last drawn salary’ for hiring

One of the common criteria that an organization uses to negotiate salary is the candidate’s last drawn salary. Of course this is a flawed practice in many ways—let us see it more closely.

Oct 08, 2023

Recently, I have seen how organizations set up or negotiate salaries while hiring candidates. One of the common criteria that an organization uses to negotiate salary is the candidate’s last drawn salary. I have seen a few discussions and arguments that support this practice.

Of course this is a flawed practice in many ways—let us see it more closely.

(Before I share my thoughts, I must add that this is a well-advocated topic across the industries for a few years now. Here are a few stories for your reference—The Woke Salaryman, pay equity by Jess Sand.)

Let’s take an example.

Organization A plans to hire two production managers—one each for their two new projects. Both the projects are in the same city, and need same kind of skills and experience in the production managers.

A candidate C1 from Org B is shortlisted for an interview (she is working on a salary of 60K per month).

A candidate C2 from Org C is shortlisted for an interview (she is working on a salary of 90K per month).

The disparity between the salaries of C1 and C2 could be for any reason. For example one of them might have been hired in a recession sentiment, or it can be argued that organizations B and C had flawed salary structure, and so the difference in their salaries. But their salaries are different—this is not the most important part in the story.

As a (flawed) practice, the organization A is prepared to give them a rise of 15-20% on their last drawn salary.

What A does and what it means

The possible outcomes are:

One, organization A hires both the candidates—C1 at 70K and C2 at 110K by sticking to the industry standard of giving 15-20% increase from their respective last drawn salaries. So, two persons who will work on the same position with similar work responsibilities will get different salaries because of the difference in their last salary.

This is Inheritance of inequality—A just builds on the inequality and is likely to pass on to many other organizations in the industry.

Two, A offers to hire both the candidates C1 and C2 for 90-100K just to make sure that they both get equal salaries because they will work on the same position in the hierarchy (whether C2 accepts it is a different story). Now if A knew that their budget was 90-100K for each candidate, they could have offered them the positions without asking for their past salaries. It brings equality into the picture, and gives more confidence to the candidates. Also, where is their policy of following the industry practice of giving a salary based on last drawn salary?

Three, A offers 80K only to C1 because this is what they can spend on and they do not have the budget to hire C2. Again if they know their budget and if they have a process that supports their budgeting for new hires, why do they need to know the candidates’ last salary? And would they have offered the same 80K salary to the candidate if their last drawn salary were 50K? Would the offer have been 60K if the last drawn salary was 50K? This is ridiculous at many levels.

What it shows? That the organization A does not have their own salary model and they do not even know how much they should pay for a candidate for specific profile. (For the moment, I am not getting into the gender pay gap—that can dilute the main message here.) And they cover their weaknesses and fragmented hiring policies by leaving it to the candidates—and use their last salary as a base to negotiate?

(You are still thinking? Read on.)

Let us dig it deeper.

The salary itself is not the issue. The issue that how employers use it to their advantage without even realizing how it hurts their brand. An annual study by hiring.com says—“Six times out of 10, women are offered less money than men to do the exact same job at the exact same company.” (source)

There have been stories of ban on the salary history—these are enforced to bridge the pay gap between men and women. Recent studies have shown that the gender pay gap still exists—for example women earned around 80% of what men earn. (source)

Once a specific gender candidate enters into a job with lower salary, they will always be judged or evaluated based on the last drawn salary—how stupid this is.

I understand that recruitment managers are flexible and they see the candidates’ merit also, but the fundamental criteria to base it on their last drawn salary is flawed.

If organizations share the salary or at least the salary range in the job posting itself, the discussions on salary between the candidates and the organizations start for the same range for all the applicants regardless of their last drawn salary—it welcomes pay equity.

Minister for Manpower in Singapore in 2020, Josephine Teo says—”If a company bases the applicant’s “worth to the organisation” solely on the last-drawn pay, my advice to the jobseekers would be to look for another employer. This is not a company that you should spend too much on.” (source)

Hiring interns and freshers

Think how an organization hires fresh graduates in the college itself. They have a budget, and they offer it to the students. The students in the same class in the same institute are hired for INR 10K per month, 25K per month, or even 50K per month because the organizations have that budget, and they had the process and the criteria of evaluating the students. Why the same cannot work for experienced workforce—it simply eliminates bias and brings cross-sectional and cross-dimensional equality in the system. It brings a lot of other benefits to the organization itself—their brand positioning for how they care for their employees (related stories shared later in this post).

The change

BambooHR shares some useful tips for the job applicants as well as for the organizations to embrace this positive change for the common good. (source)

Asking for last drawn salary while hiring—the inheritance of inequality, by the organizations, as shared by Vinish Garg.

Many recruitment firms and consultants help the job applicants to navigation this tricky question. For example Hirect India says—”My employer considers employee salaries confidential, and access to this information is limited to management inside our organization. So, I am unable to share it with you. However, if you share the salary level and range for this position, I can confirm whether my salary is within that range or not.” (source).

Imagine a scenario for the organization A where they have an option to say:

“We have two open positions for project abc1 and abc2 and we are looking for two candidates with….. For each role, our salary budget is INR X to INX Y.”

“”We have two open positions for project abc1 and abc2 and we are looking for two candidates. The salary for each role depends on your last drawn salary.”

Which statement shows the organization’s maturity and gives more confidence to the candidates?

Vinish Garg