Evaluating Salespeople’s historical performance with NYC’s new Salary Fairness law.
(Image courtesy attribution to seniorguidance.org on flickr)
On Oct 31st a new NYC law around salary fairness goes into effect. The law says that you cannot ask a prospective candidate about their salary history. The intent is that you will not offer a candidate a new salary based on their prior salary history and the goal is to minimize salary inequality – especially between men and women. You can read more about the law here.
Although the basic idea of the law sounds reasonable (I am all for fairness and equality), it poses a problem when hiring salespeople or anyone in the sales chain of command for that matter. Historically, one of the key ways we would evaluate the merits of prospective salespeople is on their compensation numbers, or, specifically their W2 results versus their OTE (On Target Earnings or what they are supposed to earn when tracking to 100% of quota). In fact, a whole school of hiring philosophy, Topgrading, is partially based on this factor. Topgrading is based on a belief that great past performance (especially on a w2 basis, backed up by proof of those W2 numbers) is a leading indicator of future performance. You can buy the 3rd edition of the Topgrading book, which is a great read, here or download a free eGuide, Topgrading 401, here. When I asked the author, Dr. Brad Smart, about his take on the new law, he suggested that high performing candidates will know the law and they WILL volunteer their W2s. He thinks that if these people volunteering their w2 info skew male as is likely, this will cause the law to backfire and have the opposite effect to its intentions. I think he has a very valid point: If you have great w2 numbers it stands to reason that you should absolutely flaunt them by volunteering the proof to get an edge on your more circumspect competitors for the same job slots. You are lessening your risk profile relative to theirs.
So. post this new law, how do hiring managers and recruiters alike ask questions that do not violate the law yet still provide clarification on prior performance to vet the merits of the candidates and how do candidates articulate their success in compensation terms?
The law says you cannot ask for salary history but it can be volunteered by the candidate and, only then, can you ask for W2s to back up their statements. With regard to commissions the FAQs on the new law says:
” Employers should not ask about the amount of commission an applicant earned, but may ask about objective indicators of performance such as the volume, value, or frequency of sales.”
From a quick and very unscientific poll of my clients’ hiring managers, it seems like the default NYC salary question going forward will be:
“What are your base and OTE comp expectations?”
This stops the hiring firm shooting in the dark when making an offer but, of course, can leave room for serious creativity on the part of the sales candidate and, let’s face it, some sellers can be very creative! Previously, you could ask them for their w2s to put their money where their mouth is and keep this creativity in check. Not so going forward. So, with this new law how do you do that while still staying within a rule of the law? Here is a suggested approach (Disclaimer: please talk to your legal counsel first before implementing this or any interpretation of a new law! I am explicitly not an employment attorney):
The law is about absolute numbers. Equality in absolute numbers is the law’s intent. Performance is all about relative numbers. By rights, a top performing salesperson that is fully ramped should be tracking at or above their OTE on a W2 basis unless there is a serious time lag in payment.
Here are some questions that should give you an idea of the relative number performance:
“Without telling me your ACTUAL base salary or OTE, can you tell me what percentage your OTE is to your base salary?”
For example, if I am on a 100k base and 150k OTE. My OTE is 150% of my base. If I am on a 125k base / 250k OTE, my OTE is 200% of my base.
“In percentage terms, how did your W2 performance track relative to your OTE”
For example, if was on 125/250k OTE and I hit 300k on a w2 basis, my w2 results were 20% greater than my OTE. The answer could also be negative: -10% or something similar which then begs the follow-up questions to clarify why that was the case.
When you combine……
A) those relative OTE/w2 performance numbers WITH
B) the answers to the questions you can ask about volume, value, or frequency of sales PLUS
C) absolute quota questions and questions about performance against that quota AND FINALLY
D) The Comp expectations that the candidates articulate to you….
…..you should have a clear picture and at least a theoretical way to validate the performance story that the candidate gives to you and whether their comp expectations are in line.
In addition to this, Dr. Smart, author of Topgrading, suggests a way to motivate honesty AND get accurate performance ratings by sales managers:
A) Tell candidates from the start that a final step in hiring is for THEM to arrange calls with the sales managers they’ve reported to in the past (6) years. “Low performers and BSers with gross exaggerations in their resume will drop out. Good!”
B) In interviews ask what their best guess is as to how each of their sales managers would rate their overall performance – Excellent, Very Good, Good, Fair, or Poor.
C) Conduct those candidate-arranged calls. Smart says guesses by candidates turn out to be accurate because they know they’ll have to arrange calls with their sales managers and high performing sales reps get Excellent and Ratings from former bosses.
Here’s hoping these suggestions help the cream rise to the top of your hiring funnel.