The term verifying compensation refers to a process employers use to confirm the level of wages paid to a prospective employee in the past. As part of their hiring process, a prospective employer may ask a job candidate for a copy of their Form W-2.
Some employers may want to verify the historical compensation of a prospective employee before making an offer. While this approach is not illegal, it is not considered a best practice. The compensation paid to a qualified individual should be based on the value of the position, not what someone was paid on their Form W-2.
That being said, if someone is interested in working for the employer and that's their policy, then complying with the request may be the only viable option. One counter approach might be to ask the prospective employer if they would also be willing to provide the average salary for employees holding similar positions. This information helps to "level the playing field" when negotiating a salary.
Individuals that have not retained copies of their Form W-2 should be able to request these documents from their employer. Copies can also be obtained directly from the Internal Revenue Service (IRS) since they were filed with prior federal income tax returns.