If they say it's too high, then you can say you might be willing to take a little less, potentially, for more of that to be cash/public liquid options/predictable/stable/whatever.
If the candidate had simply declined to disclose previous salary, they almost certainly would have been hired.
In general, I would be careful about lying during hiring. Hard to predict the consequences if it is ever discovered. There are plenty of examples of even senior people getting kicked over this sort of thing.
What if he simply priced unexercised options or ESPP? Company car?
That doesn't sound very professional from the HR rep. And that reflects poorly on the company.
How did they find out? I can't imagine they determined this from financial records so I intuit they must have been told by the candidate's previous employer, and if revealing an ex-employee's salary isn't illegal I would have surely thought it was pretty shady / frowned upon.
I then (always) ask them to email me detailed (usually 2-3 pages) job specs. Sometimes they call something "Manager" and it could be a +2 or -2 ranks. It's nomenclature. Different companies go crazy on the titles. After I read the specs, I ask them the range. If they absolutely want to know how much I make, or how much I want, I just bid them farewell. It's probably a shitty company, or it has a shitty HR. Either way, I can always (hope) to find a job in a better place.
The asymmetry of information can really f... up your chances to maximize your income. Never give them a number because you enter a negotiation blindfolded.
Edit: This has always worked for me.
Responding with "I'm looking for $X-$Y" often isn't an acceptable answer and they continue pushing for current salary.
I've noticed it much more in the last 2-3 years, where they absolutely will not continue the process without a current salary, which is when I resort to that made up number.
See https://leginfo.legislature.ca.gov/faces/codes_displaySectio.... It's pretty clear.
2 reasons to do this:
1) In many (I assume all) countries companies run background checks. When I claim that I have worked for 10 years as role-XYZ in company-ABC, they need to somehow verify this claim. The (closed) question is "Did Henry Bemis worked as role-XYZ in your company for 10y?" And the answer is either Yes/No (or a very slight variation of the asnwer, to clarify the role title (due to traslation or interpretation issues)(i.e. asking in English language for a role in Italy).
2) In Europe (were we get a good number of vacation days) the "next" employer will need some form of verification for your years of work, as the number of vacation days increase depending on the number of years you worked. Different ranges for different countries. Although the "next employer" does have a copy of your CV and can add the years, they should have the assurance that "total of 10 years" is actual "10 years".
It's also not the biggest delta I've heard about while doing user feedback interviews for our salary estimation startup [1]. We had one user who ended up being offered double the salary he was expecting ($300k instead of $150k). He now swears by getting to the magic phrase, "we'd love to have you on board X, we just need to talk about numbers."
This single negotiation allowed his wife to stop work and for them to start a family.
In California it's definitely illegal for an employer to ask you that information
https://leginfo.legislature.ca.gov/faces/billTextClient.xhtm...
Perhaps there is some argument that as the question should not have been asked the answer can not be material.
Many contracts of employment contain a clause allowing summary dismissal if found to have lied during your application.
If they like me so much they'll give me more? Awesome, big raise.
If my "expectations are too high" and they offer me less? Cool, still getting a decent raise (assuming I take the job, because that's a pretty big red flag).
They're clearly going to play some BS mindgames with me, so I'll preemptively mess with their anchor number.