Framing raises in dollars, not percentages, helps reduce gender gaps

During the 60 years since pay discrimination became illegal in the United States, gender pay equity has remained stubbornly elusive.

The gap between women and men increased in 2024, with women earning 80.9 cents for every dollar men make for the same work, according to the Institute for Women’s Policy Research. That was down 1.8 cents from the year before, the most the gap had widened since 1966.

What if a simple accounting move could help close the gap? So asks Hayden Gunnell, assistant professor of accounting at Texas McCombs. In new research, he finds that determining pay raises in terms of dollars rather than percentages can do just that.

Typically, budgets for pay raises are framed as percentages of existing salaries, he explains. But when the existing salaries are already unequal, that framing perpetuates pay gaps.

“There’s this assumption implicit in percentage raises that the baseline is an appropriate amount on which to base the increase,” Gunnell says.

With Karl Schuhmacher and Kristy Towry of Emory University, he ran two experiments to compare the effects of percentages versus dollar amounts.

In the first, 47 MBA students with varying levels of professional work experience assumed the role of a fictional bank manager. They determined pay raises for four employees — two women and two men — who delivered equal work and had the same job title.

The average pre-raise salary was higher for male employees, with no justification provided. Managers got budgets for raises framed either as a percentage (5%) or a dollar amount ($30,800), while keeping the overall budget constant.

The results confirmed that framing can lead to significantly different pay outcomes:

• Dollar-based salary bumps reduced the average gender pay gap by $91.
• By contrast, raises given as percentages increased the existing pay gap by an average of $1,636.

Bridging the Gaps

In a second experiment, the researchers tested whether the phenomenon held when bank employees weren’t all doing the same job. Participants got a scenario in which two employees were senior loan officers and two were junior loan officers. Each category had a female and a male employee.

The results were similar. The average pay gap between men and women was perpetuated more strongly when percentage rather than dollar increases were given.

Gunnell believes such accounting techniques can make a promising new addition to the field of pay equity.

One advantage, he observes, is subtlety. By making such techniques routine, managers can avoid legal risks or shareholder pushback that might ensue from giving across-the-board raises to women. But the goal — reducing existing gender pay gaps — is the same.

“A lot of the bias that pervades organizations is subconscious and unintentional,” Gunnell says. “It’s really hard to change people’s biases and opinions. But we can change our default and build structures that frame decisions in a different way. One way to perpetuate fairness is to reframe how you approach the pay raise process.”

He plans next to explore how raise mechanisms affect employee satisfaction.

“Accountants focus on the structures in organizations that measure and manage performance,” he says. “We’re interested in how all those management controls work. We have the ability to pull levers and make things just a little more fair.”

“Un-Nudging Pay Gaps: The Role of Pay Raise Budget Framing” is published in The Accounting Review.

– Sally Parker