Dive Brief:
- Budgets for pay raises are typically framed as percentages of existing salaries, but when the existing salaries are already unequal, that framing perpetuates pay gaps, according to new research from Hayden Gunnell, assistant professor of accounting at the McCombs School of Business at the University of Texas at Austin.
- The study found that when students, acting as fictional bank managers, were given budgets for raises framed either as a percentage (5%) or a dollar amount ($30,800), the dollar-based salary bumps reduced the average gender pay gap by $91, while raises given as percentages increased the existing pay gap by an average of $1,636.
- In 2024, the gender wage gap increased; women who worked full-time year-round paid 80.9 cents for every dollar a man made, according to the Institute for Women’s Policy Research. That figure is down from 82.7 cents on the dollar in 2023 and 84 cents in 2022, which the Institute for Women’s Policy Research said marked the second consecutive year that the gender earnings ratio declined.
Dive Insight:
These topics have become an area of focus following the Trump administration’s pivot to “end” diversity, equity and inclusion programs, which has in turn affected pay equity conversations.
Gunnell’s research, conducted along with Karl Schuhmacher and Kristy Towry of Emory University, was recently published in a paper titled “Un-Nudging Pay Gaps: The Role of Pay Raise Budget Framing.”
The research sought to address whether common accounting choices in wage increases were allowing gendered inequities to continue.
“There’s this assumption implicit in percentage raises that the baseline is an appropriate amount on which to base the increase,” Gunnell said in a McCombs School report on the research.
Different accounting techniques could improve pay equity and help managers avoid potential legal risks or even shareholder pushback that could ensue from giving across-the-board raises to women, Gunnell said.
“A lot of the bias that pervades organizations is subconscious and unintentional,” Gunnell noted. “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.”
Meanwhile, HR professionals can work internally — and legally — to advance pay equity for employees by conducting assessments and striving for greater transparency, according to experts who spoke at the American Bar Association’s annual labor and employment law conference in November.
Gunnell said that his future research will focus on how raise mechanisms affect employee satisfaction.
“Accountants focus on the structures in organizations that measure and manage performance,” he said. “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.”