During the six decades since pay discrimination was made illegal in the United States, genuine gender pay equity has remained frustratingly out of reach. Legal safeguards and heightened public scrutiny have not been enough to eliminate disparities in earnings between women and men who perform the same work. Instead, progress has been uneven, and in some periods the gap has widened rather than narrowed, underscoring how deeply rooted and resilient pay inequality can be.

In 2024, the situation worsened. Women earned 80.9 cents for every dollar earned by men doing equivalent work, according to figures from the Institute for Women’s Policy Research. This marked a decline of 1.8 cents compared with the previous year, representing the largest single-year increase in the gender pay gap since 1966. The data highlighted how vulnerable gains in pay equity remain, even after decades of advocacy, policy reform, and organisational efforts aimed at fairness.

This troubling context raises an important question: could a simple change in accounting practice help reduce the gap? That is the idea explored by Hayden Gunnell, an assistant professor of accounting at Texas McCombs. In recent research, Gunnell suggests that the way organisations structure pay rises can meaningfully influence pay equity outcomes. He finds that calculating raises as fixed dollar amounts, rather than as percentages of existing salaries, can help prevent the reinforcement of historical pay inequalities.

In many organisations, budgets for pay increases are expressed as a percentage of current salaries. On the surface, this appears neutral and objective. However, when existing salaries already reflect inequality, percentage-based increases tend to magnify those differences. Higher-paid employees receive larger absolute increases, even when performance and responsibilities are identical. As Gunnell points out, percentage raises implicitly assume that current salaries are an appropriate baseline, an assumption that fails when those salaries are shaped by past discrimination.

To test this effect, Gunnell worked with colleagues Karl Schuhmacher and Kristy Towry on two experiments. In the first, 47 MBA students acted as managers at a fictional bank and allocated raises to four employees—two women and two men—who held the same role and delivered equal performance. Male employees began with higher salaries, without explanation. Participants received identical raise budgets framed either as a five per cent increase or as a fixed dollar amount. Dollar-based raises reduced the average gender pay gap by $91, while percentage-based raises increased it by an average of $1,636.

A second experiment introduced job-level differences, with senior and junior loan officers, again split evenly by gender. The results were consistent: percentage increases more strongly perpetuated existing gender pay gaps than dollar-based increases. Gunnell argues that such accounting techniques offer a subtle yet effective way to promote fairness. By changing default systems rather than individual attitudes, organisations can reduce bias without provoking legal or political resistance. As he notes, it is often easier to redesign decision-making structures than to change deeply ingrained, subconscious biases—and those structural changes can make workplaces meaningfully more equitable.

More information: Hayden Gunnell et al, Un-Nudging Pay Gaps: The Role of Pay Raise Budget Framing, The Accounting Review. DOI: 10.2308/TAR-2024-0105

Journal information: The Accounting Review Provided by University of Texas at Austin