Using Percentages to Manage Raises May Perpetuate Gender Pay Gaps

Why It Matters

Reframing raise calculations offers a low‑cost lever to curb systemic pay inequities and mitigate litigation risk for companies.

Key Takeaways

• Percentage raises amplify existing salary disparities
• Dollar-based raises cut gender pay gap by $91
• Study shows percentage raises increase gap by $1,636
• 2024 gender wage gap fell to 80.9 cents
• Framing raises can reduce legal and shareholder risk

Pulse Analysis

The recent study by Hayden Gunnell and colleagues highlights a subtle yet powerful driver of pay inequality: the way managers are instructed to allocate salary increases. By presenting budgets as a flat dollar figure, decision‑makers are forced to consider the absolute amount each employee receives, which naturally offsets the advantage of higher‑paid, often male, incumbents. In contrast, percentage‑based raises preserve the status quo, magnifying existing disparities because larger salaries receive larger absolute bumps. This insight aligns with behavioral economics research that shows framing effects can shape outcomes without altering underlying resources.

The findings arrive at a critical moment for gender‑pay equity. The Institute for Women’s Policy Research reported that women earned only 80.9 cents on the dollar in 2024, a slight decline from previous years and the first drop in two consecutive periods. Simultaneously, corporate governance pressures and potential shareholder activism are intensifying around compensation fairness. Legal experts warn that unequal raise practices could trigger discrimination lawsuits, especially as regulators scrutinize pay‑gap disclosures. By adopting dollar‑based raise policies, firms can demonstrate proactive compliance and reduce exposure to costly litigation.

For HR leaders and finance teams, the practical takeaway is straightforward: redesign compensation guidelines to specify absolute raise amounts or introduce hybrid models that cap percentage increases for high‑earners. Transparency tools, such as pay equity audits and real‑time dashboards, can further reinforce fairness. Future research by Gunnell aims to link these framing mechanisms to employee satisfaction, suggesting that equitable pay may also boost morale and retention. Companies that act now can turn a simple accounting tweak into a strategic advantage, fostering a more inclusive workplace while safeguarding their bottom line.