Together with a large multinational technology firm, we tested simple modifications in the salary review process to reduce gender inequities in pay increases. Results showed that reallocating salary increase budgets combined with explicit decision guidance eliminated the gender gap in salary increases without undermining performance differentiation.
The Challenge
Despite decades of progress, women still earn less than men, not only in salary levels but also in salary increases. Traditional measures like pay transparency laws reveal disparities but don’t directly address how pay decisions are made. The firm wanted to explore how modifications to the salary review process could actively promote pay equity without removing managerial discretion.
The Experiment
We designed a firm-level randomized field experiment with middle managers to test whether gender-blind budget reallocations and decision guidance could close the gender gap in pay increases.
Design: Randomized Controlled Trial (RCT) embedded in the annual salary review process.
Intervention: Salary increase budget reallocated based on employees’ relative position in the salary band (gender-blind), combined with three levels of decision guidance for managers (Budget only, Guidance Range, Guidance Value).
Sample: 623 middle managers and 8,951 employees worldwide.
Timespan: Implemented during the firm’s 2020 annual salary review.
The Findings
The gender pay gap in salary increases was reduced in all treatments and fully closed when managers received explicit guidance. These changes did not undermine performance-based differentiation but were less well received by managers who lost budget through the reallocation.
The Contribution
This study shows that simple, gender-blind changes in budget allocation and decision guidance can substantially promote pay equity. It demonstrates that pay inequities can be addressed directly within the firm without abolishing managerial discretion or relying solely on transparency laws. For organizations, this provides a low-cost and effective blueprint to foster equity while preserving motivation and performance incentives.
The Details
- Alftian J., Deversi N., Sliwka D. (2023). Closing the Gender Gap in Salary Increases: Evidence from a Field Experiment on Promoting Pay Equity. IZA Institute of Labor Economics, Discussion Paper Series, No. 16278. Link
Leonhard Grabe is a PhD candidate whose research focuses on organizational economics, managerial accounting, and HR management. His work combines large-scale field experiments with applied theory to study skills, leadership, and workplace behavior.
