The number of direct reports a manager may have usually has little impact, if any, on compensation. Senior managers in Twenty-First Century enterprises are generally paid for the results they achieve rather than the number of individual subordinates at the level right below them.
The impact of the total number of employees at an enterprise was addressed last year in an earlier article, but the effect of changes in direct-report counts was not discussed. So, let's have at it!
In broad and general terms, when organizations increase the number of subordinates or the number of functions reporting to a position, they tend to clone the managers who actually supervise people. As organizations grow, they generally create multiple duplicate management jobs serving small segments. Most initiate amoeba-like fission actions to split the jobs. Some re-organize them into more homogeneous focused sections.
The reallocation and distribution of headcount responsibility can be a complex task but it usually is controlled by senior management. Span of control results are only occasionally an important variable among non-executive posts. Even for Directors and above (General Managers, Department Heads, VPs, etc.), the number of underling bodies in the reporting chain is rather irrelevant today. Return on assets invested or the amount of revenue generated tend to move independent of the number of direct reports. Those ROI and sales size metrics are much more relevant to competitive pay in most industries than direct report numbers or even cumulative subordinate counts. Remember, there can be major differences between those subordinate numbers, too: a VP over 5 directors who each supervise one manager who supervises two others might have a cumulative subordinate headcount of 15, while a Director with merely 2 subordinate managers who each have 20 underlings would have a total of 40 in their cumulative subordinate number. Placing weight on such variables is a difficult and dangerous practice. Organizational designers have learned that those who can produce better results with fewer subordinates and lower payroll costs are worth more to the enterprise.
The ancient age of highly structured rigid vertical pyramid hierarcharies might be fondly remembered by those few remaining survivors of the empire-building days when the more bodies you could employ, the higher the remuneration you could command, but most organizational development experts shudder at the prospect of turning the clock back. Mind you, each industry and every organization has its own unique tradition; and they all tend to be defensive, change-averse and self-reinforcing. No single practice is universal.
Overall, I'd guess that headcount gets about the same weight as the average temperature of your work location; it could have minor effect or it could be vital, depending on the related management outcome expectations, with no one rule governing everywhere. But "number of subordinates" remains an extremely popular metric to flaunt, typically used to negotiate fair (more) pay. If it is relevant to internal peer rank or external competitive market price, it might be acceptable as long as it can be applied universally forever without fear of hypocrisy or contradiction.
Has anyone found anything different?
E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. After over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.), serves on the Advisory Board of the Compensation and Benefits Review and will express his opinion on almost anything.
Creative Commons image "hierarchy" by jurvetson