Editor's Note: Are there times when the notion of a "supervisory differential" - the adherence to ensuring a superior always earns a certain amount (or more) than his/her subordinates - doesn't apply? As with many so-called rules, the hallmark of a good professional is understanding when exceptions can and should be made. Jim Brennan explains in today's Classic post.
No, the boss doesn’t have to earn more than every subordinate. The boss usually earns more, but there is no rule that requires a manager to be paid more than anyone who reports to them.
In general, each job is paid according to the organization's estimate of the value added by that person in that job. Long service in the same valuable position frequently means that a senior specialist who has earned national recognition in their field might earn a very high salary due to large increases accumulated over the years. Their pay will frequently exceed that of their brand-new boss hired right out of school but expected to rise in the company.
One major trucking firm used to hire ex-football players graduating with fresh business degrees from the college known as “Linebacker U” to start out as entry level dock foremen. The drivers typically made far more money than their nominal “supervisors,” but they would never mess with the kids, who were quite physically and mentally imposing. Nor did the relatively “underpaid” beginners begrudge the crusty veteran over-the-road long-haul drivers their higher earnings. After all, this was the mere beginning of the college graduates’ rise to management levels, while the drivers fully deserved their wage for the sacrifices their role demanded. If the foreman wanted the driver rate he (this was pretty much in the pre-EEOC Stone Age where female dock foremen were rare) could always join the Teamsters or buy an owner-operated rig.
It is common to have overlaps in pay structures; so that the top end of a technical ladder may permit pay higher than the bottom rung of a supervisory scale. If there is a situation where one career is ending while the other may be starting, no inequity will be perceived by incumbents. There also used to be a deliberate overlap in bonus-eligible pay structures, creating a juncture point looking like a Y turned 90 degrees to the right where employees whose total compensation included contingent pay packages would have lower guaranteed base pay than their peers ineligible for bonus. Their base line would have a lower slope, while their intended total compensation line would be higher; but, of course, if they did not perform adequately or produce the desired output, their TC would remain lower than non-bonus-eligibles who might even be their direct-reports.
Sometimes the boss is simply a bureaucrat paid to handle budgets or funding or do other things different from the skills or competencies of the superstars supervised. The most brilliant Nobel-prize-winning research scientists often report to program managers who make less than they do; but their skills lie in different areas. Think of any professional sports team, where the General Manager hires and fires and the Coach directs the subordinate players but both of those senior executives generally earn less than the top superstar players.
Different jobs bring different pay. And having a long distinguished track record of exceptional performance in a position will usually mean that your pay will exceed that of most of your peers and maybe some of your supervisors. That's especially true if the boss is relatively new to their job, even though the lower-earning supervisor may be "worth more" in the long run to the enterprise and may have a higher range of potential pay.
These are all exceptions to the normal procedures that apply when you experience pay compression.
Management positions usually earn more because they have more leverage on the success of the operation. It is the responsibility of the senior executive team to make sure that no one is raised to a position of power without the necessary minimum skills, competencies, experience and knowledge to exercise management authorities. Anyone with those credentials (sometimes called "human capital" or KSAs) will expect a certain amount of pay to take on that job responsibility, and it will generally be a higher rate than the normal wage or salary of their subordinates; but not always.
Sure, the typical visitor to the Compensation Café knows all this, but much of the rest of the world does not understand this basic tradecraft principle. The next time someone hits you with a challenge on the topic, send them this link. By that time, we may have a bunch of comments covering the elements I omitted. It’s a lot easier to have a reference on hand than trying to remember all the points you need to cover for a comprehensive explanation.
E. James (Jim) Brennan, former Senior Associate of pay surveyor ERI, recently returned to consulting. Author of the Performance Management Workbook and veteran expert witness in executive compensation trials, Jim also serves on the Advisory Board of the Compensation and Benefits Review.