(Illustration by Jefferson Miller)

Dilemma of the Month: Can a Manager Be Paid Less Than Her Direct Report?

Back Article Jul 5, 2023 By Suzanne Lucas

This story is part of our July 2023 Young Professionals print issue. To subscribe, click here.

I’m a brand-new HR director, and I recently discovered that an employee earns $13K more than her director, who oversees a team of 10. The highly paid employee, Jane, signed her offer letter in 2021. The finance team explained to me that the employee’s higher pay was due to certifications and difficulty finding a qualified candidate at the market salary. Upon learning that her direct report made more than she did, the director, Heidi, naturally requested a salary increase. However, the director’s salary is already in line with other directors, and Heidi would be happy if she hadn’t noticed this error. Options to consider are: maintaining the employee’s current salary, reducing the employee’s salary, or increasing the director’s salary (although we might not have the budget for the latter). What should we do?

You refer to this as an error, but it’s not an error. No one wrote down the wrong amount on Jane’s offer letter. This is not a pay problem; it’s a communication problem. 

Yes, Heidi is upset because her direct report earns more than she does. And to be clear, she should have known from the beginning that her direct report earns more than she does. Managers should know their direct reports’ salaries — this shouldn’t have been a shock. If Heidi was Jane’s manager when Jane was hired, Heidi should have been involved in that salary decision.

You say the company had “difficulty finding a qualified candidate at the market salary.” The reality is that the employee’s current salary is the market rate. In this case, the director’s market rate may be lower. While it’s almost always true that managers make more than individual contributors, there’s no reason it has to be that way. Managing is different than doing. We assume that managing requires more skills than doing, and that’s often true, but not always.

The reasons for the high salary, according to your finance teams, are:

  • Certifications (that I presume the director doesn’t have)
  • Difficulty finding someone at the original rate

It’s doubtful that any of that has changed. If you reduce Jane’s salary, she’ll quit. Then you’ll need to find someone to do that job. You’ll have to pay the market rate — which Jane earns — and the rate may now be higher. Plus, you’ll have to pay all the recruiting costs, have the position vacant for some time, and have all the training costs. (And every new employee has to learn how your company runs — no one “hits the ground running.”)

So you can’t reduce Jane’s salary. You had difficulty filling that position in 2021; you’ll likely have difficulty filling it in 2023.

It would be easy to give Heidi a raise to keep her happy, but as you know, it would put her out of alignment with other employees at her level. Then you’d end up with the other directors storming your office asking for more money. 

The solution here is to work with Heidi so that she understands why Jane earns what she earns and what would happen if you lowered her salary. You’ll also need to prepare market data to show Heidi that she earns the market rate for her position.

While the concept of a boss earning less than a direct report is strange, it happens all the time. Sports stars can and do make more than the coach. Movie stars earn more than directors and producers. Neurosurgeons earn more than hospital administrators. Pharmacists earn more than the store managers where they work.

Not everyone is cut out to manage other people. It’s an entirely different skill set. Often companies promote people to management positions who are good at doing the job, but it’s not necessary. No CEO is an expert in all the positions in the company. Someone who manages highly skilled employees does not necessarily need to be highly skilled in those areas as well.

Offer Heidi the opportunity to gain the same certifications that Jane has. It would be to the company’s advantage to have multiple people with those skills. If Heidi takes you up on that offer, that’s great! Then raise her salary when she completes that training and can relieve some of Jane’s workload. 

If Heidi decides she doesn’t want to go through the work to gain that certification, that’s great too. But she’ll better understand why her salary isn’t as high, and you’ve given her a pathway to a higher salary.

And if Heidi quits over this? Well, it’s absolutely possible. But it will probably be easier to replace Heidi than Jane. In this case, managers are easier to find than doers. 

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