Should Bosses Ever Earn Less Than Staff?

Managers take on more responsibility. They work longer hours. They have stricter targets and objectives. And they are accountable for their team’s performance…

So obviously they get paid more than the people they manage. Right? Not always. In fact, it’s common for managers or supervisors to earn less than some workers.

It’s also common for managers to be confused when this happens. Confused, infuriated and demotivated. And it’s up to the boss (i.e. you) to manage the fallout. 

3 reasons for pay differences

Here are three reasons why you might find pay differences in your business, and how to fix them without resorting to a hefty pay rise.

1. The market values technical skills higher than managerial skills

The labour market follows the rules of supply and demand. Good managerial skills are rare—they command a high market rate. But some skills are even rarer.

Tech companies or consultancies, in particular, pay big salaries for people with specialist skills, such as academics. Other businesses give individual salespeople huge bonuses for their personal business relationship (and the revenue that these relationships help generate).

But a high-flying academic still needs a line manager. And your best salesperson may play golf with your biggest client every Sunday, but they have to be accountable to someone. Even if that someone gets paid less.    

It’s hard to argue with supply and demand, which is why market analysis is so important when making pay choices. Firstly, it helps you make sure that you don’t pay too much for staff and dent your bottom line, or pay too little and risk talent going to a competitor.

And secondly, it allows you to justify cases where individuals get more pay than their managers. Your manager should understand, although they’ll still probably want more money (more on how to handle that later…).

2. Staff have joined your business during an acquisition

If you buy another business, you must follow Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

TUPE forces you to take on the employees of the purchased company. And their contracts.

So when you merge teams, there will be differences in pay. Your managers may end up supervising higher paid employees.

Unfortunately, there isn’t a quick fix. It’s not easy to change the terms of someone’s contract when their role hasn’t changed. 

But there are still ways to balance pay. The first step is to do a job evaluation and a pay review for your business. This will reveal any pay differences, including those between managers and their employees.

Use the job evaluation and market analysis to determine pay grades for employees’ roles. Then make gradual changes to your team structure to fix pay differences. For example, hire new staff at the market rate or prioritise which staff get pay increases—and which don’t.  

3. Staff roles and pay grades change as your business grows

Your business changes over time, and so does how much you pay staff. So, a manager who joined in year one could be on a lower salary than a worker who joins in year three.

Or maybe you reward loyalty and give long-term workers a small pay rise each year. Then before you realise it, they’re earning more than a newly-hired manager.

And sometimes you promote an employee and it doesn’t work out. So you find them a different role, possibly working under a lower paid line manager. But your employee is still a valuable member of the team, and you don’t want to risk losing them by giving them a pay cut.

Are these situations understandable? Yes. Are they rational? Sort of. Are they easy to explain to the manager? No.

How to keep managers happy

The easiest way to resolve pay gaps is to increase the manager’s pay packet. Of course, that’s not always possible. Fortunately, there is another way.

Offering the manager non-cash benefits such as flexible working arrangements, more holiday time, promotion opportunities or even a company car can give enhanced long-term value.

And if that doesn’t work, consider giving the manager a sizeable bonus based on performance. Yes, you may have to pay more in the long run. But if the manager helps your business to grow and boost profits, then rewarding their success at the end of the year is a win-win for both sides.

No one likes talking about pay

That’s why Croner does the talking for you. For over 40 years, we’ve been the leaders in pay & reward consultancy. From benchmarking employee pay to advising on employee benefits, we help you implement appropriate and sustainable rewards for your team.

Contact our team of advisors today for a free consultation on how to handle pay irregularity in your business. Call 01455 858 132.