Supervisor Pay Level is Under Water

Friday, July 30, 2010

It does not happen often but occasionally, a supervisor, manager or other management level employee will find that a subordinate will actual earn more than their supervisor. If the subordinate is a non-exempt hourly employee, it could be a function of overtime, shift, holiday, danger or “special” pay. If the subordinate is a highly trained technical expert, it may be a reflection of market conditions, which are driving a unique set of job skills up at an extremely accelerated rate. This condition may occur when hiring a new employee, if the supervisor’s role is under or mis-classified. Usually, frequent and detailed monitoring of subordinate-supervisor pay relationships will identify most of these issues with “pay compression”. Pay compression results from a situation where a subordinate’s pay is near or even surpasses the supervisor’s pay. Best practice is to have a well developed and thought-out organizational policy on how to address this infrequent situation.

One possible solution is to raise the pay (base and/or incentive pay) of the supervisor to a level with sufficient latitude so compression will not occur. How much is sufficient? That becomes an organizational business decision; I have seen 20% to 50% spreads. However, in organizations, which have several layers of management, this action may result in compression at higher levels. This is the “trickle-up” rather that the “trickle-down” effect.

A second option is to rotate duty assignments in a way that assignments are spread across a number of employee peers so that no one employee accrues large blocks of overtime, shift, holiday, danger or “special” pay. This could also have positive employee relations effects since everyone would get to share in the wealth. Of course, that premise might not be as effective if the assignments involve a high degree of danger, travel time or prolonged absences.

As a third option, offer some form of lump sum payment to the subordinate. This could be tricky if the subordinates are non-exempt and subject to Federal and/or state overtime rules. The problem is that a subordinate could still earn more than a supervisor depending on the size of the lump sums. Attention would also have to be paid least these lump sums find their way into other direct and indirect compensation calculations.

One suggestion, if these subordinates process extra-ordinary skills, their immediate supervisor will have to come to the realization that the organization needs those skills and that the current situation may have to be tolerated for a short duration. However, the least the organization should do is to provide some form of a temporary increase for the supervisor until the situation can be returned to normal.

If you are not already doing this, you should be closely monitoring the pay between subordinates and supervisors, when hiring takes place, you should review the offer salary to determine if there is any possibility of compression occurring with both peers and supervisors. The same should be done when promotions occur. Most modern payroll and HR systems allow for robust report writing capable of identifying these issues long before they become a real problem. A progressive and proactive compensation plan will apply the best practice having a well developed and throughout organizational policy.