Thought leadership

Are You Overlooking Middle Management Pay?

Are You Overlooking Middle Management Pay?

By Martina Young, Senior Consultant

Over the last couple of years which groups within your organization were reviewed to determine if pay was competitive?  Did the directors and managers just end up getting the 2% or 3% across the board increase, or were they actually benchmarked with reputable surveys?

Scrutiny of Executive Compensation - In Gallagher’s Human Resource and Compensation Consulting practice, many of our compensation engagements begin with the executive group to ensure competitiveness and/or reasonableness as dictated by the IRS.  In non-profit organizations, the executive pay can become public knowledge and may need to be defended.  Therefore, there is a spotlight put on that group and annual reviews are typically done to mitigate the risk and defend the total compensation of that group.

Staff Level Market Pressures – Often we are brought into an organization for staff level compensation, due to market pressures on specific jobs, high turnover, or a tight labor market.  For example, in healthcare there are nursing shortages in parts of the country, making it hard to compete for the limited talent.  While the organization addresses the pay issues for the “hot” jobs with a pay adjustment or unique pay program, they fail to look vertical and evaluate pay of the director or manager overseeing those staff, creating pay compression.  In most organizations, middle management is viewed as their own separate group and not compared to their subordinates.  Sometimes the budget for increases is exhausted because of market pressures on specific job groups before market adjustments are applied to managers and directors in a fiscal year.  Then they receive the minimum 2%-3% without a full review.

Middle Management is Loyal - It’s very common that managers and directors were promoted from within the organization.  Some leaders make the false assumption that these leaders will not look elsewhere.  If leadership development and succession planning programs are not in place, that loyalty will wane, especially with below market pay.  That combination makes the grass seem greener on the other side and a good solid offer will entice your managers and directors away.

The Result - The result of overlooking middle management can put organizations at a disadvantage.  Middle management is where tomorrow’s executives are grown.  If your organization neglects middle management by not ensuring their base pay and incentives are in line with the compensation philosophy and the market, that talent may just become the future executives of the competition.  Now the return on that investment is realized by your competitor rather than your organization.

It is important that organizations pay attention pay at all employee levels.  The sheer cost of turnover for this level, along with the institutional knowledge that is likely lost with long-term and/or organization-grown leaders can be significant.  A thorough market review of these jobs at least every other year is a way to make sure you’re keeping your finger on the pulse of the market.