In 2022 and 2023, Nick O’Kane, former commodities head of the Australian bank Macquarie, made $65 million in total compensation, exceeding CEO Shemara Wikramanayake’s cushy salary of $36.75 million over those two years. But when he stepped down in February, there were no hard feelings regarding his pay in years past from Wikramanayake, who applauded the banker’s “massive contributions” during his 28-year tenure.
Outearning your boss isn’t a common occurrence in corporate America, but there is a specific instance when it makes sense to pay a direct report more than their supervisor, says Ash Athawale, senior vice president of executive recruiting firm Robert Half: when an employee brings a unique and specialized skill set that’s highly valuable to the company.
The sports and entertainment industries offer prime examples of this. Star athletes are highly compensated for the contributions they make to their teams. Kansas City Chiefs quarterback Patrick Mahomes, for instance, signed a 10-year, $450 million contract in 2020, bringing in $45 million a year, including bonuses. His coach earns $25 million a year.
Likewise, in entertainment, big-name movie stars typically earn more than producers and directors because of their cachet, visibility, and distinct brand. Will Smith earned $100 million to star in Men in Black 3, whereas the director, Barry Sonnenfeld, made a little under $7 million, according to The Hollywood Reporter.
Tech companies are also likelier to see cases in which some employees make more than their bosses. “There’s a premium on [certain tech skills] that you would be willing to pay to have that competitive advantage at the company,” Athawale says.
Other instances when this plays out are when employees with a specific skill set are needed for a temporary project. They are typically compensated highly during that period, momentarily making more than their boss.
A company that’s had a cyber breach, for example, may quickly want to hire an engineer who has experience dealing with a similar issue or who has in-demand yet scarce technical capabilities that would warrant a salary that exceeds their manager’s, says Ron Seifert, a senior client partner at executive recruiting firm Korn Ferry.
Employees who work in sales and earn commissions may also make more than their boss, thanks to a bonus bump, he adds.
It’s worth noting that management roles require a different skill set, and not all managers have the deep subject matter expertise of their individual contributors. A bank CEO, for instance, is likely not as well-versed in technology as his chief information officer or other similar highly skilled functions.
Another scenario when it might make sense to pad an employee’s pay is if they threaten to quit. It might be more cost-effective to acquiesce to an employee's salary demands if they have sought-after skills or have made a tremendous impact on the company’s bottom line than to leave the role vacant in search of a new employee who will require extensive training before reaching the same level of output.
As more companies do away with the belief that leadership titles should equal higher compensation, they’re also promoting employees to individual contributor roles with boss-level pay rather than shifting them to management positions, which often come with laborious administrative tasks and can eat up time better spent in areas where employees shine.
Still, it can be uncomfortable to know that your direct report commands a higher salary than you and vice versa. A manager's reaction to an employee outearning them can be a litmus test for their leadership aptitude. “I would say that a thoughtful and effective leader will look at that and be totally delighted with somebody’s exceptional performance, producing an outsize reward for them because it’s to the benefit of the organization,” Seifert says. “That over time makes the leader look smart for having somebody who performs so exceptionally well.”
