When You’re the Boss, but Your Employees Make More Money

When NFL quarterback Justin Herbert and NBA star Jaylen Brown signed contracts this summer worth $262.5 million and $304 million, respectively, they struck the richest deals in their leagues’ histories. They’re also out earning their bosses by millions a year.

Professional athletes often command higher salaries than their coaches, since it’s harder to find people to execute plays than diagram them. And individual contributors can earn more than managers in a lot of fields, from finance and tech to sales and media.

The sticking point is how bosses and their charges deal with those imbalances.

There are two keys to a functional working relationship when a subordinate makes more money than their manager, people in both camps tell me: The boss must possess the humility to accept the situation and the confidence to project authority. And the highly paid employee can’t be a diva.

Richard Reice, a labor attorney and chief people officer of a restaurant group, says fat paychecks can lead to entitlement and make a highly paid employee practically unmanageable.

“Some refuse to do basic things, like attend meetings, just because they think they’re silly,” he says.

When leadership doesn’t pay

It’s hard to quantify how frequently rank-and-file workers make more than their bosses, but Reice says he has observed a shift from his dual perches in employment law and human resources. Many companies are scrapping the old notion that bigger titles should automatically mean bigger bucks. Instead of promoting star employees into management, where administrative duties can siphon time from their true talents, more businesses are keeping top performers in individual-contributor roles—and paying them like bosses.

Leadership, in these situations, is considered like any other skill, and not necessarily one that is worth more money.

We’re more likely to notice now when someone out earns the boss. The pandemic-era rise of distributed teams was accompanied by cost-of-living adjustments, which meant a manager based in an inexpensive town might earn less than direct reports living in pricier cities.

Pay-transparency laws have given some bosses the jarring experience of seeing less-senior positions at their companies posted on job boards with advertised salaries that exceed their own. Market demand can explain some discrepancies; in other cases, racial, age or gender biases could be to blame.

Keep your ego in check

Nikki Barua, who runs the women’s leadership program Beyond Barriers, says her clients in managerial positions sometimes feel underpaid relative to subordinates and are unsure whether discrimination is a factor. Bosses need to recognise there are often valid reasons behind pay, she says, and advises managers to pay more attention to what their fellow bosses make.

“The star performer is not the right comparison,” she says.

Barua says that in previous roles at technology and consulting firms, her knack for bringing in business sometimes led to incentives that pushed her pay over her managers’. She kept her ego in check by viewing her skill as a blessing, remembering that others might be equally good at different jobs that the labor market rewards less generously.

Now, as an entrepreneur trying to conserve cash, she’s sometimes paid herself less than her employees. She admits that, at times, it was hard not to resent people making more than she did, feeling that she’d be able to draw a salary if only they’d work harder or do better.

Founders often draw modest salaries, or none at all, in companies’ early days, says Jeff Bussgang, general partner in the Boston office of startup investor Flybridge Capital Partners.

“Naturally, if they own a big chunk of equity, it makes it all more palatable,” he says.

Plus, owners’ status is seldom in doubt, regardless of pay. Berkshire Hathaway CEO Warren Buffett, who acquired a controlling stake in the company in 1965, has for several decades taken an annual salary of $100,000. His total compensation last year was $401,589, while two vice chairmen earned more than $19 million apiece. Buffett, the world’s sixth-richest person with a net worth of $122 billion, according to the Bloomberg Billionaires Index, derives most of his income from investments.

Bosses who earn less

Ellen Taaffe, who sits on the compensation committees of several companies, including AARP Services, says corporate boards often set pay by studying the going rates for similar roles in other organisations. Boards can ease potential tension by giving junior executives lower base salaries and enabling them to surpass more senior leaders only through bonuses for exceeding expectations. Usually the people with the loftiest titles make the most money, but not always, notes Taaffe, who teaches at Northwestern University’s Kellogg School of Management.

For instance, the chief scientific officer of a biotech company—whose research might be the crux of the business’s success or failure—could be paid more than the CEO. George Yancopoulos, the chief scientific officer of Regeneron Pharmaceuticals, has received almost $435 million in total compensation since 2012, according to securities filings, making him the company’s highest-paid employee over that span. (Regeneron may be best known for its monoclonal antibody treatment for Covid.)

At some universities, the highest-paid employee isn’t the president; it’s the football coach or the person who manages the endowment. The $2.2 million pay package awarded to Yale University President Peter Salovey last fiscal year was one-third of what the chief investment officer earned, according to tax filings.

Leaders who successfully handle higher-paid employees find satisfaction in helping others shine, Taaffe says.

Warren Cereghino, a retired TV news director in California, says he kept pride at bay by reminding himself that viewers tuned in to watch his station’s anchors, who earned more than he did as their boss. He says the on-air talent didn’t abuse their sway.

Still, being privy to their contracts, he knew that some had negotiated a measure of editorial control in addition to large salaries. If there was a disagreement, he wouldn’t necessarily win.

“Even though my name was on the door of the news director’s office, there was a limit to my power,” he says.

—Theo Francis contributed to this article.

Colin Saint-Vil got his money education at the dim sum cart, over a steamy plate of pork buns and turnip cake.

A friend offered to pick up the whole tab on her credit card, “for the points.” At the time, six years ago, “for the points” meant nothing to Saint-Vil, now a 30-year-old planning manager in Brooklyn, so he pressed for more details. They lingered over the dim sum meal as a larger conversation unfolded about annual percentage rates, credit-card debt, payment schedules and more.

Millennials and members of Gen Z prefer to seek financial advice from each other than from parents or from financial professionals. They don’t like overwhelming spreadsheets and marketing material written in seemingly foreign languages. They don’t trust big banks and institutions trying to sell them on investment strategies—as many were raised around the late 2000s financial-crisis. And, they are not wrong: There is a lot to be learned from comparing numbers with peers—from sharing salaries to talking out big decisions like home or car purchases.

Saint-Vil said when his father was his age, he had already begun investing in real estate, but with property prices now so high and mortgage rates only just beginning to fall, he said he couldn’t imagine being able to follow in his father’s footsteps. He, like many millennials and Gen Z-ers, describe their finances as “fairly good” these days, though they hold a negative picture of the greater economy, according to a new poll of 18 to 29-year-olds from the Institute of Politics at Harvard Kennedy School.

Millennials are still reeling from the impact of back-to-back recessions, all while large bank closures and investing scams dominate the headlines. Younger people report a feeling of “financial avoidance” exacerbated by high inflation and the pandemic-era budgeting.

As of June 2023, Gallup polling revealed a historically low faith in U.S. institutions, with younger generations voicing high skepticism. According to Gallup, only 9% of respondents aged 18 to 34 expressed “a great deal” of confidence in banks; meanwhile, 47% and 28% said they have “some” or “very little,” respectively.

But when it comes to winning back young consumers, these same financial institutions haven’t quite given up, and are rolling out new outreach programs and robo advisors, some of which have helped bridge a connection with Gen Z and millennials, said Keith Niedermeier, clinical professor of marketing at Indiana University. But many young people still say they prefer do-it-yourself investing platforms like Robinhood and Acorns over traditional advisers at more established wealth-management firms.

Andrew Ragusa, a real-estate broker based on Long Island, blamed the twin problems of low housing inventory and high home prices for postponing younger buyers’ ownership. The median age of a first-time home buyer in the U.S. is 35-years old as of 2023, according to data from the National Association of Realtors. That is slightly down from an record high of 36 in 2022, but still two years older than the median age in 2021, which is representative of an ageing first-time buyer trend.

When he talks with younger clients now, he detects a gloomy sentiment. “They try to be optimistic, but the overall sentiment is ‘This is supposed to be the American dream: we get a house and we get some financial security and I just have to have faith it will all work out in the end.’ But they don’t have faith it will.”

Fear and shame around being able to buy or accomplish as much as one’s parents might have financially can crop up when millennials talk to elders about their financial frustrations, said Jodi Kaus, director of Kansas State University’s student financial planning centre, Powercat Financial. She’s found that lessons and advice from friends are often more constructive.

Kaus leads a peer-to-peer financial planning centre that pairs up students to work through financial issues. She works to pair people with similar backgrounds: graduate students with graduate students or international students with international students. Talking with someone only a few years removed from your current situation means you’re better able to internalize the messages and execute on their advice, Kaus said.

“Early on, parents even say ‘Are you sure students can help my child?’” she said. “And I say ‘I am more than confident that they can help each other.’

Sharing money tips and financial know-how with your friends doesn’t only benefit the asker, Kaus said. In the Kansas State University peer-to-peer group, the advice giver also learns a lot from their own position, because sharing their story and bonding with a peer helps them to build their own confidence and belief in their financial acumen.

Lindsay Clark, a 34-year-old director of external affairs in Washington, D.C., recalls one lesson she shared with a friend carrying student loans from pharmacy school. Clark works at Savi, a student loan platform, and she offered to cook her friend dinner while they sorted through his loan repayment options. Long after they’d cleaned their dinner plates, they sat together at Clark’s kitchen island, lingering over a plate of homemade hummus and chatting about everything from financial goals to Costco card benefits.

“Those conversations blossom from the transparency, and the visibility makes both people feel really good,” she said. “That creates better relationships overall.”

When you’re talking about money issues with friends, Clark said, you’re not artificially inflating your salary or pretending to know more than you do. And most important, you’re not worried about their ulterior motives.

“You feel safe in that conversation, knowing their intentions are good and they’re not trying to make money off of you,” she said. “And that’s going to lead to better results, because we’re working with the reality here.”

Skepticism of pronounced experts and criticism of established financial institutions is especially common among millennials and Gen Z, Neidermeier said. Studies show people across generations are much likelier to take a friend or colleague’s recommendation to heart over that of a faceless institution, he said; people who spend time on social media just have a greater opportunity to source those answers and field questions.

“What people say to each other over the picket fence is what is the most influential,” he said.

At a certain point, however, talking solely to friends and peers for your financial lessons can be very limiting, said Sarah Behr, founder of Simplify Financial Planning in San Francisco. Relying on your social circle can also put a strain on those relationships; no one wants to be responsible for your disappointment when a financial decision that worked out well for them doesn’t fit as well in your own life.

Behr recommends tuning into your own emotional reactions when assessing peer advice: does the road map they followed align with your own financial values? Does it put pressure on you to live outside your means or challenge your personal risk tolerance? If the answer doesn’t feel clear, that could be a time to outsource to a financial professional who has no emotional connection to you or your financial status.

“‘People have been telling me do this, but I just don’t know if it’s the right thing for me’—I get a lot of calls like that,” said Behr.

Saint-Vil said he and his friends share tips on what high-yield savings accounts offer the best rates, and when he did his credit card research, he chose a card recommended by a friend. When it comes time to work with a financial adviser or even one day a wealth manager, he’ll likely work with someone recommended through a peer. Behr said close to 90% of her business comes by way of client referrals.

Since that first conversation over dim sum, Saint-Vil has thrown his own card onto the table at meals and shared his knowledge with other pals who look confused.

“I have a real wide range of friends who are in many different financial places, but I would say a rising tide lifts all ships,” he said.

Julia Carpenter is the co-author, with Bourree Lam, of The Wall Street Journal’s “The New Rules of Money: A Playbook for Planning Your Financial Future,” a personal-finance workbook published this week by Clarkson Potter, an imprint of the Crown Publishing Group.

When You’re the Boss, but Your Employees Make More Money

Power dynamics get complicated when managers earn less than their employees

When leadership doesn’t pay

Keep your ego in check

Bosses who earn less

Millennials and Gen Z are turning to peers instead of professionals for financial advice. They don’t trust banks, and they are tired of information overload.