Would you hire an employee who demanded a salary higher than your CEO's salary? What if that was 70 percent more?

Smartsheet did just that when it poached Gene Farrell from Amazon--and had to fight a legal battle over a noncompete to do it--and now pays him $2.7 million, compared with the CEO's minuscule salary of $1.9 million.

This is not terribly usual outside of entertainment, but it should be much more commonplace. Being the boss doesn't make you, automatically, the most valuable person in the room.

Clearly, Smartsheet needed Farrell's skills, and he had a price tag. The company did what it had to do to meet it, and sometimes you should too--and not just for big-named executive types. Here are five times you should consider paying an employee more than his or her direct boss (even if that boss is the CEO).

1. Skills and licensing

If you're a manager of a pharmacy but not a pharmacist, you'll probably be in the situation where your direct report--a licensed pharmacist--earns more than you do. She has a skill you don't have and cannot get without extensive schooling. You couldn't replace her with a nonlicensed individual, and this is the market for her skills. So you pay more.

This can happen in any industry where specific jobs require licensing while managing people with these licenses does not. You still have hire-fire-discipline authority over your direct reports, just a smaller paycheck.

2. Superstar individual contributors

Generally, managers earn more because they have more skills and more responsibilities. But managing is different than doing. Not everyone that is great at doing is great at managing, and vice versa. 

The last thing you want to do is take your star individual contributor and push her into a management role that she doesn't want just so she can get a pay raise. Instead, give her the pay raise and thank your lucky stars that you've found someone so awesome.

3. Hard-to-fill roles

The reason why fast food restaurants pay low wages to their entry-level jobs is that practically anyone off the street can do that work with a small amount of training. Not all jobs are like that.

Just like for a job that requires a specific license, people with hard-to-find skills often demand a higher rate of pay than their supervisors. And you should be happy to pay it. Finding someone to replace that person can be difficult.

4. People with a big name

You see this in Hollywood and other entertainment industries all the time. The person on the nightly news makes more money than their boss. The movie star makes more than the producer. We're OK with that because we know who is really bringing in the money.

It's not that the person doing the hiring isn't valuable--finding the right person is absolutely a skill--but the product or project is likely to fail without this superstar. This is the situation Smartsheet seems to be in. They needed Farrell and knew they'd be likely to fail without him, so they are willing to pay the price.

5. Anyone who deserves it

There's no immutable law of the universe that says that the direct report must make less than the manager. It's not like gravity or something. If you're holding back an employee's compensation, you're likely to lose that person. Remember, turnover is expensive.

This isn't to say that you should just go around throwing money at any employee who asks for it. You are still dealing with market forces. It's just that sometimes the market is willing to pay the employee more than the boss, and if you don't bow to market forces, you'll miss out.

Published on: Mar 29, 2018