How Many Direct Reports is Too Many? Exploring the Management Track

Job architecture is a critical part of a business’s compensation strategy. We’ve written previously about the importance of job architecture and how it helps you to pay equitably, establish career paths, and create effective comp strategies. While job architecture enables you to develop clarity and career paths around all roles, in this article we’ll focus on why the management track is especially important. 

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Building the job leveling and hierarchy for managers raises a lot of key questions that can impact how your company deals with growth. For example, how many direct reports is too many? What is the criteria for each manager level? What is the typical ratio of managers to direct reports by level or function?

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Let’s dig deeper into some of these common issues around management roles, and how to set your business up for growth and success.

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Why the Management Track is Critical 

In a typical job architecture, companies create separate tracks for individual contributors (ICs) or professionals, and managers. Of course depending on the structure of your organization, you may also have additional tracks for sales, support, or other roles with distinct leveling or comp considerations.

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Looking at management roles is especially important for comp leaders. Managers are often paid more than their equivalent IC or professional levels, which in many organizations is P4/M3. Because of this, a business with more managers will have higher payroll costs. But organizations with lots of managers can have other issues, too. 

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A top-heavy org chart can mean there are fewer people to execute on the hands-on work. A strong team needs to have the right mix of managers and professionals in order to achieve the goals of the business. Building this into your job architecture and considering management career paths is critical to scale.

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Managers also have a huge impact on the company culture. While good managers can help with retention, bad managers often have the opposite effect. A Gallup study found that one in two U.S. adults had left a job to get away from their manager at some point in their career. Implementing good manager training—in addition to considering the appropriate titles and responsibilities for managers—is important to the health and growth of an organization.

The Common Manager Levels 

While job architecture can of course vary across organizations, it’s typical to see these seven levels and titles within the management track:

• M3 - Manager
• M4 - Senior Manager
• M5 - Director/Head Of
• M6 - Senior Director
• VP
• SVP
• C-Level

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Establishing a job architecture means laying out the criteria for each management level. For instance, what makes a Senior Manager different from a Manager? What is the criteria for becoming a Director? Without this criteria, organizations can run into various issues. A common one, particularly in the tech world, is title inflation.

The Question of Title Inflation

When companies are small or just starting out, certain talent might be hesitant to join a riskier venture. People might use the promise of a lofty title like Director to get those people on board—especially if they don’t have a job architecture in place that defines what Director means.

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Some famous founders are split on this issue. Marc Andreesen has said that titles cost nothing. If people want titles like Director or Head of, it may seem cheap and easy to give them out. Director is a common title, and in many organizations, the title comes with the responsibility of managing managers. So, is the title inflation borne out by the data?

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Pave data shows that in a more mature organization, it’s common to see more Directors who actually manage other managers, while at smaller companies, people may have the title of Director without the associated management responsibilities.

On the opposite end of the spectrum when it comes to granting titles, Mark Zuckerberg purposely gives titles that are below the standard for the industry. While Facebook re-levels people when they’re hired, the company finds that the practice around titles supports their cultural values around fairness and helps boost morale.

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Pave Founder & CEO Matt Schulman sparked a conversation about the issue of title inflation on LinkedIn—take a look at what the community had to say.

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Each method of granting titles has a different impact on a company’s culture and compensation strategy. You might find that the “cost” of giving out big titles comes when you go through a benchmarking cycle and realize that title inflation has also led to inflated salaries. Or, you can structure your job architecture and bands to accommodate this. Pave data shows that Directors who don't manage managers have a median base salary 6% lower than directors who do manage managers*.

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*Normalized by function, level, metro, and company size. Sample size = 987

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The key to this strategy is about deciding where you have potential for future growth, and building your manager track to accommodate that growth. How many levels do you need now and in the near future, what’s the criteria for those levels? Without this structure, you may shoot yourself in the foot and end up having to roll back titles and change criteria to account for title inflation.

How Many Direct Reports is Too Many?

Anyone in a business career has likely known a manager who was overloaded with too many direct reports—maybe you’ve been one yourself. In periods of high growth, it’s easy for an organization to load up managers with larger and larger teams. But how many direct reports is too many?

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Pave data shows that as companies grow and mature, the average number of direct reports per manager increases. An individual manager’s span of control at a company with 1000+ employees is nearly double that of a manager at a 1-25 person company.

While it’s hard to say how many is “too many”, HR professionals commonly point to a 1:5 ratio of managers to direct reports as best practice. Above that span of control, a team can become less effective. The manager doesn’t have as much time to spend on strategic work that moves the team forward, and they have less time to spend on each individual contributor. The direct reports can also struggle for a number of reasons, including a lack of coaching or unclear priorities. 

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The 1:5 ratio isn’t a hard-and-fast rule though, and it’s something you can consider for the culture of your company and build into your job architecture. Think about how your structure accommodates scale, how many managers you need in each functional area, and how many layers of management you need. Then you can look at the span of control once you've defined your manager levels.

Span of Control by Level & Function

Company size isn’t the only factor that determines a manager’s span of control. The number of direct reports can also vary by manager level. Pave data shows that the most heavily loaded manager levels are M3 and M4, compared with those higher up the chain. This is likely due to the fact that M5s manage the managers who have the larger IC teams beneath them. It then increases again at the SVP level.

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When it comes to function, we find that managers in Engineering and Customer Support tend to have the most direct reports, while managers in Finance and Legal have the fewest. This is particularly true of tech companies, which make up a large portion of Pave’s dataset.

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Clearly, the span of control for managers can be influenced by a variety of factors. Understanding which functions have the most individual contributors in your organization can help you determine if you need more managers to meet the specific needs of the business.

Build a Management Track for Growth & Success  

A good job architecture should enable comp leaders to slot new jobs into the existing framework as the business grows. It should be able to flex for high-growth periods or other big milestones, like a merger or acquisition. Developing a robust management track that can accommodate scale is an important part of future-proofing your job architecture.

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Pave can help compensation and people leaders set up their teams for success. With real-time Market Data, powerful Compensation Workflows, and expert Communication tools, our end-to-end platform can help you bring your compensation strategies to life.

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Ready to get started? Request a demo today.

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