The common view of managerial roles and compensation as a reward for good performance is a disastrous misunderstanding for managers and subordinates alike.

To understand management, we must ask an obvious question: in the absence of coercion, why would a person choose to be managed? Despite the prevalence of complaints about bosses and jobs, very few people decide to do away with them. Even fewer force themselves to explicitly acknowledge why that’s the case.

A person chooses to be employed by another if and only if they believe they can capture more value from their labor than they would be able to capture under their own employment.

Thanks to efficiency gains from cooperation and specialization, this is very often true. Humans produce more per capita when they work together. By choosing employment you are betting that, with company, you will produce a much larger pie. Even if you get a relatively smaller piece of it, in absolute terms your slice will be larger than the full pie that you could produce by yourself.

Yet when a person opts into employment, their immediate priority is to climb to management. It’s easy to see why. Management is perceived, and often explicitly framed as a reward for strong lower level work. Managerial roles are usually held by people who previously held the roles below them, did pretty well in those roles, and now capture even more compensation for telling subordinates what to do. Yet when one gets this reward, they are often disappointed that life is not what it appeared to be. Your new, allegedly better job is rarely easier. Mostly it’s just different. You are not using your known skills at a more expert level. You’re scrambling to acquire, and struggling to deploy, entirely new skills.

How could it make sense to reward someone who was doing well at one job by paying them more and making them do an entirely different, usually more challenging, job? It doesn’t! This is the core mechanic behind the Peter Principle, the observation that people will be promoted to exactly the level where they are bad at their new job. From this perch, they will inflict cost on their organization in perpetuity. This approach is broken because it is built on a broken model of management’s functional purpose.

Managers are service-providers to their subordinates

The lowest level employees are the ones producing 100% of the value created by an organization. They are the only ones producing capital de novo from their own labor. This is not to say management is unimportant, though. Indeed management is the mechanism that creates the incentive for employment itself: the greater efficiency gains of human cooperation. These efficiency gains are far from automatic. They are the aggregate effect of various services being provided to laborers.

In exchange for those services, subordinates are actually paying their managers. Good management increases an individual’s productive power by an obscene degree: this is precisely why so few people choose to employ themselves. It is also precisely why managers earn more and subordinates earn relatively less: they are paying for a bundle of services that we lump under the heading “management.”

This also explains the disappointing sensation of promotion. It is simply not a reward. It is the actual removal of services that you had previously been receiving. Very often, these are services you did not even know you were receiving. Problems came to you pre-digested. Dependencies on other teams were identified for you. Colleagues just appeared without your having to find, vet, and hire them. Someone above you sheltered you from demands from someone further above them. More and more of these services get stripped away – not added – as you climb the managerial ladder.

To compound the problem, at the same moment you have services stripped from you, you are expected to provide those newly discovered services to others. We call these people subordinates, but they are more accurately, more fairly, and more productively called clients. In exchange, you get to keep the portion of your paycheck you previously gave to your manager. As your number of clients (i.e. subordinates) grows, so do the fees you collect for your services.

As a good manager, your compensation is not a reward from those above you for being good at telling people below you what to do. Your increased compensation is the fees collected for providing useful services to the people below you.

Thanks for reading my very first post!

Figure-Grounds is a newsletter about products, the organizations behind them, and the psychology behind the organizations. It’s written by me, Ethan Bond. I’ve spent the last 8 years building software products in close collaboration with some of the most complex organizations in the world, including pharmaceutical companies, intelligence agencies, and energy producers. I’ll be using this newsletter to find out what I know and to share the most useful bits with you.