The Costly Gap Between Two Career Ladders

In short, you can be an expert—an “individual contributor”—or you can be a manager. 

“There is this well-known idea that if you want to make it inside a company, then at some point you’re going to have to become a manager,” says Nicola Bianchi, an associate professor of strategy at Kellogg. “This seems like the natural progression of a career.” 

But instead of a single track where individual contributors eventually become managers, the reality is more like two largely separate ladders that only rarely intersect. And which ladder you find yourself on in your career can make a big difference in your salary and responsibilities. 

In research with Kellogg colleagues Lydia Cao and Benjamin Friedrich, along with Kieu-Trang Nguyen of the University of Melbourne, Bianchi examined detailed personnel records from dozens of firms to compare these two career tracks. 

They found that individual contributors universally earn less than managers do in every firm, at every level. But they also found that individual contributors are far more prevalent than the narrative of career advancement might suggest and that the way a company structures and compensates its two career ladders varies enormously from one firm to the next.  

Most striking, those two ladders turn out to be a hidden engine driving pay gaps between workers of different genders and races. 

“We see that there is a higher probability of a woman or a minority worker being assigned to the individual-contributor career ladder,” Bianchi says. “And when we compute how much this difference in assignment contributes to the overall pay gap, we see it’s a sizable share.” 

Inside the org chart 

The researchers worked with workforce-intelligence company Visier (and its product, Visier Community Data) to assemble employee records from 43 medium-sized and large firms across manufacturing, tech, finance, and healthcare industries.  

Crucially, the data preserved the full reporting chain inside each company, along with workers’ tenure, department, pay, and demographics like age, gender, and race. That granularity let the team draw a clean line between the two roles of manager and independent contributor. They considered a manager anyone with at least one direct report and an individual contributor anyone with no direct reports.  

Four facts came into focus after the researchers analyzed the data. 

First, individual contributors dominate the workforce, comprising about 82 percent of the average employee base. That share rises to 90 percent among workers at the lowest tier of the companies’ hierarchy but falls to 64 percent in the middle and 44 percent at the very top. 

Second, these ladders diverge from the start, and the gap grows as workers climb.  

“When you just look at the descriptive characteristics of the careers of individual contributors, they look very, very different from the careers of workers who would end up becoming managers,” Bianchi says.  

Individual contributors earn, on average, substantially less than managers in comparable roles. They are also promoted less often (an 18 percent decline compared with the average monthly promotion rate) and see slower pay growth (a 17 percent decline compared with the average pay increase). What’s more, at the bottom, individual contributors earn about 32 percent less than managers at the same level, while at the top, that penalty grows to about 63 percent. 

Third, the move that everyone assumes is the path to advancement is lucrative but exceedingly rare. In any given month, only about 0.5 percent of individual contributors switch to the managerial track. Those transitions are linked to higher pay (about a 28 percent jump) and faster pay growth (by 2 percent). 

And fourth, there’s a lot of variability in how different firms and industries utilize—and pay— individual contributors, relative to managers.  

Tech firms versus investment banks 

While the overall average proportion of individual contributors is 82 percent, the proportion is as low as 70 percent or as high as 90 percent at different firms. 

To understand why some firms lean more heavily on individual contributors than others, the team built a theoretical model of how companies solve problems. The model takes into account the idea that managers at some companies tend to be more hands-on in problem-solving while managers at other companies take more supervisory roles. Applying the model to each of the firms, the researchers found that about a quarter of firms kept their managers on supervisory duties 90 percent or more of their time. The rest of the firms let managers split their time more equally between managing and problem-solving. 

That distinction, they find, has implications that affect the two career tracks in different ways.  

Firms where managers stay close to the work tend to pay individual contributors more, run flatter managerial ladders, and employ more highly skilled technical workers. In contrast, firms with a hard line between the tracks show the opposite pattern: steeper pay divergence between individual contributors and managers and a more-rigid set of duties for each.  

“You can see that tech firms fall into the bracket where managers are likely to solve problems alongside individual contributors,” Friedrich says. “And that’s aligned with the stories that we read about who becomes a manager at a tech firm, about what it means to be a manager at Google versus a place like Goldman Sachs.” 

Indeed, Google and Amazon have both moved to thin out management layers and raise the ratio of individual contributors to managers. And Shopify has built a dual-track promotion system that rewards technical “crafters” alongside “people leaders.” 

Understanding pay gaps 

Because the data includes detailed demographics, the researchers were also able to explore the implications of the two diverging career ladders in terms of gender and race. 

They found that women and racial minorities were more likely to be individual contributors and therefore more likely, on average, to have lower pay, pay growth, and rates of promotion.  

The pay gap is modest at the bottom of the career ladder but widens sharply toward the top, exactly where the individual contributor penalty is largest. Importantly, among individual contributors at the same level, the researchers find essentially no pay difference between women and men, or across racial groups. In other words, the penalty for being an individual contributor is the same for everyone. What creates the overall gap is who gets sorted into which track. By the team’s estimate, women’s higher likelihood of being individual contributors accounts for roughly 13 percent of the gender pay gap. 

“So it’s not as though, in our data, women and [racial] minorities are simply earning less for the work that they do,” Bianchi says. “But these groups are passing through what looks like a different career-assignment process, which creates a significant pay gap.” 

What firms can do 

Collectively, the findings offer companies a map of the dynamic forces that shape the career ladders of individual contributors and managers.  

Valuing the work that managers do both as a problem-solver and as a supervisor can help narrow the pay and promotion gaps between individual contributors and managers. In addition, leaning harder on specialized knowledge by employing more high-level individual contributors than managers can help individual-contributor pay climb steeply but decrease mobility between the two career tracks. 

These variables are inherently tied to new technologies like AI, the researchers say. “Across sectors, firms, and job functions, AI may differentially change knowledge dispersion and the costs of problem solving and supervision,” they write. As a result, it would be prudent for companies to regularly assess how their two ladders are built, and whether the structure fits the times. 

For firms that care about representation, the most actionable insight may be about the value of long-term tracking.  

“Developing talent requires a lot of very small investments over time, all before promotion: things like mentoring, skill development, project assignment,” Friedrich says. “Companies need to think about internal policies that provide similar opportunities to workers at the early, formative stages of their career.”