Everything You Need to Know About the Hierarchy of a Company
By Indeed Editorial Team
Updated December 5, 2022
Published September 7, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
A hierarchical company structure is an integral way of maintaining workflows, clear reporting relationships, and communication in an organization. A company's hierarchy may vary depending on the size and business model, with small businesses having a simpler hierarchy and large organizations having a more complex structure. Learning more about the hierarchy of a company can help you realize the decision-making process and operations of the company you work for. In this article, we explain what a company hierarchy is, explore how it works, discuss the various levels of a company's hierarchy, and share its importance.
What is company hierarchy?
The hierarchy of a company is a model used to organize different authority levels in an organization. Company hierarchy enables the organization to classify its employees into distinct levels, clarifying who handles certain tasks. Corporate hierarchies commonly follow a top-to-bottom approach, with the high-level positions having greater power and influence than the lower ones. The compensation and benefits typically increase as you move up the hierarchy. Also, those at the top have more responsibilities to ensure the achievement of the company's strategic goals.
The hierarchy a business may adopt can vary, with the type dependent on various factors, such as size, geographical spread, number of employees, business model, and company culture. Some companies have obvious lines of communication and span of control among the levels, while others may choose to have a more equal approach to employee hierarchical structure.
How the hierarchy of a company works
Typically, company hierarchy works by organizing employees according to roles such as administrative, supervisory, executive, or entry-level positions. You can think of a company hierarchy as a pyramid, with the most powerful employees being few at the top of the pyramid, and the less powerful team members at the bottom in greater numbers. The hierarchy defines roles and responsibilities, with those at the top responsible for making strategic decisions, deciding on policies, and creating strategies. The employees at the middle and bottom are responsible for implementing and following those policies. Sometimes, business units or departments will overlap, making the structure more difficult to define.
Levels of hierarchy in a company
Here are some of the common levels of corporate hierarchy:
Board of directors
A board of directors represents a group of people who are in charge of the company's affairs. They may take an active role in giving the directions of the company or delegate to the executive officers. The stakeholders of a company identify the members of the board, and the board members appoint a chairperson who leads the board. The board of directors then elects the executive officers.
The chief executive officer
The chief executive officer (CEO) is the highest rank in the company hierarchy and reports directly to the board of directors. Their primary role is to make major business decisions and manage the overall operations and resources of the company. The CEO also ensures smooth communication between the corporate operations and the board of directors, and they represent the organization in public matters. They may also help a company set its tone, vision, and culture.
Chief operating officer
Chief operating officers (COO) are the senior executives who control the daily administrative and operational activities of a company. A COO reports to the CEO, and is second in the hierarchy after the CEO. In some companies, a COO deals with the internal affairs of the organization, while the CEO acts as the public face of the company. Typically, they design and implement operations strategies, communicate policies to employees, and help human resources create core teams.
Related: What Is a COO?
Chief financial officer
The chief financial officer (CFO) mainly oversees the financial matters of a company. It is a CFO's role to evaluate the financial strength and weaknesses of a business and offer advice on how to improve the financial status of the company. They also monitor a company's cash flow and lead the business in financial planning, investments, and capital expenditure.
Shareholders have an immense influence on the direction a company takes to ensure they get a maximum return on their investments. A company rarely involves them in the day-to-day operations of the business. They influence key decisions such as the appointment of board of directors and the executive officers, dividend payouts, approving mergers and acquisitions, or liquidating the business.
Heads of department
Department heads work together with other executive leaders and managers to determine the annual financial goals of all departments in the company and ensure their success. They use their leadership and management knowledge to lead and motivate employees within their departments. Other roles include the establishment of policies and coordinating work within a department.
The president of a company sets policies and strategic directions that affect the organization both in the short-term and in the long-term. They lead the company in developing its mission and vision. They often evaluate the company's success to ensure all activities are progressing as planned. Sometimes the president may help with staffing the company, but in big organizations, they often have another person to perform this duty. In large corporations, each department, such as production or marketing, may have a president to add another level of control and oversight.
The vice president is a top-level leader in a company who supports the president by managing departmental operations and performing the roles of the president when they are out of office. They help build strong customer relationships, improve the operational performance of the company, and help the company realize its financial goals. Other responsibilities include assisting the company in designing its mission, vision, values, and strategic goals.
Managers oversee and lead a company's employees and operations. They perform many tasks to foster the productivity of the company and efficiency, including executing business strategies, analyzing company performance, and motivating staff working under them. Managers also identify new market opportunities, review employees' performance, and work with the top leadership on various issues. They are the link between the employees and the company leadership, making them important in communicating ideas and policies between the two levels.
Supervisors play important roles in a company as they oversee the daily performance of employees. Depending on the size of the company, a supervisor can manage a team, a shift, or an entire department. Their primary duties involve executing the company's vision through setting performance goals and deadlines in line with the company's plans. They also help employees understand their duties, and provide constructive feedback and coaching to enhance their productivity.
Employees perform most of the hands-on tasks of the company. Often, they are the largest part of a company in terms of numbers, and their contribution matters in the overall performance of a company. They typically have common responsibilities, and it's from their work that the leadership draws important decisions that enhance the status of the entire firm. Most of their tasks are technical and may require some basic knowledge and skills to deliver excellent results.
Independent contractors are self-employed individuals who provide services to a company as non-employees. Employee benefits, such as health insurance and retirement benefits, are rarely part of independent contractors' benefits packages. Often, independent contractors decide on the tasks to accept, set their working hours, and receive pay only for the period they work with the company.
Benefits of corporate hierarchy
Here are the benefits of creating a hierarchy for an organization:
Provides a defined line of communication
The hierarchy of authority enhances effective communication in a company. Between departments, the company defines roles for each level of authority, and the path of communication from the lower positions to the higher authorities. This fosters easy communication and execution of business strategic plans.
The hierarchical system enables the division of tasks, enabling managers to focus on their duties and deliver work effectively. These roles may differ from one level of authority to another, making it easier for an employee who wishes to advance their career. Most of these ranks require practical skills that one may gain through performing similar tasks. Through the outlined roles and responsibilities in the company's hierarchy, it becomes easy to understand the requirements of each position and work towards achieving your career goals.
A company hierarchy enables a business to foster a culture of accountability. Every person knows their duties and how to communicate important issues that may affect the performance of the organization. Accountability enables an organization to have a somewhat clear prediction of key metrics and act on challenging issues in good time.
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