You definitely made an incorrect assumption. I have been at various levels of management and also continued to be very hands on in the code bases. This included start up's and very large (Fortune 50, on the lower end of the digits) companies.
I believe I was a very successful Director and VP level manager. However, I realized a few things that made me switch back.
1) Engineers, particularly me, don't like to manage. Most of us get into it for the money or because it's some sort of natural career progression. But generally it means more of the things we don't like doing. Meetings, personnel issues, hiring, firing, and not coding. Some say that management at that level get more say in the product direction or in other business matters and I have not found that to be true. Engineers get just the same amount, if not more, say in product than any manager. If you happen to be a "hands-on" VP, you get to do all of those things you don't enjoy doing from 10-4 and then code on the product all night. That can be quite unpleasant.
2) "Natural Career Progression" is a myth. If we're talking about purely financial benchmarks, as an engineer and a consultant I make more than just about every manager I know. And certainly quite a bit more than I made as a VP, including equity. If we are talking about career "prestige" or "respect", as an engineer I get asked to speak at more conferences, write more articles, and get on the phone with more CEO's than I ever did as a manager.
3) Quality of life and happiness. I have spent the better part of my entire life learning how to make computers do what a company needs them to in order to make money on their product idea. I think a lot of VP's and Director's absolutely love their job, but I felt unproductive and constantly inefficient. I wasn't making a computer do what the company needed it to do to make money on a product. I was trying to get engineers to work, I was settling disputes between engineers and other engineers, engineers and other managers, managers and product schedules, product schedules and financing, upper management and partners, the list goes on and on. This did not make me happy. I didn't sign up in this business to be the referee. I want to be the best engineer, so I strive to become the very best at that.
Now to answer your specific questions. I was a director or VP level for 7 years. I walked out of my last job as a VP and walked into a consulting role the following day making 20% more. The transition was absolutely seamless and I did not play catch up. However, this may be more of a testament to my own learning and retention. Others may take longer.