What you need to do is to create a lookup step based upon the email, like get id of manager and user where email = id of manager field.
Next do an upsert based on user id to set the related manager id.
I hope this makes sense!
thanks for your response. As I had said in my question, I would ideally like to do this without having to resort to SFDC ids of user object. In fact, this is how I am doing it now.
But with this, I have to export User (id and email fields) object and this operation can be quite expensive if number of users are large.
You can achieve this through data loader by having mapping of the form
depending on what you use to get User object for Manager.
Ideally I would want to avoid having to use 2 tools for user data upload.