How Can We Combat The Peter Principle?

The Peter Principle was expounded in the 1969 book of this name by Canadian educator, Laurence J. Peter.

It states that people in a hierarchy tend to rise to their level of incompetence. They are promoted based on their success in previous jobs until they reach a level at which they are no longer competent. They then stay there. Skills at one level do not necessarily translate to a higher level. The corollary principle is; in time, every post tends to be occupied by an employee who is incompetent to carry it out.

For many years this idea was broadly accepted – but often in a humorous rather than a serious way. There were plenty of anecdotal examples but little hard evidence to validate the principle. Then in 2019 Benson, Li and Shiu published a detailed article in the Quarterly Journal of Economics entitled, Promotions and the Peter Principle.

The economists studied data on salespeople at 131 firms. They found that ‘firms prioritize current job performance in promotion decisions at the expense of other observable characteristics that better predict managerial performance.’ The companies were more likely to promote people who were good at sales into managerial positions. The researchers found that this led to worse managerial performance and outcomes. This validated the Peter Principle. They report that ‘the managerial quality of marginally promoted workers is declining in their pre promotion sales performance, providing evidence that firms apply lower standards when evaluating top sales performers for promotions. We then show that firms can improve managerial quality by promoting fewer top sales performers on the margin.’

Furthermore they found that ‘workers who never collaborate with others—the so-called lone wolves—fare particularly poorly when they are promoted into managerial roles. Stereotypically, lone wolves are known within the sales profession to be “the deeply self-confident, the rule-breaking cowboys of the sales force who do things their way or not at all”. We find that firms are significantly more likely to promote lone wolves, and yet lone wolves have lower manager value added.’

It seems clear that the best salespeople do not make the best sales managers, the best programmers do not make the best team leaders and the best accountants do not make the best finance managers. Why do companies continue to promote their top performers into managerial positions? One reason appears to be that promotion for strong sales performance (for example) is seen as a reward and therefore an incentive for the sales force.  If you do not promote your top performers you might lose them to competition. But it leads to weaker managers. Smarter companies now offer dual track promotion opportunities. Top performers can be promoted to higher status levels but still as individual contributors (sometimes known as ICs). Meanwhile the organizations try to select managers based on a mix of personal attributes and skills including collaboration, communication, empathy and team building.

It appears that the Peter Principle is alive and well in most organizations. We need to be on our guard against it. We should promote into managers those who show the most relevant qualities and to reward individual top performers in a variety of other ways. We also need a mechanism to correct mistakes. E.g. to allow someone wrongly promoted to a managerial position to be returned to a contributor role without loss of face or status.