Borrowing from the Peter Principle

As seen in Chief Executive.

Even though it was proffered over 50 years ago and its main proponent admitted that it was intended as satire, the “Peter Principle” has managed to endure, proliferate, and become dogma for many companies and their leaders. Named for Dr. Laurence Peter and described in an eponymous book by Dr. Peter and co-author Raymond Hull, the Peter Principle states that “in a hierarchy, every employee tends to rise to his level of incompetence … [and] … in time every post tends to be occupied by an employee who is incompetent.” As is often the case with satire, the Peter Principle has some foundation in truth but is an exaggeration and oversimplification. Nevertheless, it does offer a useful starting point for considering how and why organizations fail to optimize their personnel strategies, structure, and policies.

1. Most mistakes around promoting employees are avoidable.

As Dr. Peter said, in some organizations, “the cream rises until it sours.” Yet, there are clear reasons for this dysfunction, nearly all of which are avoidable and many of which are failures not of the employees being promoted but of the employees doing the promoting.

2. Promotions should be based primarily on the requirements of the new position, not the old one.

Current job performance is of course relevant in assessing whether an employee should be promoted, but it is not nearly as relevant as considering whether the employee can meet the requirements of the job for which they are being considered. And even if they can meet those requirements, some people are so good at their jobs that promoting them inevitably will result in diminished performance by them and their successors.

Consider a study that was published by the National Bureau of Economic Research in 2018, Promotions and the Peter Principle. In this study, Alan Benson, Danielle Li, and Kelly Shue observed thousands of salespeople at over 200 companies. They found that: “promotion decisions place more weight on current performance than would be justified if firms only tried to promote the best potential managers. The most productive worker is not always the best candidate for manager, and yet firms are significantly more likely to promote top frontline sales workers into managerial positions. As a result, the performance of a new manager’s subordinates declines relatively more after the managerial position is filled by someone who was a strong salesperson prior to promotion.”

A similar phenomenon was described in the book The E-Myth, by Michael Gerber, which describes how common it is to assume that because someone is an excellent “technician” they must also have the skills to lead or manage companies. This is a false assumption, but excellent technicians and their managers nevertheless often assume that great technical expertise justifies a promotion, leading to detrimental effects for the entire organization.

3. Some employees overestimate their abilities and should not be allowed to advance unless and until they are ready.

A more troublesome problem is known as the Dunning–Kruger effect, named after David Dunning and Justin Kruger, who observed that people with lesser abilities tend to overestimate their actual abilities. Unfortunately, people who suffer from the Dunning-Kruger effect are often not shy about sharing their mistaken beliefs, leading to pressure to promote them despite their deficiencies. Indeed, they may even be promoted because of their deficiencies, in a short-sighted effort to minimize the harm they are causing in their current role. Company leadership must be disciplined enough to identify the Dunning-Kruger effect and avoid promoting people solely to meet unrealistic employee expectations.

4. Career paths and incentives should be structured so that promotions are not the only way to achieve fulfilment.

One solution for companies that feel pressured to promote people that should not be promoted is to address some of the root causes for why people may feel so desperate to be promoted. Career paths can be thoughtfully designed to offer challenging, rewarding, and prestigious work at all levels; increased compensation can become less dependent on promotions; and hierarchies can be shifted from bosses issuing orders to managers and leaders helping – even serving – those for whom they are responsible.

5. Adequate training, mentoring, and support should be offered to everyone, including those who are promoted.

Companies can also mitigate the Peter Principle by ensuring that they proactively support employees they promote – even after the promotion. Training, mentoring, and continuing education around management are a must, as is ensuring that people continue to feel challenged by their work. For some, being promoted becomes a defining career goal. After achieving that goal, they may feel less drive and, as a result, become less effective. One proven method for dealing with this issue is to help employees find ways to tie their personal goals to the goals of the company, thereby offering perpetual challenges that transcend individual accomplishments.

6. An employee can move from competence to incompetence even without a promotion.

The Peter Principle speaks to the inevitability of people being promoted until they hold a job they cannot do. Yet, there is another perspective that must be acknowledged: people’s jobs can evolve over time so that, even in the absence of a promotion, some will no longer be able to perform them competently. Consider, for example, a CFO for a 30-person organization who performs their job quite well. Now think about what might happen when that same company becomes a 3,000-person organization, goes public, and enters multiple new geographies. It’s possible – even likely – that the CFO may become incompetent not because they were promoted but simply because the company grew and evolved beyond the CFO’s capabilities.

“Founder’s syndrome” and similar phenomena fall into this category. Often a company’s founders and early leaders are exactly who the company needs in its earliest stages but become detrimental to the company when the company outgrows their capabilities. Company leaders at all levels must be vigilant in understanding that incompetence can occur anywhere in an organization and that it can creep into positions as the company changes, even in the absence of promotions.

7. It is just as dangerous not to promote people who will be competent as it is to promote people who might be incompetent.

Believing in the satire offered by the Peter Principle can lead to an insidious trend: the hesitancy to promote people for fear that they might be incompetent in their new roles. For the above reasons, companies must be careful as they make decisions about advancing their employees, but they must also be mindful about failing to advance people. Leading from fear is paralyzing, and companies cannot evolve unless their people evolve. In turn, people cannot evolve unless they are challenged to evolve. Borrowing from the Peter Principle, perhaps we might postulate that every company tends to rise to its level of maximum competence only if every employee tends to rise to their level of maximum competence.