The Peter Principle: how to avoid it in your company structure

2 minute read

“When a salesperson is promoted, each higher sales rank is correlated with a 7.5% decline in the performance of each of the manager’s subordinates following the promotion. […] In other words, firms tend to promote top sales workers into management, even though they become the worst managers”.
— Benson, Li, Shue (2018) Do People Really Get Promoted to Their Level of Incompetence?

This is a very interesting research as it provides some degree of evidence of the Peter Principle:

People in a hierarchy tend to rise to their level of incompetence.

I personally use the above phrasing mostly when I’m talking about the issue in a light way, as I believe the phrasing above – while correct in general terms – doesn’t provide an insight on the why. It’s not being promoted the issue, per-se, but the kind of promotion that isn’t building on the skills for which the promotion has happened. Becoming a “manager” is usually the harshest of such promotions because it shifts almost entirely from the expertise the individual had before, to an entirely new field: people management. It’s a career change.

Once we are clear about the issue being the shift in skills, we are grounded enough to find solutions.

In the article mentioned above, some advice is given:

  • Reward top performers with pay instead of promotion — this is better because it decouples promotions, but I personally subscribe to the idea that pay shouldn’t be correlated to any performance indicator, because that would trigger Campbell’s Law, and it would ruin the company in the long term. It also won’t be ideal for the people in the company because of the deforming effect on perceptions that hierarchies have: promotion in the hierarchy means making progress. This is a massive bias that has to be acknowledged.
  • Create dual tracks of promotions — this is an excellent approach, because it addresses the hierarchy issue in a way that is progressive, and doesn’t introduce the corruption that pay variations introduce.
  • Decouple promotions to management from current performance — this is key advice to make any other solution work: as management is a different set of skills, the evaluation should be based on which skills the individual has regarding people management, not about their other skills.

I’d add that the dual tracks of promotions can be also changed to a model that has a separate management track, completely independent. This would mean that anyone from any level of seniority can be assessed independently for management skills. This can be built using the skill trees model for a more rounded assessment of individual abilities and progress.