A star salesperson is promoted to sales manager. Six months later, revenue is down, the team is frustrated, and the once-great performer is failing. Why do companies turn their best performers into poor managers? And why do they keep them there once the damage is apparent?
Definition
This typical pattern has a name: The Peter Principle. It is a management concept that observes that, in a hierarchical organization, employees tend to be promoted from one position to the next based on their success in their previous role, until they reach a position where they can no longer perform competently. At that point, they typically stop being promoted and remain in their “position of incompetence”.
The concept was introduced in the 1969 book, The Peter Principle, by Canadian educator Dr. Laurence J. Peter and author Raymond Hull. They summarized it memorably: “In a hierarchy, every employee tends to rise to his level of incompetence.”
Dr. Peter observed that employees who were competent and performed well in their roles tended to be promoted into positions that required skills not needed at the level below. When they eventually lacked the skills necessary for the new role, they usually stopped advancing.
While one might expect that these non-performing employees might then be terminated, Peter found it was rarely the case. Most often, these promoted employees, who had been with the company for years and sometimes promoted multiple times, remained in positions where their performance was inadequate or were transferred to other roles rather than being terminated. Incompetence was insufficient for termination. Gross incompetence appeared to be the required threshold.
This analysis led Dr. Peter to conclude that, in companies, “work is accomplished by employees who have not yet reached their level of incompetence”.
Worse, taking this concept to its logical extreme, he added, “in time, every post tends to be occupied by an employee who is incompetent to carry out its duties”. In other words, given enough time and enough promotions, positions throughout the hierarchy could be occupied by people promoted beyond their competence.
The Double Loss
A successful sales executive might be promoted to a sales management role. Although keenly familiar with what the sales executives he now manages need to do to perform well, he might not have the leadership or management skills to guide the team to success. In this scenario, the company loses twice: a talented sales executive is removed, and an untalented manager is installed.
Even more challenging perhaps, employees in these situations seldom have the insightfulness required to recognize their own limitations. As a result, routine attempts to assist them are typically unsuccessful.
In one of my assignments, a capable and well-credentialed senior finance executive who had been prematurely promoted to a CFO-level role exemplified the rise to the “level of incompetence” described by this principle.
Indeed, had he been properly further developed as a VP or SVP of Finance under a strong CFO rather than promoted too early, he would have had the opportunity to grow into the powerful CFO he was capable of becoming. Instead, his premature promotion deprived him of the opportunity and the company of having a competent CFO.
A more recent study suggested that managers might not be promoted strictly to their level of incompetence, but instead to a level of anxiety that overwhelms their desire to succeed and diminishes their performance.
A 2018 study titled “Promotions and The Peter Principle” by professors Alan Benson (University of Minnesota), Danielle Li (MIT), and Kelly Shue (Yale) analyzed more than 53,000 sales executives across 214 companies. Their findings confirmed that organizations indeed tend to promote employees based on their performance in prior roles rather than on the aptitudes and skills required for their new roles.
Prevention
The best way to minimize the impact of the Peter Principle within organizations is to prevent it from occurring in the first place. Identify the skills required for success in a new role. When evaluating potential employee candidates for promotion to a new role, measure their capabilities against the specific skills required.
Other proactive actions might also be beneficial. The company can provide new managers with a learning track for their current roles as well as for desired ones, and assist their employees in these efforts with outsourced skills training or one-on-one executive coaching.
Ultimately, not every successful sales professional needs to become a sales manager. They may excel at selling but lack the temperament or interest required for management. Some individuals might be better suited for other valuable roles within the company, such as outside sales, sales support, or new hire training.
Response
But what if the promotion has already taken place and the new manager is struggling? The solutions at this stage can be more difficult, although often unavoidable, as leaving the issue unaddressed would allow it to spread and eventually affect overall company performance.
Companies must ensure that non-performing promoted employees are aware of their deficiencies, something they may not always recognize, and that they are personally involved in addressing those. Possible solutions include skill assessments, scheduled remedial training, support from colleagues, the human resources department, or the training department. The evaluation process should be repeated until the desired performance is achieved.
Managers can also enlist their teams to assist. While the struggling manager may not recognize their own limitations, their direct reports often can. Employees have a constructive role to play by providing candid feedback about what is and isn’t working. A culture that fosters candor between employees and managers will allow employees to speak up when they recognize that their managers’ expectations are unclear or that their managers need assistance. Such engagements can be beneficial for the manager, the employee, and the corporation.
Some companies have adopted systems where employees who are not promoted over time are reassigned to lower-level positions, ensuring that anyone who has reached their level of incompetence is moved back to a level of competence. Other organizations use an “up or out” system, in which employees who are not promoted within a defined period are dismissed from the company.
And, while all these actions will be valuable for both employees and the company, they must recognize that this will be an iterative, continuous effort that will require a sustained commitment from everyone to be successful for all.