What Is the Peter Principle?

What Is the Peter Principle?

The Peter Principle theorizes that employees in most organizational hierarchies automatically rise through promotion to higher positions. However, competent employees will be promoted, but will ultimately assume positions for which they are incompetent.

According to the Peter Principle, competence is rewarded with promotion because competence, in the form of employee output, is noticeable, and recognized. However, once an employee reaches a position in which they are incompetent, they are no longer evaluated based on their output

History

Canadian educational scholar and sociologist, Dr. Laurence J. Peter, defined the theory in his 1968 book The Peter Principle. He surmised that an employee's inability to fulfill the requirements of a position they are promoted to may not be general incompetence but is because the position requires different skills than those the employee possesses. For example, an employee who competently completes assembly tasks may be promoted to management without proving to be a good manager first.

Dr. Peter revised the adage "The cream rises to the top" by stating "The cream rises until it sours." In other words, excellent employee performance is inevitably promoted to the point where the employee's performance is no longer satisfactory. He also argued that employees tend to remain in positions in which they are incompetent because mere incompetence is rarely sufficient to cause the employee to be fired.

Productivity and Morale

When newly-promoted managers are not well-suited to their roles, they may be less able to provide effective management and direction to their employees. This can also lead to high rates of error or defects if their new responsibilities are associated with quality control.

These problems can trickle down to other employees, who will make more mistakes under poor management. Lower-level workers may continue to be promoted, resulting in several layers of managers who lack the skills or training for their jobs. This can also damage employee morale, since remaining employees may resent their poor management.

How Companies Avoid the Peter Principle

• Provide adequate skills training for employees before and after receiving a promotion
• Ensure training is appropriate for the position to which employees have been promoted.
• Assess the job skills of all candidates, especially for internal promotions. Many valuable skill sets do not transfer well to higher positions. For example, a skilled engineer may not have the skill set to be a successful manager.

Example

In 2018, economists Alan Benson, Danielle Li, and Kelly Shue analyzed sales workers' performance and promotion practices at 214 American businesses to test the Peter principle. They found that companies promoted employees to management positions based on their performance in previous positions, rather than on managerial potential.

Consistent with the Peter principle, the researchers found that high-performing sales employees were more likely to be promoted and that they were also more likely to perform poorly as managers, leading to considerable costs to the businesses.

The Bottom Line

The Peter Principle is a theory that explains why many companies have seemingly ineffective management staff. It states that rather than promoting people to the roles they are best suited for, companies tend to reward successful employees with roles for which they are not qualified. This can sometimes result in poor management, ineffective leadership, decreased productivity, and low employee morale.