- This column examines data on worker- and manager-level performance for almost 40,000 sales workers across 131 firms and finds evidence that firms systematically promote the best salespeople, even though these workers end up becoming worse managers, and even though there are other observable dimensions of sales worker performance that better predict managerial quality.
- The Peter Principle, they explain, is that organisations promote people who are good at their jobs until they reach their ‘level of incompetence’.
- The crux of the Peter Principle is that success in one arena doesn’t necessarily translate to the next, though promotion decisions are often based on a worker’s aptitude in their current position, rather than the one he or she is being promoted to perform.
- firms face potentially large productivity losses when they promote workers who lack managerial ability.
- we find evidence that firms systematically promote the best salespeople, even though these workers end up becoming worse managers, and even though there are other observable dimensions of sales-worker performance that better predict managerial quality.
- What is striking, however, is that – among promoted managers – pre-promotion sales performance is actually negatively correlated with managerial quality.
- organisations can reward high performers through incentive pay, avoiding the need to use promotions to different roles as an incentive.
- strategies that decouple a worker’s current job performance from his or her future career potential can minimise the costs of the Peter Principle.
