The data suggested that this was indeed the case. If so, firms where strong management was more critical-for instance, a company with large teams-might follow a different strategy. The researchers wondered if companies knew about the Peter Principle’s pitfalls but had chosen to take this approach anyway to motivate workers. If the firm stops doling out management jobs based on sales numbers, workers might be tempted to slack off-counteracting the benefits of better supervision. For example, employees at companies that follow the Peter Principle might work harder because they are rewarded with promotions. But Shue cautions that this calculation doesn’t account for other factors. The team estimated that if a firm promoted workers with the best management potential instead of the best sales, subordinates’ sales could increase by 30%. But workers with better sales records had the opposite effect their subordinates’ sales actually fell under their management. When workers had more collaboration experience before promotion, their new subordinates tended to boost their sales. One might assume that top salespeople are “good with people, so they would be great managers,” Shue says.īut that’s not what her team found. To find out, the team studied whether the new managers’ subordinates improved sales under their direction. The researchers then tried to determine which promoted workers performed well as managers. But the amount of collaboration had no such effect on an employee’s chances of becoming a manager. The data revealed that if a worker’s sales were twice as high as a colleague’s, the higher-performing employee was 14% more likely to be promoted. In addition to tracking sales amounts, the researchers could see how often each employee collaborated with others on sales.
About 1,500 of those workers became managers during the study period. Shue’s team obtained data from sales performance management software, which included records on sales and employee hierarchies for more than 53,000 workers at 214 firms. “It shows us that firms are not completely unaware that the Peter Principle problem may exist, and they’re trading off the costs and benefits,” says Shue, who collaborated with Alan Benson of the Carlson School of Management and Danielle Li of the MIT Sloan School of Management on the study. The results suggest that companies may sometimes use the Peter Principle to incentivize employees to work harder in their current jobs, but they recognize when a different approach is needed. When filling supervisory roles that involved more responsibility, firms paid more attention to management-related skills. The results do not necessarily mean, however, that the companies were acting against their own self-interest.
Read the study: “Promotions and the Peter Principle” “Firms do promote top performers into managerial positions for which they’re not particularly well-suited.” “We find a lot of support for the original Peter Principle hypothesis,” Shue says.
But those top salespeople didn’t perform very well as managers. The team found that, as expected, companies tended to promote employees based on sales performance. Shue and her collaborators decided to test the theory on a large data set from sales workers. “It’s a very intuitive idea that hasn’t really been tested in the data,” says Kelly Shue, a professor of finance at Yale SOM. A low-ranking employee might be promoted based on excellent technical skills, but that person could lack the abilities required to be a successful manager, such as leadership and organizational prowess.īut research to determine if the Peter Principle is actually true has been sparse. The theory became popular-a pre-internet meme for the era of the gray flannel suit-because it made intuitive sense and provided a satisfying explanation for managerial incompetence in large organizations. In the 1960s, teacher and author Laurence Peter playfully put forth an idea called the “Peter Principle.” He suggested that firms promote workers who are performing well in their current jobs until they reach positions for which they are ill-qualified.
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