How to Keep Your Stars and Have Remarkable Managers

The idea that employees are promoted “to the level of their incompetence” has become a truism in management circles. Laurence J. Peter's satirical 1969 treatise on business and life, The Peter Principle. Peter pointed out that if success in one role leads inevitably to advancement, incompetent employees will occupy every high post, having reached the job they don’t possess the skills to succeed at.

Every new member in a hierarchical organization climbs the hierarchy until he/she reaches his/her level of incompetence” — The Peter Principle

Or simply that — Any employee in a hierarchy will rise to the level of their incompetence. Peter argued that organizations tend to reward good performance at the rank-and-file level with promotion to management, even when the roles demand utterly different skills. Great teachers do not necessarily make great principals. Star athletes often flop as team executives. A person good at selling widgets may be hopeless at managing a team of widget salespersons.

New Study — Promotions and the Peter Principle

Almost 50 years after the introduction of Peter Principle, Alan Benson from the Carlson School of Management, Danielle Li of MIT Sloan, and Kelly Shue from the Yale School of Management wrote Promotions and the Peter Principle. It is a new research paper for the National Bureau of Economic Research. They looked at the career paths of more than 53,000 salespeople at 214 US companies between 2005 and 2011.

A salesperson who closes twice as many deals as the average colleague is about 14% more likely to get promoted to management according to the study. However, businesses pay a hefty price for that promotion: Sales decline an average of 7.5% when led by former stars. Meanwhile, the inverse was true: Sales thrived under managers who were lackluster in their previous sales roles.

The study goes even further. It shows that a random promotion policy that does not favor high sales workers outperforms the existing approaches used to select managers.

It does not look like we learned much over the past 50 years!

Subordinate performance could improve by up to 30 percent if firms pursued an alternative policy that promoted the individual with the best management traits within their sales team. Substantial productivity declines could result due to lost incentive and other morale effects that may occur if firms switched away from its current promotion policy of rewarding high sales with promotions. The researchers noted that the 30 percent is a lower bound for how large the incentive and other benefits of promoting the top sales workers would have to be to rationalize the current set of promotion policies. 

Like Peter, the study suggests firms are better off hiring people with the traits they want in managers. It also sets out the importance of finding other ways to reward talented employees and have them keep doing what they do very well.

So what’s a firm to do?

Identify the traits that good managers have, and promote employees who possess them. Also, establish an incentive and promotion structure that both rewards good work and good managers.

Our selection process goes much deeper. We have over 500 positions benchmarked against high performers using our 85 behavioral traits and 35 career themes. We can predict the likelihood of a candidate meeting and exceeding expectations. You may wish to read Behavioral DNA: The 23 and Me of Predicting Career Success for an overview.

You need to select a person with behavior traits suited for management, identify their development areas, and provide them with the support they need to become a great manager. You need to address the transition between levels. It starts with the staff to manager transition and continues for each level all the way to the C-suite. There are specific competencies that are key in more than one level as one progresses up the ladder. Some competencies stay important through a leadership transition, and some competencies are less relevant. To be an effective leader their demonstration must be adjusted. This is a roadmap to success. It ensures your selection and development efforts contribute to the long-term success of the individual and the organization.