What is the Peter Principle?
The Peter Principle states that in an organizational hierarchy, employees tend to receive a promotion until reaching a state of incompetence.
The origin of the Peter Principle stems from Dr. Laurence J. Peter, who wrote about the management theory in his book, The Peter Principle: Why Things Always Go Wrong.
- Under the Peter Principle, the management of individuals in a hierarchical organization tends to promote until an employee reaches their level of incompetence.
- By standard practice, the norm for employee promotions is predicated on performance in their current role rather than the employee’s strengths and weaknesses and how those fit into the new position.
- The issue is that an employee who can perform effectively in one role should not be assumed to be capable of directly transferring those results to a different, often more challenging position.
- The organization should aim to reward a productive worker via incentives, but a promotion is not the only option available to motivate an employee.
What are the Origins of the Peter Principle?
The Peter Principle originated from Dr. Laurence J. Peter and his classic book published in 1969, The Peter Principle, which has garnered a reputation as a popular business management literature.
The Peter Principle, also known as the “Peter Principle of Incompetence,” establishes that an individual competent at their job should be promoted to a new position that requires a different set of skills and a higher level of competence if deemed capable of learning the new skills needed.
The Peter Principle is a concept in management theory that implies that employees are promoted to their level of incompetence at the workplace.
Once an employee reaches the breakpoint at which their current skills and depth of knowledge are no longer adequate to contribute value, the inevitable outcome is the employee’s performance will start to falter, and the continued poor performance will contribute toward organizational inefficiency at scale.
If the promoted employee cannot adapt to the new environment and lacks the aptitude necessary to perform well in the new role, the likelihood of a promotion is unfavorable.
Each employee at an organization, even the top employees who outperform relative to others, receives promotions and climbs the hierarchy until reaching a barrier beyond their level of competence.
From the management perspective, the recognition and desire to reward competence are understandable. However, individual performance is a function of the surroundings and the burden placed on them to execute in a situation that not everyone can handle.
While technically written as satire, those words have an underlying truth, as evident in many corporate workplaces that promote employees with seemingly no afterthought.
How Does the Peter Principle Work?
The Peter Principle is a hierarchical workplace pattern where individuals receive promotions until their competence is insufficient to meet performance expectations.
The mechanism inherent to corporations continues, with high-performing employees climbing up the ladder until they reach their threshold, at which point performance falters.
The standard procedure within an organization is to reward the positive performance of employees with promotions, which is a reasonable practice.
However, the continuous cycle of offering promotions is not a sustainable strategy to incentivize employees, irrespective of the underlying intent, which is most often well-meaning.
In fact, the reverse of the intended outcome can occur far more often than one might expect.
The aforementioned inflection point where an employee—with a track record of accomplishments and positive performance at the workplace—is left frustrated and feeling inadequate is termed the “final placement.”
Employees deemed competent in their current position with the skills necessary to contribute tangible value on behalf of a corporation are normally rewarded with promotions.
In other words, the employee’s achievements led to being promoted to the furthest position at the corporation before their skills reached their maximum capacity (or “the ceiling”).
Therefore, the Peter Principle informs corporate executives of the risks of the normalized reward system oriented around performance-contingent promotions that occur at regular intervals for top performers.
Why Does the Peter Principle Matter?
By understanding the Peter Principle, organizations can implement strategies to mitigate the risk of pushing employees beyond their limits and ensure that promotions will improve the company’s operating efficiency (and job satisfaction).
Therefore, an employee receiving a promotion and becoming assigned a new role with more responsibilities—i.e. climbing the ladder—is an effective method to incentivize the employee, up to a certain point.
The promoted employee will inevitably be placed in a new position at a typical organization, where their performance falls short of expectations, causing a downward spiral where the employee is eventually overwhelmed with incompetence.
The Peter Principle is the notion that in a hierarchical organization, employees tend to be promoted based on their performance in their current role — but each promotion is a step closer to the breakpoint at which the employee is no longer productive.
The cause-and-effect pattern—where the positive performance of an employee is rewarded with a subsequent promotion—repeats itself until the employee is no longer capable of performing at a level deserving of a promotion.
The employee could perhaps not even be performing at a level comparable to their peers in the new role. That said, the increase in workload could worsen the employee’s morale even further, which boils down to poor management.
The Wharton Online & Wall Street Prep Applied Value Investing Certificate Program
Learn how institutional investors identify high-potential undervalued stocks. Enrollment is open for the Feb. 10 - Apr. 6 cohort.
Enroll TodayWhat is the Final Placement?
The Peter Principle highlights a material risk that has become commonplace in hierarchical organizations, which is the potential for employees to be promoted beyond their level of competence.
In short, the Peter Principle states that an individual employee’s usefulness and value-add are capped, and from that point onward, their contribution diminishes.
The core premise of the Peter Principle states that if an employee performs well in their job, the inevitable outcome is a promotion to the next step up the organizational hierarchy.
The level at which an employee’s performance falters, and a promotion is out of the question from lacking the skills needed on the job, is termed the “final placement”.
Hence, a corporation’s promotion practices must be strategically planned to ensure positive employee morale, especially for high-performing sales employees.
Employees who recognize that their level of incompetence should not warrant a promotion could actively take matters into their own hands via creative incompetence, a form of self-sabotage that communicates to upper-level management that they are not suited for the role.
But to clarify, creative incompetence is the deliberate tactics used by an employee not interested in a promotion, such as causing a minor accident (i.e. the motive is to remove themselves from the candidate pool for promotions, not become a serious liability to the company).
How to Mitigate the Risk of the Peter Principle
If the Peter Principle is entirely neglected, the organizational hierarchy is bound to collapse, as the employees are not qualified to fulfill the job duties and responsibilities of their respective positions.
The misalignment between the core competencies of individuals and job requirements creates a conflict that will result in underperformance post-promotion.
- Training and Development ➝ Employers should offer existing employees opportunities to undergo training and development programs to help them acquire the necessary skills for their new roles and make the transition easier.
- Lateral Career Paths ➝ Organizations should create alternative career paths that allow employees to advance without necessarily moving into high-pressure managerial roles. The promotion of employees and the structure of an organization’s hierarchy should be oriented around each employee’s respective competence and capacity to acquire new skills (and, over the long run, judge the employee’s performance to determine their managerial potential relative to other employees).
- Performance-Based Reviews ➝ Conducting in-depth performance reviews with employees can help them better understand the expectations in the new role, which can alleviate the pressure of stepping into a new position.
Organizational management is the internal practice of planning, coordinating, and strategizing an organization’s various components to maximize the odds of achieving its near-term and long-term objectives.
With that said, the company’s success is contingent on the collective output of individual employees, so management must promote employees based on competence and alignment with the new role.
It is reckless to promote employees based on their performance in their current role without considering the requirements to succeed in the new position and how their skills match the job description.
To elaborate on the latter point, an employee under consideration for promotion must have the necessary skills for the new position, not the current role (i.e., the previous position if promoted).
In contrast, poor management teams will assume that a well-performing employee will translate into a new role without direction or guidance—such an idea is short-sighted and counterproductive to the intended outcome.
Corporate executives and those in management positions must understand the factors influencing performance and undertake initiatives to align talent management practices and employee incentives with the overarching organizational objectives.
Peter Principle vs. Dilbert Principle: What is the Difference?
The Peter Principle and the Dilbert Principle are two management theories that critique the promotion practices in hierarchical organizations, each with a touch of satire but distinct in their underlying assumptions.
- Peter Principle ➝ The Peter Principle criticizes employers who promote capable employees until they reach a level where their productivity and performance decline. The long-term ramifications of the promotions are that employees without the qualifications needed for the job occupy the roles for which they are not suited, contributing to organizational inefficiency, considerable costs, and, most importantly, company-wide mediocrity.
- Dilbert Principle ➝ Coined by Scott Adams, the Dilbert Principle suggests that the least competent employees are often promoted to management positions to mitigate potential harm in their current roles. The principle, at the risk of stating the obvious, is a satirical take on the promotion practices that have become standardized in the workplace. In contrast to the Peter Principle, which focuses on promoting competent employees to a state of incompetence, the Dilbert Principle highlights the tendency to place incompetent employees in management roles to minimize disruptions to workplace productivity.
