The Peter Principle Tested | Alex Tabarrok - Deepstash
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The Peter Principle

The Peter Principle

It refers to an observation wherein people who perform well in their job gets promoted until eventually, they will reach a stage where they are incompetent for that job.

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The Evidence for the Peter Principle

The Evidence for the Peter Principle

A study looked at promotions and performance of some 40,000 sales workers across 131 firms.

It showed that the best salespeople as measured by sales revenue are more likely to be promoted (top figure) but their value added as managers actually declines in their sales revenues (bottom figure).

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The "Purpose" of Promoting Workers

  • To assign the suitable person to the managerial role.
  • To motivate workers excel in their current roles.

However, If firms promoted workers on the basis of managerial potential rather than current performance, employees may have fewer incentives to work as hard.

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Motivate Workers without Promoting Them

Workers can be rewarded through incentive pays without the need of promoting them. Firms will be able to promote a more competent worker suitable for the managerial role that could entail larger teams.

There are also leading companies who used split career ladders allowing their worker to advance as individual contributors. This practice recognize workers for succeeding in one area without transferring them to another.

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