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Everything You Need to Know About the Peter Principles

Learn everything there is to know about the Peter principle so you can start prioritizing management skills.

By Kate Dagher  •   February 14, 2023  •   7 min read

High performers are not always the most suitable people to move into management positions. That said, the Peter principle states that many organizations choose to prioritize a person’s job performance over their ability to lead a group and be an effective manager. It’s difficult for companies to decide if they should select an employee for a promotion to a managerial role based on job performance, to motivate employees and encourage higher performances at work, or alternatively, based on their personality and potential to be a great leader. 

The truth is, a balance between these two options is the best option, but the reality is that a top performer who also has strong managerial qualities does not always exist in a given team. Regardless, the Peter principle is a phenomenon that can help organizations make better decisions about promotions and performance. For that reason, this article will explore what the Peter principle is, what encourages it, how to prevent it, and some differences between the Peter principle and the Dunning-Kruger effect. 

What is the Peter principle?  

The Peter principle proposes that companies prioritize current job performance when it comes to promotion decisions at the expense of other observable characteristics that are better predictors of managerial performance (Benson et al., 2019). This phenomenon was put forward by Dr. Laurence J. Peter 1968 (hence, the “Peter” Principle). His book, Peter Principle became wildly popular, but until recently, the Peter principle was only a theory. Recently, this study supported the principle using a sample of 53,035 employees working in sales organizations. The researchers of the study explain, 

“… we find that firms are substantially more likely to promote top salespeople, even when these workers make worse managers on average and on the margin. This behavior results in firms promoting workers who decrease subordinate performance by 30%, relative to a promotion policy that optimizes match quality.”

What encourages the Peter principle? 

So how do employees end up in positions in which they’re not competent to perform? The Peter principle tends to occur in companies where skilled employees are naturally promoted into managerial roles based on their technical abilities, rather than their leadership qualities. Organizations that choose to only promote from within tend to experience the Peter principle more because their talent pool becomes smaller and recruitment efforts are more focused. As a result of fewer options, a top-down management hierarchy, and a focus on current performance rather than future performance, candidates with the strongest skill sets (but without adequate people management skills) are often selected to be promoted. 

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How to prevent the Peter principle

1Look at skills, not recent successes, when promoting

First, think about assessing skills, not simply looking at someone’s recent accomplishments or successes when it’s time to make a promotion. When you’re seeking to fill a new role within the organization, look at the employee’s existing skills to see if they closely align with the requirements of the new position. Always think about if the person may be better suited for other open positions or positions that may be available to them in the future. Moreover, think about what motivates the employee and if this is a position that will genuinely interest them. 

2Offer higher pay with no title change 

Another way that you can prevent the Peter principle is by offering your employees a pay raise. Just because you’re offering a team member higher pay doesn’t mean that you need to promote them. This is a fantastic way of offering recognition for high-performing employees who are valued team members but who may not necessarily be suited or want to be in managerial positions. It’s important to show employees that they can earn a great wage without necessarily managing other people. 

3Reassign roles 

Reassigning roles to employees is another effective way of preventing the Peter principle. In situations where there is a person who is underperforming, you don’t necessarily need to fire this employee. Dr. Peter suggested reassigning employees to a different role when they’re underperforming, which he called “lateral arabesque.” This reframes demoting an employee to make it feel like a new and exciting opportunity that is seemingly more like a promotion. This keeps morale high while moving an employee away from a position where they’re underperforming. 

4Identify new skills to learn 

Identify which kinds of new skills can be learned by the employees who report to you and who aren’t performing up to par. Likewise, for employees who don’t feel competent in their positions, they can and should come up with some ideas about how they can strengthen specific skills that may help them get to where they need to be. This is something that should be worked on by both the employee and the manager so the employee feels supported and so the manager knows that the employee is aligned with their guidance and is on the right track. 

5Determine whether a promotion is wanted 

A discussion should always be had between a manager and an employee who may potentially be moving into a managerial position. It’s important to note that not everyone wants to get promoted and that many people actually enjoy being sole contributors who are passionate about their work and want to give their focus to that passion without managing people. Make sure that you take the time to truly understand how your employees would like to progress in their careers, what motivates them, and where they see themselves with the organization. 

6Invest in high-quality training 

Make sure that you’re investing in high-quality training for your team members and that the training is attractive and interesting to employees. Learn which kinds of knowledge gaps can be bridged, if there is an interest for your employees to move into managerial positions, and what employees believe their strengths currently are. Some employees may be interested in pursuing niche skills that they’re already good at to become subject matter experts. Specialized training can also make a huge difference for underperforming employees. 

7Ask for feedback frequently  

Asking for feedback from your employees on a regular and frequent basis will help ensure that everyone is on the same page and that there are many opportunities for open and honest communication to take place. Fellow enables your team to share real-time feedback on meetings, projects, and performance. This is important because, especially in situations where an employee is underperforming, you can create a game plan and really help guide and support them so they can either grow into their position or move into a more appropriate role where they feel more comfortable and satisfied. With Fellow, these discussions are particularly effective in one-on-one meetings

The Peter principle vs. the Dunning-Kruger effect 

The Dunning-Kruger effect, developed by both Dr. Dunning and Dr. Kruger, refers to a cognitive bias where individuals with low experience, ability, or expertise tend to overestimate their ability or knowledge. In other words, people believe they are more prepared or more able than they actually are, which can often come across as ignorant. While the Dunning-Kruger effect is the opposite of imposter syndrome, it’s actually quite closely related to the Peter principle. 

With the Peter principle, over time, the majority of positions within a given company become filled with an individual who isn’t capable of fulfilling the duties and responsibilities needed to execute their job effectively. Sometimes people who occupy positions that they aren’t capable of handle are unaware of their own incompetence and may even deny it. This is exactly what the Dunning-Kruger effect states. The Peter principle pushes someone who is not ready (or not suited) into a particular position and the Dunning-Kruger effect is the piece that makes this person unaware of their shortcomings. 

Parting advice 

The Peter principle refers to a situation wherein an employee continues to receive promotions to work in higher positions to the point where they attain a level where they aren’t competent to fulfill their roles. Luckily, there are ways to overcome the negative outcomes of the Peter principle. Some of these ways include looking at the current skills of an employee, offering higher pay without a change of position, reassigning roles, identifying which new skills should and could be learned, determining if a promotion is desired, investing in high-quality training, and asking for frequent feedback. 

References

Alan Benson, Danielle Li, Kelly Shue, Promotions and the Peter Principle, The Quarterly Journal of Economics, Volume 134, Issue 4, November 2019, Pages 2085–2134, https://doi.org/10.1093/qje/qjz022

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