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Peter Principle

"Employees are promoted according to their current progress rather than the required skills and aptitude"

What is the Peter Principle?

The Peter Principle is a common occurrence among companies, whereby employees are promoted according to their current progress rather than for the skills and aptitude required for the roles they are being considered for.

 

Peter Principle

 

Have you ever come across people who are unhappy after receiving a promotion, or seen a football coach promote some of his star team players only to discover that they’re somewhat struggling to cope in their new positions? Well, the reason for such incidences is clearly explained in the Peter Principle theory.

 

The Logic behind the Peter Principle

The theory was first recognized by a Canadian educator, Dr. Laurence J. Peter, who cited it in his book “The Peter Principle.” According to Dr. Peter, in any corporate structure, employees tend to rise to ranks where they are not competent. If an individual works for a company that practices top-down management, then he is likely to be promoted until he gets to one rung above his level of competence. The educator referred to this level as the “final placement.”

Even though the book was written on a light note, there’s some degree of truth in Dr. Peter’s well-researched analysis, which identifies a key flaw in corporate structures.

As seen in the diagram below, an employee is promoted multiple times because of his initial competence. However, once he gets to the highest position he can hold, he becomes incompetent because he lacks the necessary skills.

 

Peter Principle - Diagram

 

Factors that Encourage the Peter Principle

Most entry jobs require technical expertise or some special kind of skill. The Peter Principle occurs mostly in technical industries where skilled employees are naturally promoted to managerial roles. It happens despite the fact that the competence of such workers is based on their technical prowess rather than their ability to manage or lead.

Internal promotion is very common. A lot of job seekers are attracted to certain companies not because of the nature of their work but because of the prospect of a promotion. Promotion in most companies is based on an employee’s current performance, as opposed to considering their suitability for the next one.

 

Ways to Prevent the Peter Principle

 

1. Demotion

Dr. Peter did not just explain his theory. He also recommended a couple of solutions to the problem in his book. One technique he provided was practicing a demotion policy that did not carry the stigma of failure. Suppose an employee has been promoted to a role that he’s not skilled enough to take up. In such a situation, the company manager can bring back the employee to his initial position. However, the person who made the poor decision of promoting the employee must admit that he made a mistake.

 

2. Higher Pay, No Promotion

Another solution to the Peter Principle entails offering workers higher pay without necessarily promoting them. The majority of employees are thrilled about the idea of promotion not so much because of the power or prestige but because of the salary benefits attached to it. To prevent an occurrence of the principle, company owners should be increasing their employees’ wages because of their excellent work in their respective roles. In such a way, every employee can earn enough money while still in a position where he is competent.

 

3. Lateral Arabesque

Dr. Peter also advised managers to get rid of incompetent employees without firing them. In other words, a CEO can reassign the incompetent worker to another position, which comes with a longer title but fewer responsibilities.

The Canadian educator called the practice a “lateral arabesque.” In such a way, the promoted worker will not know that he’s been fired from the role he’d been promoted to.

 

4. Employing Alert Individuals

The most effective way to avoid the Peter Principle is having alert employees. This means working with a team of people who know the extent of their capabilities and skills.

Even if the offer to receive a promotion is very enticing, an employee should first consider all the additional duties that come with the new role. If he doesn’t feel capable enough to handle the new tasks, then he should simply decline the offer.

 

5. Outwit the Employer

Another way to beat the Peter Principle is for an employee to outsmart his employer. For example, if a particular employee is well aware of his limitations, then he will do everything in his power to ensure he is not considered for a position where he would be incompetent. Dr. Peter described the mode as creative incompetence.

There are a few tricks that employees can pull to sabotage themselves so that they don’t find themselves being promoted. For example, a worker can “accidentally” park in the company senior manager’s reserved spot from time to time. However, they shouldn’t sabotage themselves to the point they get fired from their current position.

 

Key Takeaways

The Peter Principle states that an employee continues to receive promotions to work in higher ranks up to that point where he reaches a level of incompetence. In simple terms, the higher the hierarchy ladder an individual goes, the more likely he is to fail in his new position.

Luckily, there are ways to prevent employees from falling into the Peter Principle trap. They include demoting without stigmatizing, offering higher pay without promotion, and working with alert employees.

 

Related Readings

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Corporate Performance Management
  • Key Performance Indicators (KPIs)
  • Leadership Traits
  • Management Skills

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