Managers play a crucial role in shaping an employee’s experience. For example, research shows that nearly 70% of the variability in employee engagement can be predicted by their managers’ behavior, decisions, and personality traits. In other words, whether people are happy, energized, or miserable at work depends mostly on their boss—and whether or not they’re an incompetent manager.

Unfortunately, the impact of managers on employees often skews more detrimental than empowering. Many employees quit their boss, not their job. Indeed, a recent Gallup study of over 7,000 adults found that 50% of employees quit to escape an incompetent manager.

Naturally, the reasons why some managers are so incompetent have captivated researchers and practitioners, including us. Theories abound regarding the paradoxical fact that inept individuals somehow manage to advance their careers, climb the organizational ladder, and “fail upwards,” to everybody else’s peril.

Some incompetent managers get ahead due to their overconfidence or narcissistic traits, as discussed in Why Do So Many Incompetent Men Become Leaders? Likewise, some individuals can get ahead through their powerful connections, political skills, or purely by some luck theory can’t explain.

Unsurprisingly, this is even more common in political elections, where voters are not always skilled enough to evaluate candidates’ potential (or unwilling to scrutinize them properly) than in corporations.

Even more intriguing is that it’s not uncommon for individuals who perform well in their jobs as individual contributors to fail to perform as expected when given managerial or leadership responsibilities, much like great individual athletes can disappoint after retiring and transitioning to team coaches or managers.

This phenomenon is well explained in The Peter Principle, by Laurence J. Peter and Raymond Hull in 1969. The core premise of the principle is simple: “In an organizational hierarchy, every employee tends to rise to his level of incompetence.” That is, people get promoted until they are no longer worthy of promotion, which means that their actual potential is where they end up minus one level, or the role before their stagnation.

The Peter Principle

The Peter Principle is an old concept, but it still explains some of the biggest problems in organizations: The presence of incompetent managers who frustrate their subordinates and the leaks and silos in talent development.

You may not have heard about the term, but you’ll likely agree with the concept once we explain it. You may have suffered the impact of the actual effect if you have worked or are working for someone who ended up as your boss without having the leadership or management skills to manage people, including you.

According to the original example from the authors’ book, in a pill-rolling factory, a high-performing factory worker, once promoted to their first managerial role, would stay there until the end of their career because they did not have the people skills to manage effectively. Remember, these workers were promoted based on how fast they produced roll products but didn’t know how to manage other workers.

Yale Professor Kelly Shue and her colleagues’ recent field study provides the first large-scale evidence for the Peter Principle, more than 50 years after the concept was introduced. This paper analyzed promotion practices in 153 different sales organizations over six years, covering nearly 40,000 workers considered for promotion to managerial positions. Their findings are fascinating and worth detailing.

First, they found that companies still prioritize employees’ prior performance (individual sales performance in this case) over their managerial potential in their promotion decisions. It seems little has changed since the 1960s when many factories promoted workers into managerial roles based on manufacturing efficiency rather than managerial potential.

Second, they discovered that new managers’ pre-promotion sales performance was negatively related to their effectiveness as managers, such as in team management and creating collaborative commissions. High-performing sales workers often turn out to be less effective or incompetent managers.

In their seminal book, Peter and Hull developed the principle as a satirical critique of the inefficiencies often found in management practices and relied heavily on hypothetical cases. However, emerging evidence supports the principle’s core assertion by showing that promotions focusing on past performance can lead to employees reaching their level of incompetence. As Kelly Shue’s research shows, this practice can be costly for organizations and individuals by promoting managers with inadequate skills or stripping promotion chances from those with excellent managerial skills who fall a bit behind in a cutthroat sales competition.

Not applicable to all promotion scenarios

There has been some criticism of the Peter Principle, arguing that it oversimplifies the complex dynamics of promotions, which are often specific to different contexts. We also acknowledge that the principle does not apply universally to all scenarios. For example, in highly technical roles such as software engineering or computer science, individuals can be promoted to increasingly complex stages within the same discipline for which they were initially hired. In this situation, career growth and promotion based on past performance can enhance workers’ competence through continuous skill development and deepening expertise, rather than leading to a mismatch of skills.

However, the core mechanisms of the Peter Principle are useful and insightful by showing that incompetent managers sometimes emerge not solely due to toxic characteristics or nepotism, but also because of inefficiencies in organizational incentive systems. Moreover, the principle suggests that merit-based incentive systems can be problematic by promoting unprepared or unsuitable people into managerial positions in some cases.

How to address the Peter Principle

Based on research insights on the fundamental roles of HR systems and emerging trends in the private sector, we suggest three ways that can help organizations address and mitigate the seemingly pervasive Peter Principle:

Broaden the aims of promotion: Conceptually, promotions within organizations serve to incentivize and reward employees, and match individuals to roles for future performance. While these two roles are both important, many organizations primarily use promotions as a tool to reward employees.

Recognizing high performers through promotions can motivate employees and boost morale. However, this approach can backfire if the promoted employees do not possess the necessary skills for their new roles. When promotions are based solely on past performance, organizations risk placing employees in positions where they may not thrive.

Thus, the first step to address the Peter Principle is to view promotions broadly as an important matching process to reduce the typical mismatch from overemphasizing a person’s past performance.

Evaluate and develop leadership potential: One of the core mechanisms behind the Peter Principle is the gap between the skills needed in junior technical roles and those newly and additionally required in senior and managerial positions.

To improve the promotion system, especially for significant promotions for team leader or line manager roles, it’s essential to consider a person’s past performance or technical expertise and leadership potential, such as collaboration experience or services to the team.

Organizations can counteract the Peter Principle through comprehensive training programs that equip employees with necessary competencies, such as people management skills, strategic thinking, and emotional intelligence before promoting them to managerial roles.

Separate career tracks: Modern organizational practices increasingly recognize the need for separate career tracks for individual contributors and managers. This approach allows employees to advance and be rewarded within their areas of expertise without being forced into managerial roles for which they might be unprepared. We have met many technical experts thriving in certain sectors and organizations that provide them with opportunities for career growth and development within the same or similar discipline.

The Peter Principle remains a significant challenge for organizations. Understanding and addressing the factors contributing to certain types of incompetent managers can foster a more effective leadership structure and talent development pipeline. After all, we all want our promotions to be more “escalator to continuous growth” and less “one step up to a plateau.”

If you’re a leader, don’t just promote employees to the next level—give them the tools and training they need to thrive at every step of their career. Let’s not turn our best engineers into our worst managers. If you’re an employee stuck at your last promotion for decades, don’t stay complacent. Actively identify the new skills and competencies you need to move to the next level or consider seeking growth opportunities elsewhere.