Empirical evidence for the Peter Principle (or, why bosses are so incompetent)

Dr. Laurence J. Peter's 1969 "Peter Principle" holds that companies promote high-performing employees to more and more exalted managerial jobs until those employees reach a role that they're incompetent to perform, and thereafter, the employees' negative performance reviews mean that they stop getting promoted, so that, on average, managers are all stuck in jobs they're not very good at.

A trio of business school professors have published a study in the Harvard Business Review that provides empirical evidence that this is basically how things work in corporations. They followed the successes of salespeople before they were promoted to managers for their excellent sales record, then compared it with the performance of the salespeople these new managers were in charge of, before and after the promotion.

The researchers found that "sales performance is negative correlated with performance as a sales manager" and that "when a salesperson is promoted, each higher sales rank is correlated with a 7.5% decline in the performance of each of the manager's subordinates following the promotion."

Moreover, "firms tend to promote top sales workers into management, even though they become the worst managers."

In our data, among people who were actually promoted, better salespeople ended up being worse managers. But if we could observe the managerial potential of all salespeople, and not just those who were promoted, would we still find a negative correlation between sales performance and managerial performance?

Answering this question is difficult because the promoted managers we observed in the data weren't promoted at random. For example, if firms promoted by flipping a coin, then poor salespeople could get promoted because they were lucky, rather than being promoted because their employer observed qualities that overcame their deficiencies as salespeople. Although people aren't getting promoted by coin flips, they are more likely to be promoted if they happen to be in the right place at the right time: using variation in the promotion rates across industry over time to act as our coin flips, we still find that better salespeople tend to be worse managers.

Research: Do People Really Get Promoted to Their Level of Incompetence [Alan Benson, Danielle Li, Kelly Shue/Harvard Business Review]

(via Marginal Revolution)