How It Works: The Peter Principle

The Peter Principle is a concept in management theory in which the selection of a candidate for a position is based on their performance in their current role rather than on their abilities relevant to the intended role.

The authors (Laurence Peter and Raymond Hull) suggest that people will tend to be promoted until they reach their "level of incompetence".

The Peter Principle is a special case of a ubiquitous observation: anything that works will be used in progressively more challenging applications until it fails.

In an organizational structure, the assessment of the potential of an employee for a promotion is often based on their performance in their current job which results eventually in their being promoted to their highest level of competence and potentially then to a role in which they are not competent, referred to as their "level of incompetence". The employee has no chance of further promotion, thus reaching his or her career's ceiling in an organization.

Peter suggests that "in time, every post tends to be occupied by an employee who is incompetent to carry out its duties" and that "work is accomplished by those employees who have not yet reached their level of incompetence."

He also notes that their incompetence may be a result of the skills required being different rather than more difficult. For example, an excellent engineer may find that they make a poor manager due to limited interpersonal skills which a manager requires to lead a team effectively.

Rather than seeking to promote a talented “super-competent” junior employee, Peter suggests that an incompetent manager may set them up to fail or dismiss them because they will likely "violate the first commandment of hierarchical life with incompetent leadership - namely that the hierarchy must be preserved".

Alessandro Pluchino, Andrea Rapisarda and Cesare Garofalo use an agent-based modelling approach to simulate the promotion of employees in a system where the Peter Principle is assumed to be true. They found that the best way to improve efficiency in an enterprise is to promote people randomly, or to shortlist the best and the worst performer in a given group, from which the person to be promoted is then selected randomly. For this work, they won the 2010 Nobel Prize in management science.