![]() ![]() What is striking, however, is that – among promoted managers – pre-promotion sales performance is actually negatively correlated with managerial quality. This simple fact need not be evidence of the Peter Principle – if the best sales workers also make the best managers, then there is no contradiction between promoting the best worker and the best potential manager. A worker who sells twice as much as a colleague is about 15% more likely to be promoted in that month. This can be seen in the top panel of Figure 1: a worker’s likelihood of promotion steadily increases with higher sales performance in the prior year. Perhaps unsurprisingly, we find that sales performance is highly predictive of promotion. We measure a sale’s manager’s performance as his or her ‘value added’ to improving the sales of his or her subordinates (controlling for other factors such as demand, and a worker’s baseline sales ability).įigure 1 Sales performance and probability of promotionįigure 1 illustrates our main empirical finding. In particular, we measure a sales worker’s performance as the amount of revenue he or she generates for the firm. Second, the sales setting allows us to measure individual performance both as individual contributors and as managers. First, it is a classic setting in which the confidence, charisma, and persistence it takes to be a good salesperson are different from the leadership, strategic planning, and administrative skills it takes to manage sales teams. We study salespeople for two main reasons. Using data on worker- and manager-level performance for almost 40,000 sales workers across 131 firms, we find evidence that firms systematically promote the best salespeople, even though these workers end up becoming worse managers, and even though there are other observable dimensions of sales-worker performance that better predict managerial quality. In our research, we examine the extent to which firms promote workers who excel in their current roles, or whether they promote those who have the greatest managerial potential (Benson et al. ![]() Empirical evidence on the Peter Principle These papers suggest that firms face potentially large productivity losses when they promote workers who lack managerial ability. Similarly, Bloom and Van Reenen (2007) show that variation in management practices can explain much of the overall variation in firm productivity across countries. ![]() ![]() (2015), for example, find substantial variation in the quality of individual bosses, with the best bosses increasing the output of their subordinates by more than 10% relative to the worst bosses. If it is accurate, then the Peter Principle bodes poorly for organisations, in light of a growing body of research documenting the important role that good managers play in building and sustaining productive organisations. It’s no wonder that the Peter Principle is especially well-known in technical fields – from engineering, medicine, and law – where cases of poor managers who were once excellent individual contributors abound. The crux of the Peter Principle is that success in one arena doesn’t necessarily translate to the next, though promotion decisions are often based on a worker’s aptitude in their current position, rather than the one he or she is being promoted to perform. Similarly, if success in movies or real estate translates into success in governing, then the biggest moguls should occupy the highest offices. If the best basketball player makes the best coach, then a coaching position may be the best way to magnify that person’s talents. In principle, there’s nothing wrong with putting successful people into the highest positions. Fifty years later, Peter and Hull may find plenty of examples of people who occupy important managerial positions because of success in some radically different arena. The Peter Principle, they explain, is that organisations promote people who are good at their jobs until they reach their ‘level of incompetence’. In 1969, Laurence Peter and Raymond Hull published The Peter Principle, proposing a farcical theory of organisational dysfunction. ![]()
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