In the classic 1969 business book parody The Peter Principle, the Canadian educator Laurence J. Peter took aim at an “ever-present, pestiferous nuisance” found in industries of all sorts: managerial incompetence. The explanation for it, Peter wrote, was his titular principle—that any employee in a hierarchy will rise to the level of his or her own incompetence. (“This Means You!” the book noted cheerily in a subhead.)
Organizations, Peter and his co-author Raymond Hull argued, tend to reward good performance at the rank-and-file level with promotion to management, even when the roles demand utterly different skills. Great teachers don’t necessarily make great principals. Star athletes often flop as team executives. A person good at selling widgets may be hopeless at managing a team of widget salespersons.
The observation about sales organizations is the basis for a new research paper (not yet peer reviewed) from the US National Bureau of Economic Research. Researchers Alan Benson from the Carlson School of Management, Danielle Li of MIT Sloan, and Kelly Shue from the Yale School of Management looked at the career paths of more than 53,000 salespeople at 214 US companies between 2005 and 2011.
They found that the best performers were in fact steered into management at higher rates. A salesperson who closed twice as many deals as the average colleague was about 14% more likely to earn a promotion.
But the better an employee was at sales, the worse he or she was at managing. Sales declined an average of 7.5% on teams led by managers who’d made at least twice as many sales as their colleagues. Meanwhile, the inverse was true: Sales actually thrived under managers who were lackluster in their previous sales roles.
So what’s a firm to do? The authors propose a novel experiment: Identify the traits that good managers have, and promote employees who possess them. For example, salespeople with a track record of teaming up with colleagues on sales were rarely top performers. Yet when such employees were promoted to managers, those collaboration skills paid off. Sales rose 30% under managers who’d made double the joint sales during their time in the field.
Failing to come up with an incentive and promotion structure that both rewards good work and results in good managers is costly, the authors argued. “Firms appear willing to forgo a 30 percent improvement in subordinate performance to achieve better incentives or to avoid costly politicking,” the paper states—evidence that those in charge of promotions may be victims of the Peter Principle themselves.