One of the conundrums of running a business is who and how you promote from within the ranks of your staff. To be both fair and to incentivise employees, companies often used a metric based approach where they promote their best performers at each level up the organisational hierarchy.
But a new study published on SSRN titled "Promotions and the Peter Principle" says that – in sales organisations at least – promoting the top performers exclusively could result in "firms promoting workers who decrease subordinate performance by 30%."
This is because "the best worker is not always the best candidate for manager," according to authors Alan Benson, Danielle Li, and Kelly Shue. And in the research the authors set out to prove this statement empirically.
Anyone who has worked in business or government for an extended period will be familiar with the Peter Principle, which was articulated by Peter and Hull in 1969. The principal states that, "in a hierarchy, every employee tends to rise to his level of incompetence".
For example, many of us have worked with really good operators who get promoted and have fallen flat as they were unable to transfer the skill of generating sales and revenue to managing people.
But if it's not the best performers getting promoted then who exactly should business leaders promote?
That's the point of the research with Benson, Li, and Shue noting:
"When management requires skills that are different from those required for lower-level work, the best workers may not make the best managers. In these cases, do firms promote someone who excels in her current position or someone who is likely to excel as a manager?
"If firms promote workers based on their current performance, they may end up with worse managers. Yet if firms promote workers based on traits that predict managerial performance, they may pass over higher-performing workers, thereby weakening incentives for workers to perform well in their current roles".
In order to try to find an empirical answer to the question of who should be promoted, the authors modified the Peter Principle from Peter and Hull's original "incompetence" hypothesis to one which defined the Peter Principle as a promotion policy which:
Places positive weight on worker sales performance; and
Places more weight on sales performance than a policy aimed solely at maximising managerial quality
During their empirical tests the findings concluded that "top ranked sales workers are actually worse managers at the margin" and that as a result "firms can improve expected managerial quality by placing less weight on sales".
Naturally, there is a continuum along which employees will sit in terms of sales success and managerial success that follows. But the authors do suggest there is a marker for solid management credentials and potential in a worker's statistics for sales collaboration.
While Benson and his colleagues say the results in this regard are "suggestive rather than conclusive" they highlight that "workers’ collaboration experience — as measured by the number of people they share sales credits with — is an observable characteristic that firms could weight more positively in promotion decisions if their only goal were to improve managerial match quality".
Team players, not lone wolves, the authors say.
This means business leaders are still faced with the trade-off between promoting employees who they know may be worse managers than some of their underperforming peers who have a better skill set for management positions.
There isn't an easy answer and each company is likely to handle this conundrum differently.
The authors suggest the evidence shows companies are making a trade-off between motivating the current workforce – work hard, get promoted – and parachuting employees who are more suited to management, yet are lower performers, in over the top of the high achievers.
In the end, business leaders need to balance the sometimes competing goals of using performance as the sole method of promotion and the reality that this could lead to the promotion of a person who actually diminishes the performance of the team once in a manager role.
Or perhaps, as the study shows, business leaders might take the cultural high road and make collaboration one of the key criteria and in doing so build better teams, maintain strong sales, and promote better managers.
In the end that's likely to get better outcomes for the business and its employees.