Lion of the Blogosphere

The unfortunate end of the Peter Principle

“The Peter Principle” was a book published in 1969 and written by a guy named Laurence Peter. It proposed the theory that corporations have bad management because “people are promoted to their level of incompetence.” The assumption was that people who are best at their current jobs are promoted, but because the higher level job requires a different skillset than the lower level job, they will fail at the higher level job. Or if they succeed, they will be promoted again at which time they will fail for the same reason.

But does this actually make any sense? Performing well at a job means that the worker has both intelligence and conscientiousness. Aren’t these the exact qualities you should want in a manager or an executive? To the extent that there are certain people skills or managerial skills that an otherwise excellent worker doesn’t have, the Peter Principle vastly overstates the importance of that. Probably, using the Peter Principle to promote people, you will be promoting the best person for the job at least 80% of the time, maybe 90% of the time or higher.

Peter-Principle based corporate management also has an important ancillary benefit, which is that if people know they are rewarded for doing a good job by being promoted, this encourages everyone to work harder, and creates a sense of fairness which leads to increased morale.

Unfortunately, this book being the bestseller that it was, the common-sense idea of promoting the people doing the best job was thrown out in favor of the belief that those making promotion decisions can somehow identify managerial qualities and promote people with those qualities instead of the most competent employees. People may rarely use the words “Peter Principle” (after all, the book was sort of supposed to be a joke), but the philosophy of the Peter Principle has invaded corporate America and has become the standard way of thinking. This has led to a severe downward spiral in the quality of corporate management. As less intelligent people who were identified as being more managerial were promoted, the average IQ of management decreased and they became even worse at deciding whom to promote.

Post-Peter-Principle corporate management has given rise to the Gervais Principle, which I previously blogged about. Gervais Principle management incentivizes undesirable employee behavior. When employees realize that the way to get promoted is to project the image of being managerial rather than accomplishing real work, less real work gets accomplished. Either that, or people drop out and stop bothering to be good workers because they realize their good work will never be rewarded with a promotion.

Under the Gervais Principle, the people who rise up the ranks are those who act like sociopaths. In other words, their focus is on politicking rather than on competently doing real work, because it’s the politicking that’s rewarded and in their self-interest (because although higher level management “knows” that it’s “wrong” to promote the most competent junior employees [God forbid], they really have no idea how to accurately assess managerial capability). In addition to people acting like sociopaths, under the Gervais Principle, true sociopaths are more commonly promoted, and these are the worst people you could ever have in positions of power within an organization, because true sociopaths have no conscience and act only for their own benefit without regard to how it harms anyone else.

How do big companies continue to make any profit if their management is populated by politicking sociopaths? The answer is that they have monopoly power and therefore don’t need to be run competently in order to make money.

* * *

Churchill allegedly said that Democracy is the worst form of government except for all the others. The same could be said about the Peter Principle. Promotion of the most competent employees is the worst corporate management policy except for all the others.

Written by Lion of the Blogosphere

May 8, 2015 at 10:08 AM

Posted in Labor Markets

43 Responses

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  1. We are social creatures and good politicking is an important skill in any organization. In other words, you want people who are good at politicking.

    I’ve worked in organizations with people who don’t understand the incredible importance of managing one’s own personality to meet the needs of the organization, this is what politicians do which is why they frustrate people. Successful politicians have to make compromises that won’t make everyone happy and they have to make tough decisions that will make some people incredibly unhappy.

    I believe the Peter Principle to be correct. You need to hire managers who are 1) more intelligent or as intelligent as their subordinates or they won’t be respected; 2) they need to understand the operations of the business as well as anyone else or at least have the capacity to co-opt the people who do (politicking); 3) this sociopath stuff is mostly nonsense, they need to be people with less than average empathy or else they will be pulled this way and that by appeals to ‘fairness’, etc. (guess what among 2,300 people there are 2,300 ideas of what constitutes ‘fair.’ The very, very worst managers are those who follow the current conceits about being a motivator. It might help, but the main thing in most offices full of people who want to determine their own job is to set expectations at the right levels and then make sure they hit those levels. That takes someone who is mostly impervious to whining, crying and excuses. What the Oprah set would call a sociopath.

    Curle

    May 8, 2015 at 10:28 AM

    • You’re confusing mental toughness with sociopathy.

      Sociopathy is the lack of moral conscience. Sociopaths have no genuine love for anyone but themselves, but mentally tough people can have tough love.

      The notion that people with the power to promote others are able to competently assess those qualities which make for good management but are irrelevant for doing lower-level work is misguided. And of course, once the upper ranks are populated with sociopaths (either genuine or those acting as sociopaths because it’s the way to get ahead), then they make promotion decisions which benefit themselves rather than benefit the greater organization.

      • I would say many of the corporate retail businesses that prey on NAMs are in fact using the Gervais Principle to its fullest. Hire NAM managers (blacks are the most sociopathic race) to promote and run a business that targets other sociopaths (the black community). Further, running a business in a black ghetto also means one needs to run their business in a socipathic way. A good example are the emboldened East Asians who do business with ghetto NAMs with their chop suey joints and liquor stores, where their shops reminds you of a prison complex.

        JS

        May 8, 2015 at 2:35 PM

      • The underclass is unwilling to pay for atmosphere, and atmosphere is not something that Chinese restaurant owners understand very well anyway.

      • That’s correct. East Asians lack the warmth and artistic talent of Westerners!

        JS

        May 8, 2015 at 6:51 PM

  2. A very few firms have actual market-monopoly power.
    Most others are merely skilled at rent-seeking, getting government to impose the monopoly power of cronyism.
    And in that endeavour, politicking sociopaths excel.
    NOTE that one does not want TOO much excellence at parasitism. Kill the host too quickly and the virus can’t spread as fast. Even there, the moderating hand of incompetence serves well.

    Robert Arvanitis

    May 8, 2015 at 10:36 AM

    • All profitable firms have monopoly power, otherwise they wouldn’t be profitable.

      • This is not true. Excessively profitable firms have monopoly power but if the return on capital is zero no one will deploy any capital so if a true market would result in zero profit no one would participate. So there has to be a basic level of profit that is required in order to get people to deploy capital and take risk.

        When the profitable return is too high and there are not barriers to entry then new competition will enter and lower the profit margin until it reaches a point where the profit that is there is still worth it for those who are already in the market but is not enticing enough to encourage new competition to deploy capital and compete for that level of return. Different industries have different natural profit levels but there is no industry that would ever have a natural profit level of zero.

        Also as the risk free level of return via interest / bond rates changes this changes the natural profit level as well. If the risk free profit level is higher then people will simply choose that place to deploy capital if the return from industry is not high enough to account for the extra risk.

        I have heard you say this before and while I agree with some of your take on monopoly power I am quite confused on why you would think that a truly free market would result in a zero profit margin. Why would anyone deploy capital and take risk for zero profit or even for a 1 or 2% profit?

        Perhaps you can explain why you think this type of a market would have any players in it at all?

        Apex

        May 8, 2015 at 11:27 AM

      • No.
        I have two chickens, you have two bottles of wine, We trade one-for-one and each have a better dinner.
        That improvement is called profit. (Monopolies seek EXCESS profits.)
        No monopoly, no coercion, just the benefits of trade, market clearing and all the rest.
        Generalize that. One party has natural resources, others have manufacturing equipment, labor forces, marketing systems. EACH is better off trading with the others in the chain. Thus we have an economy.
        Glad to continue offline. Feel free to email.

        Robert Arvanitis

        May 8, 2015 at 11:38 AM

      • There’s a difference between economic profits and accounting profits. Lots of firms only earn accounting profits and have minimal market power.

      • Wow, I’ve not heard PP mentioned in quite a while. I read the book and considered it one of my Secret Weapons. Good one.

        As it applies to a long-dead America, today’s Murka forces evolutionary modifications to such a sociological theory.

        I’ve rectified it thus:
        As Murka descends into greater, True Plutocracy, it’s more a matter of promoting a CRONY to its level of incompetence.

        As Murkan become more dependent on BIGov hiring and work in UncleBEAST’S cubicle factory, the PP is more alive today than ever before.

        BIGov Bureaucracies utilize PP more than ever – it’s just hidden by The BallWasher Media because it’s enamored of Dagon.

        The MINO Machine http://wp.me/p2kmGE-1c4

        Firepower

        May 10, 2015 at 8:49 PM

  3. The chicken/wine example works because money isn’t involved, only use-value. No capitalist would make that exchange, since a chicken and a bottle of wine don’t command equal prices in the marketplace. The transaction in a money world is C-M-C: you sell a commodity and if you get enough for it you can buy the other commodity you want or need. (As Marx points out, with the rise of capitalism C-M-C becomes M-C-M, where you aim to end up with more money than you started with, piling up capital instead of goods you can use.)

    Anthony

    May 8, 2015 at 12:13 PM

    • Anthony – Money is merely a placeholder that facilitates trade. When I want milk for my cereal, I don’t first go looking for a farmer with a cow. But in the end, money is only as good as the deliverable goods.
      THAT’S why in so many places, they burn money; The paper is better than the wood it might buy.
      And THAT is why money creates the “Wimpy” issue – “I’ll gladly pay you Tuesday for a hamburger today.”
      Instead of a trade-facilitator, in politicians’ hand, money becomes a way to cheat the holders.

      By the way, you can get a chicken for $11
      http://www.dartagnan.com/product/variation?gclid=CPWMurjWssUCFQiRHwodcUsAVg&source=detail&pid=FPOBO002-1&dwvar_FPOBO002-1_freshFrozenWeight=Fresh%20%2F%2010-12%20oz%20avg.

      Don’t tell me you can’t find a decent bottle for that!

      Robert Arvanitis

      May 8, 2015 at 1:37 PM

      • The difference in price between an edible chicken and a decent bottle was exactly my point: with money or via barter no modern person would make the trade. One party would feel cheated since in a market economy, wine costs more (and is hence “worth” more) than chicken. If people cared about use-value this wouldn’t be the case, but that’s not how the modern world, the capitalist world, works.

        Anthony

        May 8, 2015 at 2:00 PM

  4. Managerial ability does not always overlap with technical ability, computer programming being a prime example. Managers tend to be more extroverted, high V and lower M and people-centric whereas the opposite is true among many of the best programmers.

    Shawn

    May 8, 2015 at 12:23 PM

    • Aside from heavy aspergery types (not that there’s anything wrong having Aspergers), I think there is a lot of overlap. Extroversion is surely overrated as a good quality for a manager. Intelligence to be a good programmer is the same intelligence needed for good decision making as a manager.

      Yes, I know that there are smart people who have really bad personalities and do the opposite of making people feel good about their jobs, but I think that’s the exeption, and that there’s a positive correlation between IQ and conscientiousness, and knowing of the need to motivate staff and carry that out effectively.

      However, because of the common perception that the smartest employees are bad managers, and because one needs to be promoted to make more money, thus we see no correlation between higher IQ and higher earnings.

      • High IQ types tend to be more aspergerish and weird. This is a fact, and explains why IQ and earnings do not correlate with success in corporate management (or other people-managing organization like the military).

        High IQ does correlate positively with writing books, becoming a full professor, # of patents…things spergs are good at, but do not necessarily correlate with huge income.

        jjbees

        May 8, 2015 at 1:35 PM

      • Godammit, I might have to change my HBD blog commenting handle back to Live-Evil if you keep making these silly mistakes Lion of the Blogosphere.

        There is actually a moderate, linear correlation between IQ and higher earnings throughout the entire range of the IQ spectrum! See here: http://pumpkinperson.com/2014/11/03/iq-and-income/, http://pumpkinperson.com/2014/11/09/hypocrites-who-deny-linear-iq-income-correlation/

        Sociopathy may explain some of the variance in earnings, but it’s total bullshit to say we see no correlation between higher IQ and higher earnings.

        Lion of the Judah-sphere

        May 8, 2015 at 6:31 PM

    • Pumpkinperson has an agenda and ought be questioned. One, s/he is an ideologue on the subject of IQ being net beneficial, rather than the more truthful view that higher IQ is essentially a sophisticated servant caste in-group marker that generates no net productivity increase.

      Two, there are studies that show the opposite. The fact we live in a time where high IQ people have created a kind of social monopoly to boost their earnings does not indicate larger time scale causal links.

      Three, average IQ among the wealthiest is unremarkable historically, and again the current minor spikes are accounted for by the substance of points One and Two, particularly the fact that it’s simply a form of signaling and in-grouping writ large for economic and other forms of gain.

      One

      May 9, 2015 at 12:23 AM

      • Anyone that uses s/he is suspect and has an agenda. There is no convention in English to sub out letters like that within words.

        shiva1008

        May 9, 2015 at 1:50 PM

      • Gentile Whites earn the most, and are the forefront of most trends. Jews come in second, East Asians hardly register, and NAMs are basically off the discussion, in terms of IQ and income relevancy.

        JS

        May 10, 2015 at 1:27 PM

  5. I have to ask a question here. How can the concept of a “Peter principle,” or the notion of competence itself, be relevant in an era in which every position in any organization allegedly requires “excellent communication skills,” but nobody can write, or is even asked to write, and nobody can speak a paragraph without resorting to several “like”(s) and “I mean”(s) and “”you know”(s)?

    marty

    May 8, 2015 at 1:00 PM

  6. I don’t know if just sociopaths that deemed management material, but rather the employees with the social skills and extroversion. An honest hardworker who likes to keep to himself and not say much will not get promoted.

    fakeemail

    May 8, 2015 at 1:01 PM

  7. Almost as famous as the Peter Principle, and from about the same time, was a book titled, “Up The Organization,” whose main recommendation was that companies eliminate their H.R (then called Personnel) deptartments. This may may have been the best business idea that never caught on. I assume the reason must have been the swarm of women into the workforce, H.R. being the easy way to keep women away from the important stuff. When I worked for a lucrative law firm, I was amazed that they delegated the task of deciding which candidates to interview to a non-lawyer H.R. babe. But lawyers are mostly fungible; I’d be interested to know whether more critical hires are done outside of H.R.

    daft

    May 8, 2015 at 1:31 PM

    • HR has the gatekeeper role, which they relish because it makes them feel important. My problem when dealing with HR as a hiring manager was that they would arbitrarily change my job description, not send me good resumes, and send me a bunch of crap resume.

      • I know your pain Lion. I used to work as an IT recruiter. As much as possible I would avoid HR, talk directly to hiring managers. Many companies prohibit headhunters from speaking to managers but I would do it anyway. When I got a good resume in the manager’s hands, the manager would bring HR to heel and get the interview going. If the candidate got hired, sometimes HR would respond with a hollow threat: “This is the first, last and only placement you are making with this company.” I would ignore them. Of course HR would never lift a finger to help me make further placements by sending me job openings, but one is better off working without them. BTW, some HR take bribes from recruiters. I know this as a fact. Some HR steal submitted resumes and pass them to their family/friends who are recruiters. I know this as a fact.

        Daniel

        May 8, 2015 at 11:14 PM

      • HR is mostly made up of women, and I assume most women are even behind IT recruiting, in a field where they hardly have any representation or know-how. This goes to show you, what a sad state of affairs we are in. To let these madames walk over men, and pretend they know more about the job responsibilities is a travesty.

        JS

        May 10, 2015 at 1:32 PM

    • “Human Resources” is an utterly dehumanzing and Orwellian name. It’s nuts that for every job opening, HUNDREDS apply online and do some personality test without ever meeting the manager of the department.

      Employers have WAY too much power over employees today.

      fakeemail

      May 8, 2015 at 3:43 PM

      • Women recruiters have way too much power over men….

        JS

        May 10, 2015 at 1:37 PM

  8. Next time you complain about how bad your manager is, don’t complain about the manager herself. Complain about the Gervais Principle. Stupid Gervais Principle.

    Dave

    May 8, 2015 at 2:19 PM

  9. http://www.forbes.com/sites/jeffbercovici/2011/06/14/why-some-psychopaths-make-great-ceos/

    This post is similar to the thesis of Jon Ronson’s book discussed in this Forbe’s interview. Since you’re interested in this topic you’ve either read it or should. He also claims capitalism rewards psychopathic traits. But even he admits psychopaths only comprise 4% of CEO’s. In other words, psychopathy is greatly exaggerated. Psychopaths are manipulative but they’re not evil geniuses. Most of them are screw-ups who ruin their own life as well as others. A few are clever enough and have enough self control to make it into positions of influence. But most cause so much chaos and resentment they never make it. Psychopaths are nearly always found out and wear out their welcome.

    IMO the reason people think managers and capitalism rewards psychopathy is that people have a psychological bias against those more successful. There is something to it, however, in that business rewards the rational decision rather than the compassionate or “fair” one. This has nothing to do with decision-makers being psychopathic and everything to do with them putting reason above compassion irrespective of their desire to be compassionate.

    Business isn’t a charity and managers have to make tough decisions. No one likes being passed over for promotion or being laid off and most workers on the receiving end will think it unfair. But most managers make the decision because they don’t have a choice. I’ve actually hired people I didn’t like and laid off people I did. It wasn’t because I wanted to. Not making the decision would have cost the company money. People will say putting money ahead of people is psychopathy. But closing a location that can’t be made profitable is common sense not pyschopathy. Psychopathy would be dumping toxic waste in the ground water to save money on disposal fees. A handful of managers may relish manipulating and abusing others. But few actually enjoy the negative impact tough decisions have on employees’ lives. They simply realize it’s necessary.

    destructure

    May 8, 2015 at 3:28 PM

  10. Great post, Lion. I cringe when someone calls himself a great “leader”. Leadership depends on the situation. A great football coach might be a bad biology department chair. A great submarine captain might be a bad governor. To be a good leader who makes good decisions (note that this is different from the ability to get promoted in the company), you have to actually know something about what your organization does. It is usually best to promote the best people from the next rung down, as opposed to bringing in a ringer from the outside. Being able to charm people is not the same as being an effective leader.

    BehindTheLines

    May 8, 2015 at 4:06 PM

  11. i think there are some qualities whihc make a good manager other than IQ and “conscientiousness”, but “people skills” is meaningless and ultimately ideological.

    1. pace machiavelli, it is better to be loved (or admired) than feared.
    2. always work harder than anyone who works for you and be competent.
    3. don’t be an a-hole.
    4. don’t be a whimp.
    5. project more confidence in the business and yourself than you actually have.

    the japanese have solved this promotion problem by promoting based solely by seniority. so why are workers still motivated? peer pressure!

    selecao

    May 8, 2015 at 8:00 PM

  12. I admit, it’s been decades since I read The Peter Principle, but my memory of it”s thesis sounds a bit different than what you describe. As I recall the idea was that managers and supervisors are promoted based on their current performance at their current job, but that many of them eventually are promoted up to positions that they are neither prepared or competent to fill.

    That’s been my observation that is exactly what happens in business. People are competent at certain levels of responsibility,impressing their superiors and earning promotions, but eventually are put in positions that that are just above their abilities. That’s where they stall out. The result is that upper management is incompetent at the positions they are at.

    Mike Street Station

    May 8, 2015 at 8:06 PM

    • Mike Street Station, that was my impression of the book (though I never fully read it)…

      It’s not so much that you get promoted to a job that requires different talents, but rather you get promoted to a job that requires more talent.

      So an IQ 115 might make an excellent grocery bagger, an okay grocery store manager, & a terrible CEO of a grocery store chain, so the natural consequence of getting promoted higher & higher is you’re eventually in over your head.

      Even though I hate educational credentials being used to hire corporate management, they probably lessen the The Peter Principle.

      pumpkinperson

      May 9, 2015 at 3:52 PM

  13. As dull as I thought it would be from reading the title, this post of yours is definitely one of my favorites. Informative and interesting.

    Stealth

    May 8, 2015 at 8:31 PM

    • Not that your writing is dull, of course; I just thought it might be tedious subject matter.

      Stealth

      May 8, 2015 at 8:34 PM

  14. The main problem for CEOs and senior executives is that they don’t know how to delegate or won’t delegate enough.

    That leads to them not having enough time to really focus on what matters to the health of the business.

    This is partially related to the Peter Principle because the reason CEOs can’t or won’t delegate well is because they want to continue doing the kind of work that got them to be CEO because they already know how to do that work.

    The second-biggest problem, at least in my mind, is that senior executives don’t want to follow any logical chain of thought longer than a couple of steps, if that. I.e. they want “conclusions”. OK, great, but if my logic is crap, so is my conclusion. I blame this on the fact that most CEOs are married with families and they want to go home and spend time with them, rather than listen to a thorough explanation of something. I have developed powerpoint presentations for many CEOs and near-CEOs over the past 11 years and the feedback I always get is “your bullet points need to be shorter”, where by “shorter” is meant “don’t show your logic, just your conclusion”.

    Those two criticisms said, one thing I will say about the CEOs I’ve seen in action is that they know their business like the back of their hand. It is really difficult to tell them something they don’t already know or tell them something that makes them see an organizational issue in a new light.

    BS Inc.

    May 8, 2015 at 11:49 PM

  15. This is a good discussion. It struck me that I read the “Peter Principle” some time ago, and it didn’t make sense to me at all. For those who haven’t read it and can’t glean the content from the comments, the “Peter Principle” made the following argument:

    1. Within an organization, the people who are best at their current jobs get promoted.

    2. Being good at your current job is not a predictor at being good at the job higher up on the organizational chart.

    3. Once someone gets promoted into a job they are not good at, they never get fired or removed. They don’t get promoted anymore either. They are just left there.

    Admittedly, I never got past the point #1. I just have never worked in an organization where promotion had anything to do with being good at your current job. This could be because by the time I entered the workforce, the “Peter Principle” had become accepted wisdom, so higher ups in every organization made damn sure that people good at the current jobs were never promoted. If this is true, as LOB quite reasonably points out, then the outcome would be increased incompetence throughout the hierarchy!

    But point #3 is obviously incorrect too, since people get fired/ downsized/ transferred all the time, and if organizations are making a special point to leave incompetent managers in place, there is something else going on that the book didn’t capture.

    Point #2 might be valid, though I think the issue is more that organizations tend to (sometimes deliberately) mis-measure if someone is good at their current job. During the heyday of the German army, of officers depended far more on their education than on their efficiency reports, though that could also have been a recognition that mastering the administrative tasks and internal politics of a peacetime army doesn’t co-relate at all with competence in wartime.

    Ed

    May 10, 2015 at 2:57 PM


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