In a Nutshell: The Peter Principle

The Peter Principle is named after Laurence J. Peter, a psychologist and professor of education, who co-authored the 1969 book entitled “The Peter Principle: Why Things Always Go Wrong,” with Raymond Hull.Peter was interested in occupational incompetence, and why it appeared to be so prevalent in society, citing a number of personal experiences in his book. He coined the term “hierarchiology” (the study of organised systems in human society), which led to the formulation of the principle bearing his name.

The Peter Principle is unique among business models because it does not apply to a specific industry or business function, such as HR or L&D, but rather is applicable to every type of environment where organisational structure exists, including in business, politics, government, the armed forces, religious and educational institutions.

Overview:

The Peter Principle states, "In a hierarchically structured administration, people tend to be promoted up to their level of incompetence." Peter suggests that people who excel in a given role will tend to be eventually promoted into a new role that they won’t be suited for, and then remain stuck there because their apparent lack of competence keeps them from being promoted any further.

A common example is when a company’s top salesperson is promoted into sales management, but this move ultimately does more harm than good because the person (although an excellent salesperson) isn’t suited to managing other salespeople, which requires a different skill set.

At some point, an employee will fail to get promoted beyond a certain job because it has become too challenging for them. As Peter explains: “Many of them, to be sure, may win a promotion or two, moving from one level of competence to a higher level of competence. But competence in that new position qualifies them for still another promotion. For each individual, for you, for me, the final promotion is from a level of competence to a level of incompetence. So, given enough time — and assuming the existence of enough ranks in the hierarchy — each employee rises to, and remains at, his level of incompetence.”

Peter also explains that his principle “applies to all employees in all hierarchies.” From this point, though, a natural question arises: Wouldn’t this mean that every hierarchy — every business — is unable to function properly?

Peter has an explanation for this: “You will rarely find, of course, a system in which every employee has reached his level of incompetence. In most instances, something is being done to further the ostensible purposes for which the hierarchy exists. Work is accomplished by those employees who have not yet reached their level of incompetence.”

The major implication of this principle lies in the fact that selection of candidates for positions tends to be based on performance in their current role rather than on the abilities that matter most for superior performance in a higher-up role.

The Peter Principle is often an inevitable consequence of organisational structure, which reserves the greatest rewards and status for positions of leadership, instead of paying people more for their natural strengths and abilities. This theme is explored in the bestselling business book, “First, Break All The Rules” (1999) by Marcus Buckingham and Curt Coffman. These two researchers from Gallup argue that the antidote to the Peter Principle is "broad-banding." Broad-banding is when organisations offer pay scales based on experience and expertise rather than on position status.

Ultimately, analysis of this principle gives management a better understanding of the kinds of subtle structural issues that can be very harmful to the organisation if left unchecked, and then, by examining approaches like broad-banding, develop HR strategies to combat it.

This article offers an expanded description of the summary listed in our post 40 Must-Know HR, OD, L&D Models.