How many employees have you promoted because they were excellent performers in their previous position but are now considered incompetent in the position they were promoted to? Many companies are making the mistake of promoting employees based on performance in their current position and/or years of service instead of on whether they are qualified for the position they are being promoted to. As a result, this decision is creating a range of performance management issues, low morale and employee disengagement and is costing businesses thousands of dollars in unproductive hours.

Canadian educational scholar and sociologist, Dr. Laurence J. Peter, in his book titled “The Peter Principle” said that an employee’s inability to fulfill the requirements of a given position that he is promoted to may not be because the employee is generally incompetent, but because the position requires a different skill set than the employee possesses. For example, an employee who is a very good “order taker” may be promoted to a salesman. However, even though the employee is a good “order taker” that does not mean that he would make a good salesman. Similarly, an excellent salesman may be promoted to a sales manager and fail miserably in that position.

The Peter Principle is based on a paradoxical idea that, in organizations where promotions are based on performance and years of service instead of on qualifications and skills, excellent employees will inevitably be promoted to the point where their performance is no longer excellent or even satisfactory. Dr. Peter argued that employees tend to remain in positions for which they are incompetent because ordinarily, only in extreme incompetence are employees terminated.

“Look around you where you work and pick out the people who have reached their level of incompetence,” he wrote. “You will see that in every hierarchy the cream rises until it sours.” According to Rodd Wagner, Forbes contributor, in an article “New Evidence The Peter Principle Is Real – And What To Do About It,” three professors – Alan Benson of the University of Minnesota, Danielle Li of MIT and Kelly Shue of Yale – analyzed the performance of 53,035 sales employees at 214 American companies from 2005 to 2011. During that time 1,531 of those sales representatives were promoted to sales managers. The data show that the best salespeople were more likely to be promoted but also more likely to perform poorly as managers.

Next week we’ll look at what to do about it.