# What Is the Peter Principle?

> **Definition**
>
> The Peter Principle states that the higher an employee advances in the hierarchy ladder, the more likely they are to reach a level of incompetence and fail in their new position.

## What Is the Peter Principle?

The Peter Principle theorizes that employees in most organizational [hierarchies](https://www.investopedia.com/terms/c/corporate-hierarchy.asp) automatically rise through promotion to higher positions. However, competent [employees](https://www.investopedia.com/articles/personal-finance/081015/8-reasons-why-valued-employees-quit.asp) will be promoted, but will ultimately assume positions for which they are incompetent.

According to the Peter Principle, competence is rewarded with [promotion](https://www.investopedia.com/terms/p/promotion.asp) because competence, in the form of employee output, is noticeable, and recognized. However, once an employee reaches a position in which they are incompetent, they are no longer evaluated based on their output

### Key Takeaways

*   The Peter Principle observes that employees rise through a firm's hierarchy through promotion until they reach incompetence.
*   According to the Peter Principle, promoted employees may not have the skills required for their new position.
*   To solve the problem posed by the Peter Principle, companies must provide adequate skill training for employees who receive a promotion.

![The Peter Principle](https://www.investopedia.com/thmb/sPYK9-SlcNde-cBB6q7CzIHfBtE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/peter-principle.asp-final-556adb51ee7f45098cbd12bb1ce4f44e.png)

*The theory was proposed by Dr. Laurence J. Peter in 1968. — Investopedia / NoNo Flores*

## History

Canadian educational scholar and sociologist, Dr. Laurence J. Peter, defined the theory in his 1968 book "The Peter Principle". He surmised that an employee's inability to fulfill the requirements of a position they are promoted to may not be general incompetence, but is because the position requires different [skills](https://www.investopedia.com/career-advice-4689809) than those the employee possesses. For example, an employee who competently completes assembly tasks may be promoted to management without proving to be a good manager first.

Dr. Peter revised the adage "The cream rises to the top" by stating "The cream rises until it sours." In other words, excellent employee performance is inevitably promoted to the point where the employee's performance is no longer satisfactory. He also argued that employees tend to remain in positions in which they are incompetent because mere incompetence is rarely sufficient to cause the employee to be fired.

## Productivity and Morale

When newly-promoted managers are not well-suited to their roles, they may be less able to provide effective management and direction to their employees. This can also lead to high rates of error or defects if their new responsibilities are associated with quality control.

These problems can trickle down to other employees, who will make more mistakes under poor management. Lower-level workers may continue to be promoted, resulting in several layers of managers who lack the skills or training for their jobs. This can also damage employee morale, since remaining employees may resent their poor management.  

## How Companies Avoid the Peter Principle

*   Provide adequate skills training for employees before and after receiving a promotion
*   Ensure training is appropriate for the position to which employees have been promoted.
*   Assess the job skills of all candidates, especially for internal promotions. Many valuable skill sets do not transfer well to higher positions. For example, a skilled engineer may not have the skill set to be a successful manager.

> **Important**
>
> Tom Schuller coined the phrase "the Paula Principle," theorizing that women tend to work in positions below their level of competence due to gender discrimination, lack of professional networks, and balancing work and home responsibilities.

## Example

In 2018, [economists](https://www.investopedia.com/terms/e/economist.asp) Alan Benson, Danielle Li, and Kelly Shue analyzed sales workers' performance and promotion practices at 214 American businesses to test the Peter principle. They found that companies promoted employees to management positions based on their performance in previous positions, rather than on managerial potential.

Consistent with the Peter principle, the researchers found that high-performing sales employees were more likely to be promoted and that they were also more likely to perform poorly as managers, leading to considerable costs to the businesses.

## What Is the Corollary to the Peter Principle?

Peter's Corollary is an extension of the Peter Principle. It states that in time, every position within an organization will be filled with someone incompetent to fulfill the duties of their role. This may result in compounded mismanagement and poor leadership.

## What Is the Dilbert Principle?

The Peter Principle is the inverse of the Dilbert Principle, an idea coined by the cartoonist Scott Adams for the comic strip _Dilbert_. This rule states that companies tend to promote their least-competent employees to management roles where they are least likely to interfere with production. Both rules explain the presence of incompetent people in management positions but use different explanations.

## What Government Agency Monitors a Company's Employment Practices?

The [U.S. Equal Employment Opportunity Commission (EEOC)](https://www.investopedia.com/terms/e/equal-employment-opportunity-commission-eeoc.asp) enforces federal laws that define workplace discrimination, hiring, firing, promotions, harassment, training, wages, and benefits.

## The Bottom Line

The Peter Principle is a theory that explains why many companies have seemingly ineffective management staff. It states that rather than promoting people to the roles they are best suited for, companies tend to reward successful employees with roles for which they are not qualified. This can sometimes result in poor management, ineffective leadership, decreased productivity, and low employee morale.

> **Article Sources**
>
> 1.  Laurence J. Peter, via KeinDing.com. "[The Peter Principle](https://keinding.com/onewebmedia/The%20Peter%20Principle%20%28%20PDFDrive%20%29.pdf)." William Morrow & Co., 2020
>     
> 2.  Laurence J. Peter, via KeinDing.com. "[The Peter Principle](https://keinding.com/onewebmedia/The%20Peter%20Principle%20%28%20PDFDrive%20%29.pdf)." William Morrow & Co., 2020, Page 35.
>     
> 3.  The Paula Principle. "[About](http://www.paulaprinciple.com/about/)."
>     
> 4.  Quarterly Journal of Economics. "[Promotions and the Peter Principle](https://academic.oup.com/qje/article/134/4/2085/5550760)."
>     
> 5.  U.S. Equal Employment Opportunity Commission. "[Overview](https://www.eeoc.gov/overview)."