Economist Mike Walden: The Peter Principle in Real Life

I’m Mary Walden with economist MW welcoming you to the economic perspective.  Today’s program looks at the Peter Principle in real life.  Mike, the Peter Principle was a theory of management developed fifty years ago.  It says that individuals who are the best at their job – say as a salesperson – are often promoted to managerial positions, at which they promptly fail.   Is there evidence the Peter Principle actually exists, and if so, why do businesses keep using it.

  1. In essence, Peter Principle says if you’re good at one job, you won’t necessarily be good a another
  2. So, you may be a good salesperson, but that doesn’t mean you’re be a good manager of sales people
  3. Still, a new study shows businesses still promote based on the ideas skills are transferable, and a large percentage still find they’ve made a mistake
  4. Why do business keep doing it – because it sometimes works
  5. But also, they use as an incentive – for example, to motivate sales people – if do really well – will be promoted to manager with higher pay