The late educational scholar Laurence Peter in 1969 proposed what is known as the Peter Principle: the most-competent and best-performing employees win promotions for good performance until they reach a position in which they are not competent.
Now data in the sales field strongly support the theory: researchers looking at information about 48,000 sales associates and 5,000 managers find that when companies made promotion decisions, they picked people who had performed well in the past, and not necessarily people who would have made the best managers.
University of Minnesota’s Alan Benson, Harvard’s Danielle Li, and Chicago Booth’s Kelly Shue used detailed microdata on sales workers at more than 200 US companies, examining promotion as a function of both sales performance, or the dollar value of sales, and sales collaboration, or the number of salespeople involved in a transaction. They calculated how well newly minted managers did in managing the sales performance of their direct subordinates, assessing how much sales results changed under the new supervisor.
Companies may base promotions on objective sales measurements to give employees an incentive to work harder in the hopes of attaining a promotion. Promotions based upon current job performance also help to avoid any whiff of favoritism, and to preserve norms of fairness in the workplace. But the researchers find that this has a significant cost. The best salespeople did not make the best managers: demonstrated sales skill, as evidenced by managers whose sales doubled before their promotion, corresponded to a 10 percent drop each in the sales performance of new subordinates.