We've all experienced it: a highly skilled team member excelling in their role and suddenly finding themselves struggling after a promotion to management. This observation is known as the Peter Principle and it isn't a coincidence – it's a result of a systematic issue resulting from how we structure our organizations from a leveling and role perspective.

Understanding the Peter Principle

The Peter Principle, first introduced by Dr. Laurence J. Peter in 1969, states that in organizational hierarchies, employees tend to rise to their "level of incompetence." Simply put, people are promoted based on  performance in their current role rather than their potential to succeed in the new position. The result? Competent professionals become incompetent managers, creating a ripple effect throughout the organization.

Why It Matters Now

We're seeing massive shifts in how organizations are thinking about their structure and design. In recent years we've also seen large organizations move to "flatten" their organization by removing layers of management (also known as "Unbossing"). And with years of operating in the status quo, companies have inadvertently amplified the Peter Principle through several systematic issues:

1. Limited Advancement Steps

Traditional organizational structures often present a binary choice: either hit a ceiling as an individual contributor, or move into management. This limited view of career progression creates a forced funnel toward management positions, regardless of an individual's actual interests or management capabilities. Due to limited roles in management, it can also impact company culture (rewarding the wrong kind of behaviors to those seeking to advance in their career).

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2. Misaligned Promotion Criteria

Many organizations still base promotional decisions on technical excellence rather than leadership potential. A study by professors Alan Benson, Danielle Li, and Kelly Shue analyzing 214 American businesses found that companies consistently promoted high-performing employees into management positions based on their previous role performance, not their managerial potential. (Learn more, listen to "Why are there so many bad bosses" (Freakonomics podcast, episode 495).

3. Cognitive Biases in Promotion Decisions

Our inherent biases lead us to believe that exceptional individual contributors will naturally translate into exceptional managers. This assumption ignores the fundamental difference between doing the work and managing others who do the work.

The Hidden Costs of the Peter Principle

The impact of the Peter Principle extends far beyond individual career trajectories:

• Decreased team productivity
• Lower employee engagement
• Higher turnover rates
• Reduced innovation
• Increased workplace stress
• Lost technical expertise when skilled workers leave their specialist roles

Solving through systemic change

1. Implementing Dual Career Tracks

Organizations need to create parallel advancement paths that allow technical experts to progress without moving into management. This approach recognizes that leadership is not the only path to career growth.

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2. Restructuring Job Levels

A more nuanced approach to job leveling can help organizations better align roles with skills and impact. As highlighted in Pando's framework, effective job leveling should:

• Define clear paths for both individual contributors and managers
• Create multiple levels within each track
• Establish equivalent compensation bands across tracks
• Focus on impact and responsibilities rather than titles

3. Evidence-Based Promotion Practices

Organizations should implement structured assessment processes that evaluate:

• Leadership capabilities
• People management skills
• Strategic thinking
• Communication abilities
• Emotional intelligence

For both individual contributors and managers, performance should be structured and measured based on clearly defined role and level expectations. For managers that means actually assessing them on manager competencies, not the same an individual would be measured against, even if they are the same level of seniority on their respective tracks.

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4. Continuous Development Programs

Rather than throwing employees into management positions unprepared, organizations should: Provide leadership development opportunities before promotion into a manager role. Leveraging a competency-based feedback and evaluation framework can give structure to development programs for employees interested in leadership roles. Organizations can also create trial periods for new managers which give them an easy out back to the individual contributor track. This way you aren't setting them up for failure, and the business can benefit for those that thrive and not cause unneeded suffering or attrition because employees are afraid to say they don't want to stay in management.

Internal mentorship programs can also be hugely helpful for new managers to build up their network of leaders as well as get additional support and guidance from someone who is maybe one or two levels ahead of them, but not so far ahead (i.e an Exec mentoring a first time manager) that their day-to-day is not contextually relevant.

How Tools Can Help

Progressive organizations are adopting new approaches to combat the Peter Principle. Platforms like Pando are revolutionizing how companies approach career progression by:

• Creating transparent leveling frameworks
• Enabling multiple growth paths
• Providing structured feedback mechanisms
• Supporting data-driven promotion decisions
• Facilitating continuous development

The Peter Principle remains a relevant challenge in today's workplace, but it's one we can address through thoughtful organizational design and modern career development approaches. By moving away from traditional hierarchical structures and embracing more flexible, multi-tracked career frameworks, organizations can help ensure that both technical experts and natural leaders end up in their optimal roles.

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