Promotions and the Peter Principle

56 Pages Posted: 21 Feb 2018

See all articles by Alan Benson

Alan Benson

University of Minnesota - Twin Cities - Carlson School of Management; Massachusetts Institute of Technology (MIT)

Danielle Li

Massachusetts Institute of Technology (MIT)

Kelly Shue

Yale School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2018

Abstract

The best worker is not always the best candidate for manager. In these cases, do firms promote the best potential manager or the best worker in her current job? Using microdata on the performance of sales workers at 214 firms, we find evidence consistent with the “Peter Principle,” which predicts that firms prioritize current job performance in promotion decisions at the expense of other observable characteristics that better predict managerial performance. We estimate that the costs of promoting workers with lower managerial potential are high, suggesting either that firms are making inefficient promotion decisions or that the benefits of promotion-based incentives are great enough to justify the costs of managerial mismatch.

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Suggested Citation

Benson, Alan and Li, Danielle and Shue, Kelly, Promotions and the Peter Principle (February 2018). NBER Working Paper No. w24343. Available at SSRN: https://ssrn.com/abstract=3127172

Alan Benson (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

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Massachusetts Institute of Technology (MIT) ( email )

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HOME PAGE: http://web.mit.edu/alanmb/www/index.htm

Danielle Li

Massachusetts Institute of Technology (MIT) ( email )

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Kelly Shue

Yale School of Management ( email )

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National Bureau of Economic Research (NBER) ( email )

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