Promotions and the Peter Principle*
Name
qjz022.pdf
Description
Published version
Size
745.53 KB
Format
Adobe PDF
Checksum (MD5)
a65535449f482543933176b3bc4ea81c
Author(s)
Benson, Alan
Li, Danielle
Shue, Kelly
Date Issued
2019
Journal
Quarterly Journal of Economics
Publisher
Oxford University Press (OUP)
Citation
Benson, Alan, Li, Danielle and Shue, Kelly. 2019. "Promotions and the Peter Principle*." Quarterly Journal of Economics, 134 (4).
Version
Final published version
Abstract
© The Author(s) 2019. 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 their current job? Using microdata on the performance of sales workers at 131 firms, we find evidence consistent with the Peter Principle, which proposes 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. We find that firms manage the costs of the Peter Principle by placing less weight on sales performance in promotion decisions when managerial roles entail greater responsibility and when frontline workers are incentivized by strong pay for performance.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution NonCommercial License 4.0
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1093/QJE/QJZ022
