“Promotions and other Peter Principle” by Kelly Shue
Monday, 13 March 2017 | 2:30pm - 4:00pm
University of Chicago Booth School of Business
University of Minnesota Carlson School of Management
Harvard Business School
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 214 firms, we find evidence consistent with the Peter Principle: when making promotion decisions, firms prioritize current job performance at the expense of other observable characteristics that better predict managerial performance. We estimate that the costs of managerial mismatch are substantial, suggesting that firms make inefficient promotion decisions or that the incentive benefits of emphasizing current performance is also high.