The Peter Principle and Poor Promotion Decisions

Introduction

Strategic HR management ensures that organisations achieve long-term benefits such as the core competence and positive business returns from their human resources. Strategic HR management is crucial for strategic planning and long-term goals of an organisation. This enables the HR to identify employees’ skills that can ensure an organisation achieves its strategic goals (Wright and McMahan, 1992). Strategic HR management goes beyond employee recruitment. It also ensures that an organisation utilises its human resources effectively for competitive advantage (Wright and McMahan, 1992). This implies that strategic HR management strives to eliminate cases of incompetence among the workforce.

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Effective implementation of strategic HR management policy eliminates poor promotion decisions. This eliminates cases of Peter Principle in an organisation and enhances productivity as employees rely on their core expertise for performance within their levels of competence. This essay looks at strategic HR roles that can eliminate poor promotion decisions and avoid cases of Peter Principle.

Factors that might explain poor promotion decisions and the extent to which these factors support the argument behind the Peter Principle

Promotion is advancement to a higher job position usually resulting in increased benefits and responsibilities. Promotion comes along with abilities to make concrete decisions to steer the organisation for growth (Heathfield, 2012). In the past, employers based promotions on factors such as performance, nepotism, gender, age or seniority, and favouritism among others (Berger, Claus and Sliwka, 2011). However, these trends have changed with periods as some of them were not acceptable as they also accounted for most cases of poor promotion.

Consequently, most organisations have turned to job performance as a basis for promotion. According to Peter, promotions have resulted into Peter Principle. When we look at job promotion in terms of performance, merit, success, and achievement, then the idea of Peter Principle applies to most current executives’ performances. The Peter Principle states “employees tend to rise to their level of incompetence” (Lazear, 2001). In other words, promotions can lead an employee to a level beyond his or her ability and cannot deliver competently.

Promotion changes the authority and relationships of an employee in reporting lines. Most employees consider promotion a desirable move due to its consequences on factors such as authority, pay, responsibility, status, and decision-making abilities that influence the entire organisation. Promotion has been a form of formal recognition of employees’ efforts and contributions to the organisation. However, HR specialist, Susan Heathfield notes that repeated promotions may result into dilemma due to the authority and management roles of the position (Heathfield, 2012).

Heathfield argues that employers should offer alternative career paths for workers who have demonstrated recognisable contribution and deserve promotion, but do not wish to take management roles. However, promotion also remains a challenge to prospective employees as they must demonstrate the willingness to take such responsibilities. Heathfield’s observation also shows the idea of Peter Principle through dilemma due to authority and roles.

Mathis and Jackson looked at the role of promotions and transfers in an organisation (Mathis and Jackson, 2011). In efforts to encourage better promotions, Mathis and Jackson noted that organisations like Microsoft, Dow Chemicals, Verizon Communication, and IBM have established systems that encourage their employees to learn about “current and future career needs and opportunities” (Mathis and Jackson, 2011). This could be a reaction to Peter Principle.

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They observed that these approaches can significantly reduce cases of employee turnover, promote employees’ talent and skills, and enhance productivity. However, such promotions and transfers have their weaknesses. For example, an employee’s performance at his or her current job may not be the best indicator and predictor of performance at managerial levels. This is because such levels require new skills and competence. This is a reflection of Peter Principle in modern organisations (Mathis and Jackson, 2011).

Berger, Herbertz, and Sliwka studied the effect of poor promotion habits such as nepotism, favouritism, and incentives. They noted that most firms asked superiors to rate their juniors for promotion. However, they concluded that such processes were subjective and prone to favouritism (Berger, Claus and Sliwka, 2011). Consequently, an organisation may end up with wrong people for managerial positions. Such poor decisions in promoting employees are responsible for incompetence among most executives leading to Peter Principle.

Ross Reck in “Have American Business Executives Lost Their Compass?” questions some decisions executives make during tough times (Reck, 2009). He notes that most executives do not take initiatives to change the current state of affairs, particularly during the past recession. Reck observes that such actions prolong hardship situations like recession. He notes that it is “as if American business executives have lost their compass” (Reck, 2009).

We can relate inactivity and loss of compass among American executives to Peter Principle. It is like most American executives found themselves in positions of authority they lack knowledge and skills to manage. According to Reck, executives ought to demonstrate their leadership during such times by turning to their employees whose behaviour they can control. In the same case, Reck looks at Chrysler and GM leadership failures. According to Reck, Wall Street Journal made this observation more than 40 years ago.

In 2009, Reck reflected and saw this as the truth as both companies head bankruptcy in an article, Chrysler and GM: A Classic Case of Top Management Failure” (Reck, 2009). He noted that it was easy for Japanese automakers to take over the US market. Reck points to leadership failures as follows “senior executives running the American auto companies were completely and totally out of touch with the basics of making and selling cars; they lacked hands-on knowledge and experience in dealing with front line employees, customers, suppliers and technologies” (Reck, 2009). This happened because Japanese executives had the knowledge and skills in areas where American executives lacked the same.

Matthew Budman observes incompetence among employees and notes that we can define such characters by their mistakes (Budman, 2006). Budman notes that such employees lack skills and knowledge needed to perform certain functions. According to Lazear, Peter Principle reflects behaviours of employees, and he does not blame the management (Lazear, 2001). Lazear notes that some employees engage in cunning habits in order to achieve promotions. This is due to a set goal of what promotions come with such as pay rise, executive office, and status.

Such employees spend their time working tirelessly in order to achieve recognition and get rewards in terms of promotion. Lazear notes that once such employees achieve their goals, they take a break and relax from intense acts of productivity. We can align this observation to expectancy theory in employees. According to this theory, consequences are likely to influence employees’ behaviours and choices (Beardwell, Holden and Claydon, 2004). We may argue that employees have expectations that there are outcomes that shall occur due to their actions resulting into value to them (promotion). Thus, once such employees achieve their desired statuses, they relax and break from productivity as Lezear suggests leading to Peter Principle.

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According to Lazear, promotion acts as a trigger for reduced productivity because the employee’s productivity before the promotion was artificial. Lazear argues that such employees may not be incompetent, but their actions to reduce their productivity after promotion result into poor performances. In this regard, we should turn to Peter Principle advice for solution, i.e., “rewarding ordinary competence and watching feats that come too easily” (Sutton, 2009).

The role of HR strategies in managing the risk of poor promotion decisions within the organization

Strategic HR strategies start from effective human resources recruitment, selection, placement, training, retention, promotion, demotion, and dismissal of human resources. These attempts aim at avoiding poor decisions in utilising employees’ skills for achieving goals of an organisation and in essence avoid Peter Principle. The process involves selecting employees who have necessary skills, abilities, education, and training. However, in cases of internal applicants, most organisations tend to review seniority and job performance of applicants (Mathis and Jackson, 2011). This could be one instance that leads to Peter Principle among executives.

Most organisations view promotion as a way of enhancing organisational values and employees’ career growth through internal available opportunities. Consequently, the role of HR is crucial in formulating policies that can eliminate cases of poor decision-making during promotion. Such policies should eliminate incompetence and ensure that only qualified candidates take positions that require responsibilities, skills, and knowledge. At the same time, policy should provide fair and equal opportunities to all applicants (Mathis and Jackson, 2011).

The purpose of promotional policy is to ensure that executives reward exceptional performances. It also enhances retention and satisfaction among staff. Screening stages of applicants may involve looking for qualification, performance records, and excellence in the current level (Mathis and Jackson, 2011). However, most firms’ promotional policies do not account for prospective employees’ preparedness for the new position thus, resulting into Peter Principle.

IBM has created means of eliminating Peter Principle in promotion. For instance, IBM has established procedures that can help employees learn about their current roles and future positions and opportunities within the company. These methods ensure that employees gain skills, knowledge, talent, and experience necessary for future promotion (Mathis and Jackson, 2011).

In 1991, IBM demoted George Conrades from “the position of General Manager to a position with limited resources” (Carroll, 1992). Conrades was once a sharp marketing strategist for IBM who turned the company’s effort in the Asian markets. However, IBM experienced financial difficulties in 1991 leading to his demotion. According to Peter Principle, the act of demoting Conrades was the best approach. The company perceived that demotion would take him to “the most appropriate level of work competence” (Clark, 2011).

HR strategies should also include pay increase without promotion of employees. In most cases, employees would go for promotion due to high pay. Thus, any company that provides high pay for excellence performance of employees within their current roles can prevent the effect of Peter Principle. This approach ensures that employees work at the level of their competence thus, increase their productivity and motivation. IBM provides attractive salaries to its employees, but this does not translate to promotion (Hoffstein, 2004). This was the case of Jeffrey Allen Miller until the company laid him off.

The case of Virginia Rometty at IBM during early stages of her career is not the HR strategy, but rather an employee’s decision. IBM offered Rometty a position she was never ready to handle. As a result, she turned down the offer (Miller, 2011). This is an act of avoiding incompetence at a leadership position. In this case, Rometty was aware of her capabilities. However, we must not assume how such offers tempt, but it is the responsibility of an employee to consider challenges and responsibilities that come with executive positions. This is an act of Peter’s Parry (Clark, 2011).

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According to Budman, the initial stage of avoiding poor promotion involves changing the hierarchy of an organisation. Changing the hierarchy involves changing the reward system, separating rewards from promotions, and dealing with cases of rising individuals who have reached their peaks and can no longer be productive (Budman, 2006).

IBM has also laid off some of its employees based on performance. This is an act of eliminating redundancy and chances of poor decisions during promotion. In 2003, the company announced its plans to drop its workforce that no longer had the skill set IBM needed. This is a strategy most companies normally rely on as “a cost-cutting measure or to remain competitive and profitable in a dynamic business environment through competence employees” (Hoffstein, 2004).

IBM also manages employee’s performances for strategic objectives. Performance management involves identification of strategic goals of an organisation (Mathis and Jackson, 2011). The main outcome of performance management concerns employees’ retention, pay increase, incentive and rewards, promotion, career planning, training and development and disciplinary actions. Organisations like IBM want workers who perform their jobs well and help in achieving the company’s objectives.

This is a high-level of productivity that must involve managers’ guidance. Performance management has remained crucial in relation to promotions and rewards among employees (Mathis and Jackson, 2011). IBM believes that a well-designed performance management system is useful for enhancing organisational and employees’ performance. The company may dismiss employees who fail to meet the set performance standards. This is an approach IBM uses to promote and retain the right workforce for various positions and reduce situations of incompetence among managers.

IBM reviews qualities of its applicants against positions. The issue is to evaluate whether qualifications of recruits are suitable for available job openings. Thus, IBM must review issues such as abilities to meet job requirements, possibilities of job performance after hire, and failure rates among others. These methods help IBM post employees at levels that match their competence and avoid Peter Principle (Noe, Hollenbeck, Gerhart and Wright, 2012).

HR also relies on appraisal for administrative purposes. Three main uses of appraisal affect both the employer and employee significantly. IBM uses appraisal results to determine pay adjustments, job placement decisions that involve promotions, transfers, or demotions (Becker, Ulrich and Huselid, 2001). Appraisal results also affect decisions like disciplinary actions including termination. IBM has used performance appraisal as a method of avoiding poor promotion decisions and provisions of extra responsibilities to employees.

Peter Principle is still relevant in modern organisations. As a result, it influences major aspects related to employee recruitment, selection, placement, retention, and promotion. A number of modern organisations have demonstrated the relevancy of the principle, particularly during recession. Most executives could not make tough decisions that come with leadership responsibilities. As a result, most executives lost their jobs.

Organisations have realised the relevance and effects of poor decision-making strategies on promotions. Consequently, HR departments have developed strategies through policies that guide recruitment, selection, placement, retention and promotion of employees. In relation to Peter Principle, proponents would argue that such approaches aim at avoiding Peter Principle in an organisation.

References

Beardwell, I., Holden, L. and Claydon, T. (2004). Human Resource Management: A Contemporary Approach (4th ed.). London: Pearson Education Limited.

Becker, B., Ulrich, D. and Huselid, M. (2001). The HR Scorecard: Linking People, Strategy, and Performance. Boston: Harvard Business School.

Berger, J., Herbertz, C. and Sliwka, D. (2011). Managerial Incentives and Favoritism in Promotion Decisions: Theory and Field Evidence. Bonn, Germany: IZA: Institute for the Study Labor.

Budman, M. (2006). Can We Turn Back The Rising Tide of Incompetence? The Conference Board Review, 2006 , 41-48.

Carroll, P. (1992). Conrades of IBM, demoted last fall, says he’ll retire. The Wall Street Journal Western Edition, 0193-2241, 1-3.

Clark, J. (2011). How the Peter Principle Works. Web.

Heathfield, S. M. (2012). Promotion Is Often a Reward to an Employee for Work Contributions. Web.

Hoffstein, A. (2004). IBM Layoffs, Executive Reviews. Web.

Lazear, E. (2001). The Peter Principle: A Theory of Decline. Journal of Political Economy, 2001, 1-4.

Mathis, L. and Jackson, H. (2011). Human Resource Management (13th ed.). Mason, OH: South-Western Cengage Learning.

Miller, C. C. (2011). Promotion of woman to top job reveals IBM’s diversity. New York Times, 11, 1-2.

Noe, R., Hollenbeck, J., Gerhart, B. and Wright, P. (2012). Human resource management: Gaining a competitive advantage (8th ed.). Boston: McGraw-Hill.

Reck, R. (2009). Changing the Status Quo in the World of Business. Web.

Sutton, R. I. (2009). The Peter Principle Lives. Bloomberg Business Week, 1, 1-2.

Wright, P. and McMahan, G. (1992). Theoretical Perspectives for Strategic Human Resource Management. Journal of Management, 18(2), 295 – 320.

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StudyCorgi. (2020, November 15). The Peter Principle and Poor Promotion Decisions. Retrieved from https://studycorgi.com/the-peter-principle-and-poor-promotion-decisions/

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StudyCorgi. 2020. "The Peter Principle and Poor Promotion Decisions." November 15, 2020. https://studycorgi.com/the-peter-principle-and-poor-promotion-decisions/.

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StudyCorgi. (2020) 'The Peter Principle and Poor Promotion Decisions'. 15 November.

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