The Peter Principle suggests that all employees manage to rise to the level of their incompetence; that is to say, everybody is promoted until their skills and strengths no longer align with their current position. A great programmer isn’t necessarily an equally brilliant manager; a midlevel manager doesn’t always make a fantastic C-level executive.
While the Peter Principle is often treated as a truism, a recent Gallup study—the result of four decades’ worth of research, involving 2.5 million manager-led teams—suggests that it holds a significant degree of real-world truth (registration required).
“Gallup has found that only 10 percent of working people possess the talent to be a great manager,” the study mentions in its introduction. “Companies use outdated notions of succession to put people in these roles.”
According to the study, great managers motivate employees; create a culture of accountability; assert themselves in a way that allows the team to overcome obstacles; build relationships based on trust; and make unbiased decisions with the good of the company and team in mind. Companies that hire managers with actual management talent see a 48 percent increase in profitability and a 22 percent increase in productivity, according to Gallup’s data, with a 19 percent decrease in turnover.
But in Gallup’s estimation, there are so many bad managers out there that one out of every two employees have “left their job to get away,” according to the study. “Managers who are not engaged or who are actively disengaged cost the U.S. economy $319 billion to $398 billion annually.”
How can mediocre managers become better? In a word, openness: Those employees polled by Gallup indicated that they preferred managers who helped set work priorities, and made an effort to remain approachable. For companies, the advice is equally straightforward: Grow managers, rather than promoting people into roles that they’re not necessarily equipped to handle.
“High-performing employees are vital to an organization’s performance, which the organization should compensate accordingly,” the study added. “Organizations back themselves into a corner when they tie pay to managerial status, creating an environment in which employees constantly compete for roles that don’t suit them.”
Of course, non-managers with very specific skill sets have enjoyed rising salaries of late, in large part due to the falling unemployment rate in the tech sector. But for many organizations, chucking out the old ways of promotion and compensation would represent a Herculean task, and it’s questionable how many of them would even consider it.