What to do about the over promotion problem
In this post, we’re looking at HR issues, specifically overpromotion—the common mistake of promoting someone beyond their level of competence.
If you prefer to listen than to read the recording of the podcast that formed the basis for this article is available on my Patreon channel via this link
The Peter Principle: Why Good Employees Fail in New Roles
Have you heard of the Peter Principle? Even if you’re unfamiliar with the term, you’ve likely seen it in action. First introduced by Dr. Laurence J. Peter in 1969, this principle states that people are promoted based on their success in their current role until they reach a position where they are no longer competent. In other words, organisations manage careers in a way that ensures people eventually reach their level of incompetence.
Look around any large corporation, and you’ll spot it: the manager who never makes it to director, the director who never becomes a vice president, and the vice president who isn’t quite seen as CEO material.
Intuitively, this principle makes sense. But if companies are filled with leaders who have reached their limits, how do they survive, let alone thrive? Perhaps the reality is that people are promoted to their level of adequate performance rather than outright incompetence. Still, there is plenty of truth in Peter’s observation, particularly when individual contributors move into management roles.
Why Top Performers Struggle as Managers
A Harvard Business Review study tested Peter’s Principle by examining sales managers in 214 firms. Sales is an ideal setting for such a study because performance is easy to measure. The results? The best salespeople were often promoted to management, but the data showed that the better the salesperson, the worse they were at leading a team.
This finding aligns with my own experience. I once debated this issue with a divisional president, arguing that our incentive programme was flawed. The only way sales reps could increase their income was to become district managers—even if they lacked management skills. My president believed the company couldn't afford high-earning sales reps. As he was in charge, his view won the day.
The Dilemma of Promotion
If an employee’s only route to a better standard of living is a management role, it’s no surprise they chase promotions. This leaves their manager with a tough choice:
1. Deny the promotion, leading to frustration and potentially losing a great employee to a competitor.
2. Promote them, knowing they may struggle in the new role and fail.
Either way, you risk losing a high performer. So, what’s the solution?
Preparing for Promotion: A Smarter Approach
Before promoting an employee, have an open discussion about the challenges of management. They will move from a role where they have excelled to one where their success depends on others. Instead of focusing on their own performance, they will need to coach, mentor, and handle administrative tasks.
Unfortunately, many employees won’t hear this warning—they’re focused on the status and financial benefits of management. If you do proceed with the promotion, ensure they receive comprehensive support, just as you would with any new hire. And if things go wrong? You need a plan.
What If the Promotion Was a Mistake?
First, assess your options. In many countries, employment laws make it difficult to fire employees, so consider alternative solutions. When I was working in China, I had an employee nearing retirement who effectively engaged in what we’d now call ‘quiet quitting.’ Since he wasn’t disruptive and still contributed, we decided to let him stay in place rather than terminate him.
Ideally, you should aim to retain the employee and find a role that better suits their skills. This will require cooperation from other managers, so frame the transition positively. Emphasise the employee’s past successes and the value they can still bring to the company.
Once you agree on a new role, act quickly. Delaying the move to keep them in their current position until a replacement is found is selfish—it only prolongs their struggle. And please, avoid the corporate euphemism that ‘X has decided to pursue other opportunities within the organisation.’ Everyone will see through it. Be honest, transparent, and supportive.
Rethinking Compensation: Do We Limit Success?
Before we wrap up, let’s revisit my conversation with the divisional president who resisted high-earning sales reps. Why do companies struggle with the idea of unlimited commissions?
One reason is our belief that earnings reflect value to the company. If a salesperson earns more than their general manager, does that make them more important? I once told my sales team, ‘I don’t care if some of you earn more than me, but I may have a problem if it happens year after year.’ I was wrong. If a commission structure is well-designed and an employee is bringing in exceptional business, we should celebrate their success, not resent it.
If you’re concerned about windfall earnings—where a salesperson benefits from a large deal without much effort—use a windfall provision in your incentive scheme. This ensures fair compensation without limiting performance-based rewards.
Final Thoughts
If you’ve faced a similar challenge in your business, I’d love to hear from you. My offer to help is genuine—if you’d like a 30-minute chat about a problem you’re facing, let’s talk. You have nothing to lose except half an hour of your time. Please use this link to schedule a time:
https://calendly.com/3-continents-consulting/open-discussion-how-can-i-help-you?back=1&month=2025-02
Until next time, I wish you every success in building a business that meets your aspirations. Take care!