Working Paper: NBER ID: w24343
Authors: Alan Benson; Danielle Li; Kelly Shue
Abstract: 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 her current job? Using microdata on the performance of sales workers at 214 firms, we find evidence consistent with the “Peter Principle,” which predicts 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.
Keywords: promotions; Peter Principle; managerial performance; sales workers; collaboration experience
JEL Codes: J01; M5; M51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| current job performance (M51) | managerial effectiveness (M54) |
| current sales performance (L25) | promotion likelihood (M51) |
| pre-promotion sales performance (M51) | managerial value added (D46) |
| collaboration experience (O36) | managerial performance (L25) |
| promotion decisions (based on sales performance) (M51) | managerial outcomes (M54) |