Abstract

The Peter Principle states that employees tend to be promoted until they reach their level of incompetence. In a sophisticated simulation study, Pluchino et al confirmed a version of the principle. However, they also noted that their model has the counterintuitive consequence that “the best ways for improving the efficiency of a given organization are either to promote each time an agent at random or to promote randomly the best and the worst members”. We argue that what promotion rule is used can in general influence employee productivity. Accommodating this psychological aspect of promotion is noted as an open problem by Pluchino et al. Using an amended simulation model we verify that if the incentive induced by promoting the best is strong enough, then that strategy will be optimal. In a final simulation experiment we consider the effect on the efficiency of an organization of using “double standard” promotion strategies, i.e., strategies that depend on the official promotion rule being different from the de facto promotion rule. We show that double standard promotion strategies can be highly efficient, although we also note that in using such strategies the employer may take an unacceptable medium to long term risk.