You’ve probably heard of the “Peter principle”: that employees get promoted until they reach a job they are no longer good at. And in political philosophy, there is a famous dispute between (the camps of) John Rawls and Jerry Cohen about the appropriateness of people in a just society being motivated by money. Last week, reading around about why on earth we organize work life the way we do, I had a eureka moment about how these two are connected.
The Rawls-Cohen debate is about whether within the institutional framework of a just society, it is justified to use monetary incentives – and the ensuing inequalities – in labor markets (and one can add, for the sake of argument, motivation by status, which is usually intertwined with money, even though Carens had famously argued they could, theoretically, be separated). This allows for an efficient labor market allocation that can ultimately benefit the worst-off members of society, some in camp Rawls would say. It is incompatible with an ethos of justice to require a high wage for making a societally useful contribution, Cohen and others would reply (and those are, of course, not the only arguments in this debate).
Well, one argument that speaks in favor of camp Cohen is that motivation by money and status may not always be so efficient, and may have dysfunctional side effects. In 2019, Alan Benson, Danielle Li, and Kelly Shue published a study (previous free version here) about the Peter principle. Based on a huge data set of sales workers, they show that companies do indeed promote people to management roles who are good in their job as sales people, but not necessarily good managers. So far, so good, you might think – great to have a rigorous empirical confirmation of something we knew all along.
But Benson et al.’s discussion goes further. They also explore the possibility that companies are not making a mistake in promoting these people. What if, instead, companies do this because it is more important to use the carrot of promotion as a tool for incentivizing salespeople, than ending up with worse managers? In other words, while the Peter principle as such focuses on the harm done by the wrong people being promoted, this paper (following some earlier literature in economics) considers that promotions have at least two roles. They serve to select people into management positions, and they set incentives for people who want to be selected into management positions to work harder. And these two roles can pull into different directions. For if you promote people on the basis of their fit for the managerial role (say, their skills as team players), you might not send an optimal signal to those working in non-managerial roles about doing their best in their current role (say, by maximizing their volume of sales).*
What you end up, if this reasoning is correct, is an uneasy compromise between using promotions as selection tools, and using them as incentive instruments. And it is a compromise that comes at the cost of managerial quality. By simulating a counterfactual promotion in policy in which companies did not use promotions as incentives, Benson et al. come to a striking conclusion (p. 2090): “the costs of not promoting the best potential managers may be high: firms value the incentive benefits of promoting based on demonstrated job performance enough to sacrifice managerial quality by up to 30%.” Note, moreover, that “managerial quality” is here measured exclusively in financial terms – the psychological damage to the people who have to work under bad managers, and maybe even the psychological suffering of those who are bad managers and know it, are not included.
In other words, if one did not need to use promotions as incentives, one could have massively better outcomes: one could promote those to managerial roles who are actually suited for these jobs, not those who excelled most (or worked hardest) in their previous role (we might also have teams elect their leaders, but that’s another discussion). So if we lived in a Cohen-world, where people would be motivated to work hard by an ethos of justice, we could attenuate the problems caused by the Peter principle.
You might think that it’s a bit of stretch to go from a study of salespeople (!) to the possibility of non-financial work motivation. Cohen’s core example is that of a person who needs to choose between working as a surgeon, producing high value to society, and working as a gardener, which they like much better, but which is less valuable in terms of contribution. While surgeons and gardeners are both easy examples in terms of social contribution, I don’t know whether salespeople would even exist in the just society that Cohen imagines.
But what kinds of jobs should indeed exist in a just society, and to what extent is it justifiable to incentive people by money, and for what reason? If a job carries high wages, that can have different effects: it can attract more people to that line of work, and it can motivate those who want such a job to work harder (whether people continue to work hard once promoted is another question). But as the Peter principle shows, it can then also lead to misallocation of workers into management jobs, reducing overall value production. And financial motivation can, arguably, also lead to a hollowing out of other forms of work motivation – to the best of my knowledge, psychological research provides a lot of evidence that other motivations are more crucial for good work (see this overview book, for example) and that motivation crowding out is real. Moreover, in many jobs, measuring achievement precisely is very difficult, and leads to distorting incentives and “tyranny of metrics” problems (that’s one of the reasons for why Benson et al. studied salespeople, where measurement is more straightforward than in most jobs).
But of course, criticizing financial incentives doesn’t answer the question of what could be a better strategy for motivating people to move into socially necessary jobs and to do good work. Two candidates that one sees in many historical examples of less monetarized societies – pyhsical force and social pressure – have often had far worse results. Cohen’s ideal of voluntary contribution is beautiful, but I am unsure whether it can work for “bad work”: work that offers few opportunities for personal fulfilment or social recognition, and puts high burdens on people’s physical and psychological well-being. One might want to proposal radical changes here, such as redistributing such work across all members of society. But short of that, better pay for such work seems an urgent requirement of justice (and Cohen can agree with that insofar as such jobs come with “special burdens”). It would not only be more just towards those doing that work (not because they are positively motivated, but because they lack alternatives), but also create incentives for employers to reduce such work (which would be more expensive for them to hire) to what’s really necessary, or to try to improve it through a different organization of work.
When thinking about better alternatives, however, we need a fair basis of comparison. Therefore, we need to be aware of the costs – in financial terms, let alone in psychological terms – that the reliance on financial incentives for work motivation has. The Peter Principle is probably just one of many problems to consider.
* Benson et al. also discuss a number of other side constraints, e.g. the difficulties of incentivizing people simply by paying out bonuses, which can clash with inequity aversion, or the question of which criteria for promotion can be measured easily and which can create perceptions of nepotism, etc.
{ 22 comments }
Matt 09.15.25 at 10:28 am
I’m skeptical that this really matches up with the dispute between Cohen and Rawls very well. After all, we may well want to incentivise people to work harder with more money even if we do not offer them “promotions” into management. (Also note that even if people are eventually promoted into roles they are not suited for, they may well have been promoted several times before that in situations where doing hard work, for some sense of hard work, is required. Think of, say, the publication requirements for advancing up the academic rank scale even if one doesn’t go into management.) And, we may want to pay people with more responsibility more even if we don’t use “hard work” at lower levels as a way to distinguish that. But the sort of cases Cohen had in mind (or at least actually talked about) seem different – about choice of careers, investment in education and training, ant the like. That, again, doesn’t seem to match up that well with this particular issue. So, while I think there are some pretty interesting issues in the area, I don’t think they actually match up well with the Cohen/Rawls dispute.
Tm 09.15.25 at 12:03 pm
The motivation to seek a leadership position isn’t just money, it’s also power. Even the relatively tiny power of a middle manager. And we all know that the people seeking power are often precisely the ones least fit to be in a position of power. Most people don’t seek and are not interested in a position of power. The pool of people available to fill these positions is dominated by the wrong kind of people. Add to that that power corrupts even decent people.
I’m not sure whether this is related to the Peters principle or is a separate phenomenon but in my experience, middle managers are often woefully incompetent at their jobs and it’s not because they were good salespeople who got promoted to the wrong position, it’s because they cherish exerting power over others and in many cases are temeramentally unfit to exert to that power. In politics this is so obvious it hardly bears pointing out. And it’s pretty obvious that it’s really the power, not the money, that primarily motivates the power hungry. So as long as there are hierarchies of power, it’s unlikely that taking away money as a motivator is likely to change this dynamic (besides, it’s probably not feasible because who decides how money gets districuted? The powerful obviously).
engels 09.15.25 at 1:06 pm
Thanks for the Wikipedia link, which diffused my curiosity about the notoriously incompetent Peter who inspired this idea.
Peter Dorman 09.15.25 at 3:56 pm
I see three dimensions to this question, the role of monetary incentives in generating inequality, the efficiency consequences of relying on monetary incentives vs other motives, and (unmentioned) the consequences, personal and social, of using extrinsic motivation (mostly monetary but also status rewards etc.) to the exclusion of intrinsic ones. A lot has been written about all of these. The OP is about the relationship between the first and second.
All are important, but for me the third is really crucial, since it holds the key, more or less, to the other two, since you can’t reduce the role of one motive without increasing the other. It’s a central theme of a book I’m writing, which will also consider the first two, but in less detail. It’s not exactly a spoiler, but what I see as the main contribution of what I’m doing is to elevate the extrinsic-intrinsic tradeoff to the level of economic institutions themselves and not just the individuals within them and their management. My value added, whatever it is, is not philosophical but economic — how to make the thing work.
Chris Bertram 09.15.25 at 6:27 pm
Important to note that Cohen rejected the idea that justice requires incentives but he didn’t reject the use of incentives all things being equal since he was willing to trade off justice and efficiency if that were necessary. He used to quote Bukharin (no idea whether this is in RJE) who said to the Kulaks during NEP, “enrich yourselves!” but did not take himself to be enunciating a principle of justice (or socialism) in doing so, but rather took himself to be promoting what was needed for economic development at that point. According to Cohen, a person who has internalized the ethos of justice does not need extra pay to work for the good, but if we live in a world where people have not internalized the ethos (or only partly) we may very well need to pay them more, but we should not kid ourselves that we are thereby doing what justice requires .
Kenny Easwaran 09.15.25 at 6:56 pm
This is really interesting! It also raises questions to me about many other kinds of practices where structural features of work get used as incentives, rather than for the direct effects of the structures. Lots of seniority-based systems (whether in management or in union contracts) seem to me to have this feature, where giving people certain benefits for seniority is done to incentivize or reward long service, rather than being targeted to the individuals who would make use of the specific benefits.
engels 09.15.25 at 9:27 pm
If the main purpose of elevating people to senior management is to motivate the minions does it have to correspond to ability at anything? Perhaps a system of largely random awards would achieve that best, especially if they could be duped into believing they were somehow legimate…
The nub of the Rawls-Cohen contretemps: one was a utopian and the other was a moralist.
Gar Lipow 09.15.25 at 10:00 pm
In terms of incentives effect on efficiency, you need consider the social psychology theory of “overjustification,” which is well known, but controversial. The idea is that if you have something taking place due to intrinsic motivations, and add external rewards to it, that this can reduce intrinsic motivation and end up with people only doing it for the rewards. The conclusion often come to, if you accept the theory, is that – in terms of efficiency – the best system is a balanced one where on the one hand not every good deed gets rewarded, but there are enough rewards f or good behavior that virtue is not merely left to be its own reward. There are numerous studies on this; some support the idea; some contradict it; some are mixed showing it to be valid in some cirumstances and not others. At any rate, if talking about incentives in the context of efficiency-justice tradeoffs, I would pay attention to counterjustification theory even if you end up rejecting it.
GG 09.16.25 at 12:59 am
One of the observations I came away with from RJE is that Cohen gives short shrift to personal fulfillment. IIRC he mentions “personal prerogative” as a limit to the demands of justice, but for the life of me I was never able to find a place where he defined what he meant by that. Absent some sort of permission to live at least part of my life for myself I’m not entirely sure I’d want to live in an _RJE_conformant society.
Thomas P 09.16.25 at 1:45 pm
The easy solution is to have parallel promotion ladders: managers and specialists. There is no law that says a manager has to have higher salary or prestige than the people he manages.
As I grew older I’ve also come to believe in a generalized version of Peter´s principle: that humanity has advanced to its own incompetence level.
Lisa Herzog 09.16.25 at 4:04 pm
Hi all, thanks for the comments, just a few notes. The match with the Cohen – Rawls debate is only partial, to be sure. The allocative and the motivational function of monetary incentives are not the same. And yes, to be promoted is not only about money, but also about power and status and recognition. This raises the interesting question of how the Rawls – Cohen debate would play out if one took these all into account. From a perspective of justice, would it make a difference if people were motivated by status and power, not money? The argument Chris makes – that Cohen admitted that incentives might sometimes be needed, but are not what justice requires – would probably apply in such cases as well.
One point that I should have included in the post is that Benson et al. also briefly mention why promotions, instead of simply bonuses, get used (if that is what is happens) to motivate employees. Paying people at the same functional level differential wages can lead to problems because of inequity aversion. It might be easier to do in jobs such as sales where there is a clear measure of success, but even then, it might lead to problems. That might be a reason for why companies would rely on promotions instead of just bonuses.
I’ll look into overjustification theory, I hadn’t heard of this, thanks.
And three cheers to the point that managers need not have higher salaries or prestige than others – it should be understood as just one function among others that are needed to get cooperation going (and I see it as functionally subordinated to the tasks that the actual workers do). But that’s not how corporate governance works in practice, unfortunately…
Stephen 09.16.25 at 7:05 pm
ThomasP@10: “There is no law that says a manager has to have higher salary or prestige than the people he manages”.
But if he doesn’t have these (and a larger and better-furnished office, more assistants, more generous travel allowance, power to summon underlings to meaningless meetings, and so forth) how on earth can he be expected to make the people he manages do what he wants, even if they know it’s mistaken? And isn’t the essence of management reducing the amount spent on those below you?
Alex SL 09.16.25 at 10:21 pm
If the Peter Principle is a real thing, and if people can only be motivated with financial reward, offering bonuses (boni?) is the obvious solution. I also doubt they would have to be so huge as to cause significant inequality; somebody having a nicer car or house isn’t the problem, somebody being able to buy up four houses (or becoming a billionaire) is.
Although I can believe that the Peter Principle does sometimes apply, it is certainly only one minor parameter among many. In larger organisations today the stronger factor will be specialisation: managers above the lowest ranks are rarely recruited from technical staff in the first place but from an entirely distinct pool of career managers who have no understanding of what the technical work looks like and make decisions accordingly. That combines with no career repercussions in our society for upper managers (or CEOs, or high-level politicians, or powerful opinion shapers and editorial writers) who make bad decisions or are generally always wrong about everything, while technical staff do face repercussions for failing at their technical tasks.
Tm 09.17.25 at 7:15 am
Alex 13: “managers above the lowest ranks are rarely recruited from technical staff in the first place but from an entirely distinct pool of career managers who have no understanding of what the technical work looks like and make decisions accordingly.”
Exactly, this is also my experience. I don’t think I have ever seen the Peters principle as explained here in play. Most specialist employees are not interested in becoming managers so the promise of promotion doesn’t work as motivation. Consider Academia, which most here are familiar with. It’s not usually the case that the most productive researchers are eager to become administrators, or is it?
“Benson et al. also briefly mention why promotions, instead of simply bonuses, get used (if that is what is happens) to motivate employees.”
From the point of view of business logic, there’s another problem with this. What if (almost) everybody does a very good job, do you promote all of them? And how often can you play this game? Do you constantly create new (higher paid) management positions? (In Academia, this sometimes seems to happen, but I doubt it raises the motivation of professors).
I understand the element of competition is part of the game, but if say only every 10th employee gets rewarded (promoted) for good work, the others are not going to be more motivated – they are likely less motivated after not getting rewarded despite good work. The whole premise seems dubious to me without even starting to discuss its justice.
Matt 09.17.25 at 11:34 am
I think that there’s another dynamic that often happens, especially in situations where it’s hard to simply get rid of someone: a person is “promoted” as a way to get rid of them. This seems to me to be especially common in places where a promotion will take a person away from the place they are now. I have seen in in grocery stores, where a promotion is to another store, and in universities (among administrators) where a promotion is to another department or school. The current place doesn’t like the person, but it’s difficult to simply get rid of them. (Sometimes this is for legal reasons, sometimes for psychological or practical ones. Even in the US it’s not that common to simply fire someone who has worked somewhere for a while unless they really screw up badly, unless there are “up or out” points built in.) In those cases, the current employer will often be happy to slough off the person to another position, which will often be a promotion. Of course, at that spot they may well have gone to merely bad to fully incompetent. Nothing about monetary incentives is needed here, and anything that takes away from encouraging hard work may even make it worse.
CJColucci 09.18.25 at 6:51 pm
As I near retirement, I look back at the people who were good at their line jobs (same as mine) and went into administration. I never had any taste for, and probably lack the talent for, administration. Whether because of my lack of apparent interest in becoming a section chief, or deputy bureau chief, or whatever, or because of my natural assholery, I have never been offered the chance to abandon something I’m good at for something I’m probably not good at. As for whether the youngsters who went into administration are any good, and whether it matters, I’ve seen very little difference in results when we’ve had good managers or bad ones. “I didn’t know we had a king. What do we need a king for?”
engels 09.18.25 at 9:37 pm
there’s another dynamic that often happens… a person is “promoted” as a way to get rid of them
I think this fits together with David Graeber’s observation that the more a job is paid, the less useful it is.
John Q 09.19.25 at 12:51 am
One important feature here is the assumption that managers should have better pay and conditions than those they manage (including the pyschosocial benefits and costs of power). If not, the concept of “promotion” would be just about meaningless.
Moz of Yarramulla 09.19.25 at 2:57 am
10: The easy solution is to have parallel promotion ladders: managers and specialists.
This ties in with other comments about who wants to become a manager and how much you’d have to pay the ones that don’t to compensate them for the promotion. Common in STEM. This is partly circular, neurodivergent folk see STEM as a safe place so STEM is full of ND folk.
One solution I’ve seen is to promote people who are reasonably good with people and not especially good at STEM. They tend to combine management skills with a lingering appreciation for technical difficulty.
Lots of STEM folk go for ‘enough money’, especially if the price for more is being forced into management. Others very much work for money, then retire. Or work for other reasons (as Urthboy says “if it’s about money why do millionaires work?”)
Moz of Yarramulla 09.19.25 at 3:10 am
Having (or being) a ‘generic manager’ can be very useful, provided it’s all about people skills and understanding how business works. If it’s just about dealing with other generic managers it’s a bullshit job (that’s a technical term now!). But the company needs senior technical understanding from somewhere, whether that’s a “C?O” (Chief Technical/Legal/Production Officer etc), or a rotating ‘management liaison officer’, or the German worker representatives on the board idea.
The autistic community have the notion of “double empathy problem” which often applies to management when talking to anyone with specialised skills. Often framed as “anything I don’t understand is easy”.
There’s also an inverse of the intangible rewards, or alternatively ‘not having a breakdown’ is an intangible reward. I know a couple of trans folk who passed for years to get enough money to retire, it’s not just an ND thing. Money can be less of a reward than a promise that with enough of it the beatings will stop.
Power does that too, once you’re a Professor at Cambridge you can start using Lego as a teaching tool and just glare at anyone who asks stupid questions until they go away (Hi Tim!)
engels 09.19.25 at 10:16 am
if it’s about money why do millionaires work?
More money.
Glen Tomkins 09.25.25 at 2:24 pm
Look, you want incompetent people as managers.
Your organization doesn’t lose anything by their incompetence, because workers doing any work that actually requires humans to do well can’t be directed. It’s like trying to herd cats. Neither people nor cats are cattle.
Your organization gains a lot by promoting people who do good work to become these useless managers. The incompetent attempts by some manager to herd you is a tremendous motivation to do good work so that you can escape their reign of error.
This is admittedly a bit far afield, but I never had the slightest motivation to become President of the United States until Reagan was given that position. That wasn’t sufficient motivation to get me to actually do anything to the end of replacing him, though, especially since a reasonably unambitious nonentity soon followed him in office. Incompetent management is not much of a spur to step up and replace with someone such as myself who could clearly do a better job, if only the incompetents currently in place don’t do much to bother you. So, we had unambitious poseurs for a while, and I was lulled into passivity. Then it was Dubya, who sadly had grand plans to reorder the world, and that rekindled a bit of motivation, to the point that I became an active Democrat. But he too was replaced by an unambitious nonentity, so back to 100% private life. With Trump in the job, well, they have finally found a manager who combines maximum ambition with utter incompetence. A lot of people are now motivated to replace him.
You might be tempted to criticize my thesis on the grounds that this practical example I present proves that my system for getting competent people into the presidency doesn’t work, because look where it got us. Well, that’s 100% down to failure of US political culture to follow the rules. We didn’t promote people to the presidency based on their competence at doing any sort of useful work.
Comments on this entry are closed.