We have all heard about the “Peter Principle,” which is the principle that “In a hierarchy every employee tends to rise to his or her level of incompetence.”  The principle holds that in a hierarchical organization people are continually promoted until they reach a position at which they are no longer competent (their “level of incompetence”) ...  and there they remain. 

We all see this happen in many organizations.  But how do you manage someone who is "topped out" and how do you compare their level of recognition, compensation, and investment to those who are continuing to move up the ladder?

Consider the following model, which we developed as part of our succession management research.  Rather than think of people as "competent" or "not competent" we think of people as "high-performers" vs "high-potentials."

Fig 1:  High Potential vs. High Performer 

As this model illustrates, a high potential employee is a high performer with the potential to move upward.  A high performing employee is a high performer without the potential to move upward.  Notice the focus on upward. 

What we find is that while many individuals may have “potential,” few have unlimited potential.  (Why do you think that succession plans for the CEO position are always so limited?)  The trick for organizations is to recognize when this competency level has been met. 

Consider a high-potential first line manager.  This person may be on the fast track, but then at some point reach his or her potential when they become a mid-level functional manager.  When this occurs, he/she literally transitions from being a high potential employee to a high performing employee.  They are still considered a a high-level contributor, and can continue to receive accolades, raises, and increases in certain responsibilities.  But their career plans and develpoment plans change. 

Consider a high-performing engineer or sales person who is promoted to management. They were highly competent as individual contributors and were considered to have "management material" - so they were placed on the HIPO ("high potential") track.   But one may find that this high-performing contributor really is not a good manager, and therefore should not be considered a HIPO.  And often we blame them for not "making the transition" to management.

How do we avoid this kind of mistake?  Why are employees frequently promoted into leadership roles for which they are incompetent? 

There are two primary reasons:  
 

1. Lack of a leadership "model."  A company does not have the assessment processes or tools in place to determine someone’s potential.  The organizations has not clearly defined its leadership competency model and the specific skills and knowledge needed to move to this next higher level.  Without such tools, high performers are often considered high-potentials simply because they seem to "know what to do."  As we all know well, leadership skills are far different from functional skills - and warrant a seperate and different approach to assessment.
2. Inability to be honest and create career opportunities for high-performers.  A second common problem is the desire to "motivate" a high-perfomer.  In this case a company believes that it will lose a high performing employee if he or she is not moved upward into a role with greater responsibility.  Here the intentions are good, but the process is likely to fail.  Not all high performers will rise to top management, and organizations must have career paths for high performers who are not necessarily HIPOs.

The irony is that companies will lose high performing employees in either case.  Companies should not confuse high performance with high potential.  The two concepts are different and both are important.  Organizations which focus too heavily on "up or out" are embracing an outdated model - one which only works in an environment of talent surpluses.  Today all organizations must realize that the corporate pyramid is built on a foundation of strong individual contributors and subject matter experts, not only managers and directors.

Three key considerations that companies can address to improve in this area are:
 

1. Develop job profiles - clearly define the responsibilities, skills, and competencies needed for all positions - including clearly defined leadership competencies and responsibilities for higher level positions;
2. Use strongly validated assessment tools - take advantage of the years of research which have gone into understanding what it takes to become a leader.  Many companies, including DDI, Vangent, ProfilesInternational, Lominger, and others, have undertaken years of research to develop proven assessments which help you assess an individual's current capabilities (and gaps) at becoming a higher level leader;
3. Create excellent lateral opportunities for high performers - make sure your organization's career models clearly illustrate the development and career opportunities for professionals at all levels.  People who perform well want to improve their careers, even if they may not be ready for (or interested in) moving up the corporate pyramid.

I encourage organizations to consider this model in every function in your organization if you want to build development, succession, and management processes which drive high levels of performance, engagement, and retention.