The Peter and Dilbert Principles applied to academe

Abstract

The academic literature has long held that firms typically develop a system of incentives and rules that are meant to encourage employees to maximize their effort, and the firms’ profits. As a result, firms’ employees often rise through the ranks of the hierarchies in their firms through internal promotion, a process that results in the development of an internal labor market. This study explores the process of internal promotion, and its impact on firm behavior, with particular attention to both the Peter Principle and the Dilbert Principle. Both a formal model and a brief application of it to higher education are presented. In the case of the former, data related to U.S. business school deans indicate that more than one-third of all appointments come from internal candidates, with fully 20% of these being made from the rank-and-file professorate, thus supporting the model’s implications concerning the Peter Principle. Additionally, the data also reveal that the tenure of a typical “outside” dean exceeds that of a typical “inside” dean, thus supporting the model’s implications for the Dilbert Principle.

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Notes

  1. 1.

    Cassidy et al. (2016) and Kunze and Miller (2017) add educational attainment and executives’ gender to factors determining promotion such as past effort and performance.

  2. 2.

    In the context of this study, a hierarchy is an organization whose members or, in the case of a company hierarchy, employees are arranged in order of rank, grade or class (Peter and Hull 2011).

  3. 3.

    Gordon (1990) shows that the ratio within the firm’s hierarchy of supervisors to production-workers inputs has decreased from 1960 to 1990 for the major economies in the world.

  4. 4.

    See Goldsmith et al. (1999) for a study of motivation in a human capital model.

  5. 5.

    Competence, in the context of this study, refers to an employee’s ability to fill his or her place in the company hierarchy (Peter and Hull 2011).

  6. 6.

    Peter and Hull (2011) refer to this process of advancement as “hierarchical regression.” In this context, hierarchical regression results in “Peter’s Corollary,” which states that over time every post within a company hierarchy tends to be occupied by an employee who is incompetent to carry out his or her duties (Peter and Hull 2011). Lastly, the level of incompetence referred to here is also known by Peter and Hull (2011) as “Peter’s Plateau.”.

  7. 7.

    To use Adams’ (1996) definition, the Dilbert Principle asserts that “[t]he most ineffective workers will be systematically moved to the place where they can do the least damage—management”.

  8. 8.

    See Baker et al. (1994) for more recent evidence on internal labor markets.

  9. 9.

    See Milgrom (1988) for a discussion of how firms seek to avoid rent-seeking workers by imposing simple rules of promotions, based on seniority and past performance.

  10. 10.

    See Romaine (2014) for an examination of the evidence for problems with merit-based promotions, as well as various explanations that have been advanced for why such problems occur.

  11. 11.

    See Demougin and Siow (1994) for a general model of on-the-job training.

  12. 12.

    Use of this term is consistent with the descriptions in Peter (1969) and Peter and Hull (2011).

  13. 13.

    Use of the term Idiots (and “Idiot Space”) is consistent with the descriptions in Adams (1996).

  14. 14.

    See, for example, Landers et al. (1996) and Kessler (1998).

  15. 15.

    Prendergast (1993) shows that may optimally eschew the use of incentive contracts to retain workers’ incentives for honesty. See Faria (1998) for an analysis of envy in teamwork.

  16. 16.

    As stressed in the previous section, the Competence Frontier is based on the assumption that a pool of candidates is homogeneous (i.e., skills are observable).

  17. 17.

    See Brogaard et al. (2018) and Mixon (2018) for interesting empirical investigations of these concepts.

  18. 18.

    An important point should be made here. One may ask how, if the managers are themselves incompetent, and they exhibit some degree of control over the firm, is the firm able to maximize profits? The answer is that the highest tiers of the company hierarchy, where the major decisions by the firm are made, are insulated from the sorts of problems analyzed in our study. This is due, in large part, to the fact that the organization’s chief executives are typically hired from a national pool of elite candidates rather than internally from the middle ranks of the managerial pool. It would be an interesting exercise to explore the implications of the Peter Principle and Dilbert Principle when the company hierarchy is simpler than what is envisioned using our approach.

  19. 19.

    One can raise the question that what would happen in the model if \(\gamma \in \left[ {a,b} \right]\), where 0 < a < b < 1. That is, if there are further constraints on the amount of skills firms wish to select. The qualitative results of the model are not altered by it.

  20. 20.

    Business organizations, for example, often want long-term growth and teamwork among employees, while they tend to reward on the basis of quarterly earnings and individual effort (Kerr 1975).

  21. 21.

    See also Faria (1998) for additional discussion of how university administrators often employ other faculty in productivity-stifling schemes.

  22. 22.

    Teamwork and cooperation are related to faculty appointment, promotion and tenure policies, which are, in part, shaped by business school deans.

  23. 23.

    For related literature, see Faria (2001, 2002), Bensancenot et al. (2009) and Besancenot and Faria (2010).

  24. 24.

    These data were collected from various news reports by the authors.

  25. 25.

    Among the subsample of institutions hiring deans on more than one occasion, the mean tenure of “outside” deans is 35.2 months, compared to 32.7 months for “inside” deans. Also, the variance in the tenure of “outside” deans in this subsample is much smaller than that for “inside” deans (126 months vs. 189 months) and the left tail of the “outside” deans’ tenure distribution is a bit shorter than that of the “inside” deans’ tenure distribution.

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Acknowledgment

The authors thank two anonymous reviewers, Amihai Glazer, Chris Bajada, Arthur Goldsmith, Silvana Musti, and especially Miguel Leon-Ledesma for helpful comments on prior versions. The usual caveat applies.

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Correspondence to Franklin G. Mixon Jr..

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Faria, J.R., Mixon, F.G. The Peter and Dilbert Principles applied to academe. Econ Gov 21, 115–132 (2020). https://doi.org/10.1007/s10101-020-00235-6

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Keywords

  • Internal labor markets
  • Organizational hierarchy
  • Peter Principle
  • Dilbert Principle
  • University governance