The Peter Principle: ‘In a hierarchy every employee tends to rise to his level of incompetence.’
It was formulated by Dr. Laurence J. Peter and Raymond Hull in their 1969 book of the same name. It holds that in a hierarchy, members are promoted so long as they work competently.Therefore, sooner or later they are promoted to a position at which they are no longer competent (their ‘level of incompetence’), and there they remain, being unable to earn further promotions.
Peter’s Corollary states that ‘in time, every post tends to be occupied by an employee who is incompetent to carry out their duties’ and adds that ‘work is accomplished by those employees who have not yet reached their level of incompetence.’ Managing upward is the concept of a subordinate finding ways to subtly ‘manage’ superiors in order to limit the damage that they end up doing. The Peter Principle is a special case of a common observation: anything that works will be used in progressively more challenging applications until it fails.
The employee’s incompetence is not necessarily a result of the higher-ranking position being more difficult — simply, that job may be crucially different from the job in which the employee previously excelled, and thus requires different work skills, which the employee may not possess. For example, a factory worker’s excellence in their job can earn them promotion to manager, at which point the skills that earned them their promotion no longer apply directly to their job.
One way that organizations can avoid this effect is by having an ‘up or out’ policy that requires termination of an employee who fails to attain a promotion after a certain amount of time. Even in instances where an employee can handle their current job but fail to do any better, they can still cause harm within the company, by way of preventing those beneath them with higher potential of moving up, as well as lowering morale once such employees become aware of this fact.
The United States Military for instance requires that certain ranks be held for no longer than a set amount of time, a lack of compliance of which could render grounds for dismissal. Another method is to refrain from promoting a worker until they show the skills and work habits needed to succeed at the next higher job. Thus, a worker is not promoted to managing others if they do not already display management abilities.
Another technique for overcoming the effects of the Peter Principle can be found in the use of Contractors (for example in the IT industry). IT contractors are selected for their relevant experience, supported by recent references, and are usually taken on for short periods (up to 6 months at a time, with renewals if competent). If incompetence is detected, they can be easily laid off (e.g. by simply not renewing their contract). The contractor is not a part of the hierarchy, is not usually eligible for promotion, and is well remunerated and thus content with the contracted position.
The Daily Omnivore 
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