In a recent chat with a former colleague working at a company I used to be part of, the conversation eventually shifted to salary concerns. This person has been with the company for over 20 years but earns a surprisingly low wage. The company’s pay structure is similar to its organizational hierarchy – the higher up you are, the more you earn. While this system may seem logical, it can be unfair to someone outside the organization.

In many organizations, salaries are not tied to years of service but to one's position in the hierarchy. Unfortunately, promotions aren’t always based on merit. Instead, who you know and how much influence you have often plays a bigger role. For instance, if you have connections with a member of parliament or helped someone win an election, they might push for your promotion, even if you don't fully deserve it.

This kind of favoritism is common in many state-owned enterprises. Around election time, we often hear stories of people getting promotions or new jobs thanks to political favors. In civil service, when there’s poor performance, the usual response isn’t to fix the problem but to create new roles and bring in more hires. At higher levels, we often see political appointees filling important positions.

In organizations, not everyone has political clout, but even poor performers can benefit when promotions are given across the board towards an election. Meanwhile, hard-working individuals without influence are left behind.

This situation is closely related to the Peter Principle, a concept discussed in Adam Grant’s ‘Hidden Potential’. The Peter Principle suggests that people are often promoted until they reach a position they can’t handle—advancing based on previous roles until they’re stuck in a job beyond their ability.

I’ve seen this happen in companies I’ve worked for. Task-oriented workers are promoted to management positions where they struggle, while talented individuals who could make great leaders are held back because someone else occupies the spot. Once people reach these positions, they tend to stay, fearing they won’t find similar roles elsewhere or succeed in a new environment.

The Peter Principle highlights the need for smart talent management. Promotions should be based on actual ability, not just tenure, popularity, or connections. When incapable individuals are promoted to leadership roles, they often struggle with key responsibilities like meeting deliverables and bridging the gap between top management and staff. Their inability to effectively communicate the company's vision can lead to confusion, frustration, and a decline in overall efficiency.

 So, how can organizations avoid this pitfall and build strong leaders? Here are a few strategies:

1. Structured Career Paths: Create clear paths for career advancement, outlining the skills and experience needed for each level of promotion.

2.  Appraisals: Regularly assess employees to determine if they’re ready for leadership, focusing not just on technical skills but also leadership potential. Recognize and reward real achievements and skills, not just how long someone’s been in the company.

3. Training and Development: Invest in training programs to help employees develop the skills needed for leadership roles. Provide mentors to guide their growth.

4. Job Rotation: Give employees the chance to work in different roles within the organization to expand their skill set and avoid stagnation.

5. Transparency in Promotions: Clearly communicate the criteria for promotions to ensure fairness and trust within the workforce. Use impartial committees to review promotion candidates, reducing bias and promoting merit-based decisions.

In conclusion, the Peter Principle reminds us of the importance of managing talent carefully. By creating clear career paths, encouraging continuous learning, and promoting based on merit, organizations can avoid promoting individuals beyond their competence. This ensures a strong, capable leadership pipeline, prepared for success in today’s fast-changing world.