# Delightfully cynical half-truths about organizations

Marton Trencseni - Sat 12 February 2022 - Management

## Introduction

The author is in a (mid-level) leadership position.

## Peter principle

Wikipedia: As long as a worker is good at their job, they will keep getting promoted, until they reach the first "level" where they're incompetent. Here they get stuck, and are no longer promoted. The corollary is that all higher level jobs in an organization is occupied by people who are incompetent at their jobs.

## Dilbert principle

Wikipedia: Companies tend to systematically promote incompetent employees to management to get them out of the workflow.

## Gervais principle

Ribbonfarm: Organizations are made up of Losers at the bottom, Clueless in the middle and Sociopaths (eg. CEOs and other CxOs) at the top. Sociopaths, to keep things running, promote over-performing Losers into middle-management, and to protect their own job, groom under-performing Losers into Sociopaths. The Clueless are the ones who lack the competence to circulate freely through the job market (unlike Sociopaths and Losers), and have long tenures at the organization.

## Negative selection

Wikipedia: The person on the top of the hierarchy, wishing to remain in power forever, chooses his associates with the prime criterion of incompetence – they must not be competent enough to remove him from power. Since subordinates often mimic their leader, these associates do the same with those below them in the hierarchy, and the hierarchy becomes progressively filled over time with more and more incompetent people.

## Dunning-Kruger effect

Wikipedia: The cognitive bias whereby people with low ability at a task overestimate their ability. Some researchers also include in their definition the opposite effect for high performers, their tendency to underestimate their skills.

## Conclusion

The first four posit different mechanisms (promotion based on true merit, organizational-defensive promotion and self-defensive promotion) that result in incompetent people getting promoted to leadership position. The last one, the Dunning-Kruger effect, says that if promotion decisions are based on people's demeanor and self-promotion then less qualified will be promoted. These are half-truths, but there is some truth in them. What do high-performance organizations do to avoid such problems?

• At a high-level, all these problems (apart from the Dunning-Kruger effect) have their roots in misaligned incentives. The employee's (whether management or individual contributor) and the organization's long-term interests are not aligned. A good tool for such alignment is stock options. However there are very few organizations that are on a growth curve where this influences employees to do the right thing at scale. For this to work, the majority of employees have to believe that doing "the right thing" will cause their (current) stock to rise more versus the benefits (higher salary, more stock) they can hope to get when doing "the wrong thing". Also see Tragedy of the Commons.
• Another root cause is poor hiring. This is especially tricky when the organization is hiring for a role that is not within the core competency of the organization, such as when a non-tech company hires for technical roles, or when a tech startup hires for finance or sales roles. There are various ways around this, such as getting recommendations from investors, but in general this is not a solved problem in industry, even though this is a very costly mistake. If an incompetent manager is hired, then this person will build an incompetent organization. Once this happens, it takes years to solve rebuild, and this can even bring down the entire company before it's resolved.
• Avoiding the Peter principle: instead of promoting to level $L+1$ when the person does a good job at level $L$, promote when the person already demonstrated competence at the $L+1$ level for some time. There are companies who do this, eg. Facebook did this in 2016-17 when I worked there. However, I found this unacceptable HR policy, because asking me to overperform at the next level for 18 months without compensation just to get promoted isn't fair. And this assumes that the employee's manager does not change, since usually a new manager will often not credit past performance. Another alternative is to promote based on performing at the $L$ level, but then demote if not performing at the $L+1$ level, and have a culture that accepts this and doesn't see it as major personal failure. This is also hard to accomplish at scale, since many people just aren't like this personally, won't accept demotion, and will just start looking for a new job. The industry solution seems to be just that: (i) promotions based on performance at the $L$ level, (ii) people leave their jobs for another $L+1$ level job if they don't perform at the $L+1$ level, (iii) but if they really are incompetent at this level, they will bounce around jobs and eventually slide down to lower tier companies.
• Avoiding the Dilbert principle: some companies employ up-or-out management, so either get promoted or get managed out. At other companies it's not understood that promotion always happens every X years (on either IC or Management track). This is fundamentally a people management problem, people managers need to set realistic expectations: if the person's performance isn't good enough for promotion then promotion should not be used as a carrot-on-a-stick.
• Negative selection: the best counter-measure is to try to align the management's long-term incentive with the company's.
• Dunning-Kruger effect: organizations can avoid this by deploying tools such as OKRs with SMART outcomes across the organization hiararchy. This increases the probability that employees will be judged based on the objective outcomes they deliver, instead of their ability to market and promote themselves.