In this post, I’ll talk about a management theory known as the “Peter Principle” and give you a definition for it.

After you learn what Peter Principle is, you’ll also learn why working at big companies suck, almost by definition.

Peter Principle Definition

The Peter Principle just states that people will be promoted because they’re competent at what they do. And they’ll keep getting promoted until they reach a position where they are no longer competent.

Then they’ll just be stuck there for the rest of their careers.

Why Working At Big Companies Suck

According to the definition of the Peter Principle, someone who’s stayed at a big company for a long time will be incompetent. They’ll be promoted to a position that’s simply too difficult or different for them to do a good job in.

You see this a lot when individual contributors get promoted to managerial roles. The skills of a manager vs. the skills of a contributor is simply orthogonal.

My manager is a great example of someone who’s been promoted one too many times. Everyone hates him and he’s got the lowest approval rating of any manager I’ve ever seen. I’ve asked him if a turnover of more than 100% is common from his experience. And his answer is “yes, it is very common.”

It’s a trick question, of course. People quit because they hate their manager. And lots of people quit. Ergo, our manager sucks from empirical data.  The fact that he’s oblivious to how much he actually sucks means his incompetence is beyond repair.

It seems like my manager used to be an individual contributor. I say this because he’d try to have technical conversations, but would be completely clueless on roughly how long something would take. He’s say things like “it’s just <insert shallow understanding of something complex here>, right? So why does it take so long?” And when you explain things to him, he simply forgets. He also provides no clear feedback on ways to improve, except that I should find deficiencies I need to improve upon. By definition, I have no deficiencies but I can’t be promoted because I’m not finding enough things to prevent myself from promoting, according to my manger.

He probably used to be a competent contributor (hence promotion to manager). But it’s been so long since he’s been “at it” that he’s no longer competent on the technical side of things. Nor is he a competent manager to begin with (zero people skills). So he just sucks at everything now.

Anyway, I digress – my manger is just one of many examples. At the big company I work at, there are quite a few antiques that’s been at the company for way too long. All of them are incompetent—much more incompetent than a lot of new hires.

And here we arrive at why Peter Principle means that big companies suck. Big companies simply won’t fire bad people. Thus, you’ll have all these incompetent people promoted to high positions, and they make everyone’s lives miserable. The good people will just leave after a short time, and the incompetent stay as they can’t change jobs (or they learn to game the system).

What eventually unfolds is that every large company just ends up with a lot of stupid people in power, exerting influence on non-stupid people (i.e. an incompetent manager will coerce a subordinate to do things the wrong way and waste everyone’s time). This in effect causes everyone to be stupid and incompetent. And work sucks when everyone’s stupid and incompetent.

Peter Principle Means “Loyal Employees” Are Probably Incompetent

One can also conjecture that a long-term tenure at a large company implies incompetence because they aren’t able to get another job. As we all know there’s no such thing as ‘corporate loyalty’ – the rational move is to switch jobs every so often. Ergo, someone who’s staying at a big company for a long time either:

1. Is irrational, or
2. They really like their company for some reason (see #1), or
3. They’re not competent enough to land another position, or
4. They’re so incompetent they think everyone’s competent (despite the reverse being true due to Peter Principle).

Conversely, you’d have a better chance working with a competent employee if they’re a new hire. This is because:

1. They’re rational. And
2. They like or hate their company. Doesn’t matter. They want more money and so will switch jobs when possible (see #1). And
3. They have at least some threshold competence to pass an interview, and
4. They probably have some dissatisfaction at their old company because everyone’s incompetent.

So at your next job interview, maybe you should research how long people have worked at the company. If most of the team gives you the reaction that it’s “too long” or “wow, I’m not even that many years old” – then it’s probably a bad team to join.

It’s like reverse-survivorship bias. Only the weakest employees stay. The competent ones have no interest in staying and have left for greener pastures.

You can do this research indirectly through LinkedIn, or simply ask your interviewer. Most “lifers” are proud to announce how long they’ve worked at the company (and implicitly admit how incompetent they are).

Big Companies vs. Small Companies

Keep in mind these rules apply mostly at bigger companies. Start-ups fire people all the time. And a lot of ‘cutthroat’ companies let go of incompetent employees constantly.

This constant churn means that only the competent survive. This is a good thing, but may be too cut-throat for incompetent employees.

Basically, there’s a tradeoff between big/small companies: would you work in a miserable environment but have job security, or would you rather work in a place with very smart people but could actually get fired?

Different people have different risk profiles and they’ll settle for different answers. There’s no right or wrong answers here.

Just know that if you settle for the “job security” route, you’ll end up incompetent. And the catch-22 for you is if the market changes enough so that you actually do get fired, it’ll be close to impossible for you to ever land a new job.

And if you choose the “enjoyable work” route, you might end up competent but it’s not a guarantee. The kicker here for you here is that you might actually get fired if you’re not super competent. Being fired from a previous job might make it quite hard for you to land another job. And the catch-22 for you here is that if you do a great job at a start-up, great! It’ll be profitable and eventually grow into a big company. And once it becomes a big company (due to your competent contributions), it’ll turn into a sucky place to work due to the Peter Principle.

Wrapping Up The Peter Principle

The Peter Principle definition states that people get promoted until they reach a point of incompetence. This implies that at large companies – where people are never fired – the incompetent people stay and command very senior positions, making the job miserable for everyone.

So you have 2 choices:

1. Stay at a company “for life” and become incompetent yourself, and stay permanently stuck working at a miserable environment.
2. Forever switch companies so you keep yourself on your toes and remain competent – at the expense of seeming like a job hopper and/or not having good job security.

Neither of these are pleasant. The former seems Sisyphean. The latter seems like you’re just purposelessly wandering through your career.

My suggestion? Just do something you love as a side hobby and monetize it. When you successfully monetize it to a certain point, quit your job.

Here, you’ll be able to have your own venture where 1) you control your own team as to minimize Peter Principle at your company, and 2) do something you actually enjoy.

If having agency over your own money and your own life is interesting to you, go ahead and read my “misc tactics” section for ideas / inspiration on what side hustle / hobby you can start that might eventually eclipse your W-2 income.