People Management Skills, Senior Leadership Skills and the Peter Principle

Abstract

Using personnel records from a Japanese management consulting company, we examine what skills of manager affect the performance of the subordinates and manager themselves. Manager skills are measured by detailed upward feedback from subordinates and downward feedback from superiors. We identify two different sets of skills: people management skills (PMS) mainly observed by subordinates and primarily required for the first-line managers, and senior leadership skills (SLS) mainly observed by superiors and more important for senior managers. We find that (1) only PMS observed by subordinates positively predict the subordinate’s performance; (2) PMS of managers do not predict the retention of the subordinates but their SLS such as coordination skills and information gathering skills do; (3) managers’ PMS predict their own performance evaluation but do not predict promotion; (4) managers with higher SLS tend to get promoted. The last two results, which are inconsistent with the Peter Principle, imply that at least for managers, firms may be able to separate promotion’s twin conflicting goals of efficient job assignment and optimal incentive provision.