Fit Happens: The Executive Search Podcast

Jason Baumgarten 00:00
I'm Jason Baumgarten and you're listening to Fit Happens, the podcast where top leaders, investors and board directors share the stories, surprises and hard earned lessons behind finding the right fit. Let's get into it.
Jason Baumgarten 00:17
Let me tell you about the best salesperson you've ever met. She's a machine. She outsells everybody on the floor, everybody in the district. She's the name on the leaderboard. Every single quarter.
Jason Baumgarten 00:30
The CEO tends to call her out in all hands and the company does the most natural thing in the world. It's what we would all do. We reward her and make her a manager. And 12 to 18 months later, the best salesperson you've ever met is kind of miserable. She's struggling.
Jason Baumgarten 00:47
Her old territory's gone pretty dark. Her team is underperforming and somehow the company manages to lose twice. They took their best individual contributor off the floor and they put a weak manager over a team. In one promotion, they've managed to rack up two losses. And here's the part we should worry about.
Jason Baumgarten 01:08
We do this on purpose, with our best intentions. It follows a rule that every organization tends to live by and we'll dig into it. I'm Jason Baumgarten and this is Fit Happens, the show about why talented people fail in the wrong roles and thrive when put in the right ones. Today's no guest, just me and the single most common way companies manufacture a bad fit, the promotion that shouldn't happen. From the sales floor all the way up to the choice of a CEO, we'll talk about a half century old joke that turned out to be true.
Jason Baumgarten 01:40
A study of thousands of people have proved it and what you can do about it, whether you're handing out the promotions or hoping for one. So let's get into it. In 1969, a man named Lawrence Peter, along with a co author named Raymond Hull, published a little book called the Peter Principle. And it was satire. It was kind of meant to be funny.
Jason Baumgarten 02:02
And the idea was in a hierarchy, people tend to rise to their level of incompetence. And if you follow the logic, it's airtight in a fairly cruel way. Because if you do your job well, you get promoted. And if you do that job well, you get promoted again. And this continues until you land in a job that you're not good at.
Jason Baumgarten 02:22
And then you tend to stop getting promoted because you're no longer good enough to earn the next promotion. So you stay there, stuck at precisely the level at your promotions at which you tend to fail and feel incompetent. Which leads us to the punchline that made the book famous. Over time, every position in an organization tends to be filled by someone who, to be blunt, isn't good at it. Competent people keep getting promoted until they're not.
Jason Baumgarten 02:49
And the incompetent ones then settle in and stay for as long as they can. Now, when the book was published, it was satire. And for 50 years people quoted it, the office, they laughed and they moved on. And nobody had really looked into it that closely and just felt like a good line. And then some economists decided to put it to the test and what they found wasn't that funny.
Jason Baumgarten 03:12
The study I want to tell you about is called Promotions and the Peter Principle. It was done by a number of researchers, Alan Benson, Danielle Li and Kelly Shue, and it was published in 2019 in the Quarterly Journal of Economics. That's a pretty rigorous and respected journal. It's not a LinkedIn post written by AI, it's the real thing. And they crack this question that we'd always been joking about.
Jason Baumgarten 03:36
They got detailed performance data for tens of thousands of salespeople across over 130 different companies. Now, sales is a great laboratory for this for a simple reason, because we measure everything. You can see how much everyone sells as an individual, and then when somebody becomes a manager, how much their teams sell. So individual performance and then leadership performance for the same people. And you can tell this at a pretty large scale.
Jason Baumgarten 04:06
So the first question they set out to answer was, do companies tend to promote their best salespeople? Now, this is no shock, and the answer is overwhelmingly yes. The data was unambiguously clear. The better your sales numbers, the more likely you were to be promoted into management. Specifically, a worker who sold twice as much as a colleague was about 15% more likely to get promoted.
Jason Baumgarten 04:30
So sales performance was indeed a powerful engine of promotion. Not a surprise. It matches everything we see in our day to day lives. But that didn't get at the Peter Principle, because if your best salespeople also made your best managers, there'd be no problem at all. That would be the right call.
Jason Baumgarten 04:46
So the researchers asked the second harder question and the one that matters to this whole session, which is, once these star salespeople become managers, how'd they do? Now here's the thing that was perhaps more scary. Among the people who got promoted, the better they had been at sales, the worse they were as managers. Now, first of all, this is statistics. So some of them were good and some of them were bad.
Jason Baumgarten 05:13
But on average, the worse they were as managers, the more likely they had been better at sales, not unrelated, negatively related. So the thing that got them promoted predicted the weakness in the job. So the researchers found that when you doubled a person's pre promotion sales performance, you got a 7 1/2% decline in their value as a manager. So how much that manager lifts the sales of the people underneath them. So the people assigned to a superstar turned manager saw their own numbers grow at about 7 and a half percent less than the people lucky enough to work under a manager who had been a more ordinary salesperson.
Jason Baumgarten 05:55
So again, star performer manager did worse. The very act of promoting your best individual contributor tended to produce a manager who held people back. Not what we were intending, not what any of us are intending. So then the researchers asked another question. Was there anything in the data that did predict who'd be a good manager, some other signal we could use besides their quality as a sales leader?
Jason Baumgarten 06:22
And there was. They found out that it was teamwork. How much a salesperson collaborated, passed leads to colleagues, supported sales they wouldn't personally get credit for. Those did predict who'd become a good manager. The people who lifted others up as individual contributors also lifted others up as managers.
Jason Baumgarten 06:44
Sounds kind of obvious now that I'm talking about it, but shockingly this was not obvious prior to looking at this data. But here's the thing. A lot of companies were actually not promoting based on teamwork. They were ignoring this critical signal that truly predicted leadership and chasing that raw sales number that predicted the opposite. This is not uncommon.
Jason Baumgarten 07:07
So if this is clearly broken, and we've known this for quite a while, why do good sophisticated leaders and companies keep doing it? And the answer that the researchers gave, and I think it's perhaps the most human part of the whole thing, is that it's not stupidity, it's a trap built into what we think about when we think about promotion. Because promotion does two completely different jobs and they're in tension. One, you want to put the right person in the right leadership seat, that's this critical matching job, and one I care a lot about. The second is it's a carrot.
Jason Baumgarten 07:43
Now you might have heard me in podcast sessions or in other interviews talking about my views on compensation, but this is actually quite aligned with my view on leader compensation, that it's not just about the leader, it's about the whole model. If the lotto didn't pay any money, if being a founder didn't have this small probability of an insanely positive payout, we wouldn't do these slightly crazy, in the case of lotto, or very hard things, in the case of being a founder. Now, with promotions, it's actually a similar carrot. It shows a way to motivate every salesperson you have. If you work hard and hit your numbers, you can get this promotion.
Jason Baumgarten 08:22
Now, admittedly, you talk to a lot of salespeople and they don't want to become managers because they might actually make less money. But in most settings, that isn't always the case. So if you promote based on who'd make the best manager, based on these teamwork and affiliation tendencies, instead of who is the best ultimate producer, you'd have told your sales force that crushing your number doesn't get you promoted, and you break this key incentive model that drives your revenue engine. So companies keep promoting the winner of the race because the race is doing important work. So even the companies trying to manage this tension, the ones that rewarded top sellers with money, leaned less on promotion as the reward, and so promoted less purely on sales.
Jason Baumgarten 09:08
So as the management job gets bigger with more people at stake, companies do tend to be more careful and they put a little less weight on raw sales numbers. So clearly some organizations in this study were getting a sense of what was going on here. They just didn't totally succeed in escaping it. So you might be thinking at this point, well, I'm not in sales and I don't have a leaderboard. We don't measure everything.
Jason Baumgarten 09:34
And that might be true, but this is bigger than sales. Sales is just the measurable version of something that we see everywhere. The brilliant engineer that gets made head of engineering and discovers that the skills of writing great code and the skills of leading people who write great code have almost nothing to do with each other. The academic who becomes department chair after publishing a breakthrough study, the teacher who becomes principal, the consulting associate who is now a partner.
Jason Baumgarten 10:03
And they love the models, hate the sales, or hate the management of the teams. So often we take somebody who's brilliant at a craft and we reward it by handing them a leadership job. And that's a different job. Now, it does not mean, again, that you can't be great at both. Lots of people are, but they're different jobs.
Jason Baumgarten 10:25
And so this is where it's so important that we think about the fit of what a job is. What does this job entail? Now, sometimes having that deep knowledge of how something is done helps you be a better manager because it gives you empathy for the people you're managing. Sometimes having it gives you negative consequences or impacts as a manager because you kind of have this, well, I could do it better. Why is it so hard for you?
Jason Baumgarten 10:51
Mentality, which isn't very helpful when somebody's struggling to perform. So experience in a craft is not expertise in the leadership of the craft. They're different capabilities. So seeing someone who says best at X many years running is telling you about what they're good at, not whether they're good at the job you're promoting them to. So mastery of the old role is not evidence of fitness for the new one, and it never has been.
Jason Baumgarten 11:20
And we sort of knew this for 50 years as we joked about it, but it turns out the research is damning. So let me make this a little bit more useful, because there are real fixes. The first thing, and it's the most powerful, is build a ladder in your organization that isn't a single way up. The reason a promotion is such a destructive reward mechanism is that in most companies, up only has one direction, into management. So your best individual contributors, your best experts, have to choose between staying in the work they love, getting paid, recognized, and advance.
Jason Baumgarten 11:55
And that's an insane choice to force people to. So technical companies, software companies, for example, tend to have a dual ladder. A path where a brilliant engineer or a designer can keep rising in title and pay and in status without going on a management track. Sometimes they're called distinguished engineers, but there's a lot of titles. You let people advance by getting better at the thing they're great at, not abandoning it to go into management. But you have to make it real.
Jason Baumgarten 12:24
It can't just be a pat on the back and a minor promotion. It has to be literally a dual track. The second is you separate the reward from the role. If someone's crushing their number, reward the number with money, with recognition, with the next big account, with the bigger territory. Don't reward it with a job they'll be miserable at and possibly bad at.
Jason Baumgarten 12:44
Doesn't mean never, just if they don't have this other characteristic. A promotion is not thank you for a job well done. It's a bet on future performance. So treat it like one. Third.
Jason Baumgarten 12:58
Make sure you're assessing for the next job, not the one they had. And this is the whole art of succession. Here at the firm, we do this all the time. We help boards think through who their next CEO should be. But the discipline is to weigh people against the job they're stepping into, not the job they came from.
Jason Baumgarten 13:14
Now, even jobs with the same title, CEO to CEO, Chief Marketing Officer to Chief Marketing Officer, Chief Technology Officer to Chief Technology Officer, can actually be different jobs in two different companies. Interestingly, even the same job with the same title at the same company can be two different jobs in different time periods. The company could have gotten bigger, could be under duress, could be fighting a different set of industry dynamics. Again, new job. Study the fit for the new job.
Jason Baumgarten 13:46
And if you're looking for promotability, if you're looking for leadership, in particular with promotability, you want to look at the signals that you already have. Do these people lift the people around them? Do they pass the lead? Did they mentor new hires? Did they make others better?
Jason Baumgarten 14:04
Not just individually, one on one, but in terms of their systems thinking, did they make it better for the people around them? Have they opened things when it actually cost them something? Think about that. And finally, if you're the one on the other side of this, if you're the one being offered the promotion, pause before you take the title. I know how good it feels when somebody says, I want you to do something.
Jason Baumgarten 14:30
And I know it reads as a next step in validation, and it can be. But really, make sure you check on two things. One, do you really want the job or do you want the recognition and the title and perhaps the money that comes with it? And does it capture your best strengths? Is it tapping into your superpowers?
Jason Baumgarten 14:52
Because those are unfortunately different things. And confusing them is how you can go from a superstar to somebody who's kind of unhappy and not loving life. So sometimes the bravest career move is to say, reward me another way. Let me keep doing what I'm great at, and here's where I've landed on all this. We built a world where the only way we often know how to say well done is to hand someone a different job.
Jason Baumgarten 15:18
And then we act surprised when our best people end up stuck in roles that don't fit them, that drag down the teams beneath them. So the Peter Principle might have been written as a joke or a bit of satire, but the data has made it a very real thing. And outstanding performance is not a promise of performance in the next role. And the more we go deeper and really look at what that next role requires, the better decisions we'll all make, whether you're handing out the promotions or whether you're on the other side of them.
Jason Baumgarten 15:48
And the more we treat promotion as a trophy instead of a match, the more we'll keep promoting people into failure. So here's your one question. Whichever side you're on, if you hand out promotions, am I about to reward someone with a job they'll be great at, or just a job that sounds like a reward. And if you're on the other side chasing that promotion, am I climbing towards work I really want to do or just toward the job well done? The applause for having done work well, it'll feel like a win the day you get it.
Jason Baumgarten 16:22
How will it feel in two years out if this one named something you've watched happen or something you're about to do? Send it to somebody who's just gotten promoted or is thinking about getting promoted or is about to do their annual performance review and decide who gets promoted. I'm Jason Baumgarten, and this is Fit Happens. I'll see you next time.