Research shows the Peter Principle is still alive but absolutely not well-- especially where promoting salespeople is concerned.

Imagine you need to decide which employee to promote to sales manager. You're aware that research shows promoting from within tends to result in higher productivity, increased company loyalty, and better manager/employee relationships than hiring outside talent -- so you take a look at your eight salespeople and, because he consistently outsells everyone else, you promote Bob.

Bob is the obvious choice.

Or not.

According to a 2019 study published in The Quarterly Journal of Economics that evaluated approximately 38,000 salespeople and over 1,500 promotion decisions across a range of industries, the best workers may not make the best managerswhen a leadership position requires skills different from the abilities required in an employee's previous job. (And those skills are always at least somewhat different)

According to the researchers, when firms promote based on traits that predict managerial performance -- like collaboration, mentoring, employee development, communication skills, etc. -- sales increase by as much as 27 percent.

In short, the best salespeople don't tend to be the best sales managers.

But What If You Don't Promote the Best (Salesperson)?

Makes sense; we've all worked for someone who was great at "doing" but terrible at leading. (Just like we've all worked for someone who was a decent "doer" but turned out to be a great leader.) A great carpenter isn't always a great construction manager. A great accountant isn't always a great CFO.

Yet if you don't promote your best salesperson, isn't that demotivating to them and the rest of the team?

As the researchers write:

... if firms promote workers based on traits that predict managerial performance, they may pass over higher-performing workers, thereby weakening incentives for workers to perform well in their current roles.

Such promotion policies could lead to perceptions of favoritism or unfairness or the impression that effort in one's job goes unrewarded.

That's a real problem: Everyone wants to be recognized for their efforts, and getting promoted provides public recognition for outstanding performance.

In fact, the researchers found that some companies make promotion decisions based on sales performance because they feel the cost of promoting someone with lower management potential is outweighed by the incentive it provides other salespeople. If Bob was promoted because his sales were highest and I want to someday get promoted... then I'll work extra hard to be the lead doggie in the sales pack.

Maybe that's why the researchers determined the top-ranked person on a sales team is three times more likely to get promoted than an average salesperson.

But that promotion strategy doesn't actually work.

Take the case of people who rarely collaborate with others: The so-called "lone wolf" salesperson who the researchers describe as "deeply self-confident, rule-breaking cowboys... who do things their way or not at all."

Companies are "significantly" more likely to promote lone wolves, even though lone wolves provide the lowest "manager value added" of all. Because lone wolves typically can't teach others to be lone wolves.

But great collaborators can teach others to be better collaborators.

So what's the answer?

Fix Your Pay Structure, Then Focus on Skills

Clearly, the smart move is to promote the person who best displays the leadership attributes you need.

But there's still a problem: The researches found that salespeople are much more likely to leave for another job if a teammate with worse sales results gets promoted. Even though promoting based on predicted leadership ability tends to improve overall sales results, it can come at a cost -- unless you also structure your compensation accordingly.

Getting promoted provides reward and recognition.

But so does higher pay for outstanding performance.

As the researchers write:

Firms (can) place less emphasis on current job performance in promotions where managerial roles entail greater responsibility and where current performance is rewarded by relatively strong pay for performance.

In short, if I can earn more by selling more, I'm less likely to worry about whether or not I get promoted to sales manager.

I know salespeople who repeatedly turn down leadership promotions, not only can they make more money, they would much rather sell than lead. As a result, they don't care about promotion-based recognition because they feel recognized and rewarded by pay for performance.

That's why you can always afford to pay sales superstars more.

When sales pay is based on performance, too much is never enough -- even when the sales manager has greater "responsibility" and yet earns less than a superstar. (Just like NBA coaches make a lot less than their superstar players.)

The best recognition, like the best rewards, are always a matter of personal taste. A solid salesperson who enjoys working with and generating results through others may be delighted to be recognized for the leadership skills she possesses, and delighted to put them to work.

A great salesperson, especially a lone wolf salesperson, may be delighted to be "passed over" for a promotion if she enjoys what she does -- and appreciates the fact her pay is based on not on arbitrary pay scales, but on performance.

Create a pay structure that rewards great salespeople and great leaders.

Then you can put the right people in the right positions.

Because then you can ensure they are not only as effective as possible, but also as happy as possible.

Inc