Have you ever met a manager who wasn't good at their job? There's a good chance that that person was a very good employee before they got promoted. But skills required in lower-level jobs can be quite different from skills required in higher-level jobs.
This is the Peter principle—workers rise to the level of their incompetence. It means workers in a company get promoted until they can no longer do their job effectively.
What causes the Peter principle?
It happens because promotions are based on current ability, not future ability. If you are very good at your current job, you may be promoted to a higher-level job. And again, if you do that job well, you may be promoted again.
However, at some higher-level job, you may find tasks that you are not suited for. So, you don't perform well in the new position. And, if you do not perform well, you will not be promoted. So, you continue doing that job poorly.
For instance, if a sales person is very good at their job, they may become a sales manager. But that job is more managing than selling.
If you've seen the TV comedy The Office, then you've seen a perfect example. The manager Michael Scott was a highly-skilled sales person, so he was promoted directly to manager—a position for which he was poorly suited.
Solving & using the Peter principle
An underlying problem leading to the Peter principle may be a lack of options.
One solution is to have a greater variety of senior positions. For instance, a sales person can become a senior sales person.
When discussing large companies, especially if you are in a speaking test, mentioning an idea like the Peter principle can be quite impressive. For example:
When I think about companies in Japan, I think of the Peter principle: workers rise to the level of their incompetence. A lot of staff continue at one company for their whole life, and as they get older, they continue to get promoted until they can no longer do well at their job. That means a lot of mid-level managers are not effective. I think it hurts the company overall.
The Peter principle was created by Laurence J. Peter. More information can be found in the Wikipedia article about it.
The Peter Principle [noun] - workers who are good at their job will continue to be promoted until they are bad at their job