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In 1968 Canadian author, business consultant and educator Laurence Peter came up with a theory to explain the professional incompetence he saw all around him.

Through his research, he concluded that in a hierarchal system individuals will be promoted until they reach a position that is beyond their capabilities, where they are likely to linger for the remainder of their career. Often put more bluntly, the “Peter Principle,” as it’s commonly known, states that “people are promoted to their level of incompetence.”

There is, however, an antidote to the Peter Principle and it’s poised to gain traction. Rather than promoting employees to management positions regardless of their abilities or interest in leadership, the “dual-track” approach offers those who excel at their jobs and want to continue being successful the opportunity to remain in their roles while enjoying the status and compensation that would typically require a change in responsibilities.

Management and leadership roles typically serve as the primary incentive for employees, and those who excel at their jobs typically take the pay and prestige that comes with the promotion. But just because they are a good individual contributor doesn’t mean they’ll make a good manager, and in the process the company loses a top performer by removing them from their previous position.

“Due to this system, some of our most talented crafters ended up having to make a decision to move away from the thing they do best – being hands-on in solving difficult problems – in order to feel progression,” Tia Silas, Shopify’s the chief human resources officer, who is based in New York said in an e-mail.

That is why, in March of 2023, the Canadian e-commerce giant split its career ladder into two tracks, “crafter” for individual contributors and “manager” for aspiring leaders.

“Working with their manager, [employees] can decide what path is right for them, and what to work toward,” Ms. Silas said. “We’ve had managers think about this critically and return to the crafter track, and crafters with a passion for people leadership step up into manager roles.”

According to Ms. Silas, the program has received positive feedback internally, there’s plenty of research to suggest why. A 2018 study, for example, explored the effects of the Peter Principle in practice, while testing the dual-track approach’s effectiveness in combatting it, by studying the performance of sales teams and managers at 214 firms.

“We found that if they had promoted the best [leaders] to become managers, instead of the people who they had actually promoted, they would see the performance of their subordinates increase by 30 per cent,” said Alan Benson, an association professor at the University of Minnesota’s Carlson School of Management and the study’s lead author.

According to the study, better individual performance was correlated with a 15-per-cent increase in the probability of being promoted to a manager position. However, strong sales performance was negatively correlated with managerial skills. In fact, top salespeople who were promoted into management typically saw the performance of their subordinates decline by 7.5 per cent, effectively proving Mr. Peter’s original hypothesis.

“We found that the Peter Principle was strongest in organizations where salespeople were largely compensated through base-pay, and so they needed to get a promotion in order to advance,” said Mr. Benson. “We saw it the least in places where salespeople could earn more than their managers just by being good salespeople.”

The researchers also found that salespeople who more frequently shared the credit and commissions of their sales with colleagues proved to be more effective managers, rather than those who typically worked alone.

Though the Peter Principle has been around for more than half a century, the focus on it – and efforts to combat it – appear to be increasing. That is largely because of the transition from a manufacturing-based economy to a knowledge-based economy, says Justin Ferrabee, the managing partner at Ottawa-based investment advisory firm Ironworks Inc.

“The role of technology in the economy – both as a sector and within every sector – has led to the core technical skill being increasingly valuable,” he said. “Our economy operates differently now, so [the dual-track is] more applicable than it used to be, and its being applied more because it’s more useful now.”

In 2014, Mr. Ferrabee was hired as chief operating officer of Payments Canada with a mandate to restructure its operations. One of the first changes he implemented was a dual-track promotion system.

“Our top technical people experienced great relief in not having to do the business leadership stuff,” he said. “People don’t like to fail, and leadership doesn’t come to them naturally, so we play to people’s strengths, and they feel good when they’re doing the job they’re good at.”

While individual contributors expressed the most enthusiasm, Mr. Ferrabee suggests that the dual-track system ultimately favours those in the leadership track over the long run, as they can typically climb higher in the organization, and hone more transferable skills.

Whichever track they chose, he says that simply giving people the opportunity to continue doing what they most excel at without giving up the financial rewards or status that comes with leadership positions creates stronger organizations, especially in a knowledge economy.

In fact, Mr. Ferrabee believes less than 25 per cent of workers are in positions they enjoy, but suggests they’re discouraged from speaking up out of fear of being moved down. “If you can get an organization to 35 per cent, 40 per cent of people in jobs they love to do, that’s an unstoppable organization, and [the dual-track system] creates an opportunity for that,” he said.

One year into Shopify’s switch to a dual-track system and Ms. Silas says it’s been “a big success so far.”

“The system gives agency to people to choose the path that they’re most passionate about while still experiencing career growth,” she said. “We’ve seen strong candidates coming to Shopify because we’ve created an environment where they can thrive while pursuing their craft.”

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