People Management Skills, Senior Leadership Skills and the Peter Principle

This study examines the middle-managers’ managerial skills that affect the performance of the subordinates and managers themselves, using personnel records from a Japanese management consulting company, which include upward (downward) feedback given by subordinates (superiors). We identify two different sets of skills expected of managers: people management skills (PMSs), which are mainly observed by subordinates and are primarily required of first-line managers; and senior leadership skills (SLSs), which are mainly observed by superiors and are more important for senior managers. We find that (1) only PMSs observed by subordinates positively predict subordinates’ performance evaluations; (2) PMSs observed by superiors are not related to the outcomes of subordinates or managers; (3) managers’ PMSs and SLSs, including coordination and information gathering skills, predict the retention of subordinates; (4) managers’ PMSs predict their own performance evaluations but do not predict their promotions; and (5) managers with higher SLSs tend to be promoted. The results are interpreted using a theoretical model in which firms make a tradeoff between promoting managers with the right qualities and giving managers incentives to work hard in their current positions. We provide additional evidence supporting the key implications from the model.