Dr. Laurence J. Peter and Raymond Hull wrote the always funny The Peter Principle in 1969 book, where they postulated that "In a Hierarchy Every Employee Tends to Rise to His Level of Incompetence."

Thus, in a hierarchy, members are promoted so long as they work competently. Sooner or later they are promoted to a position at which they are no longer competent (their "level of incompetence"), and there they remain, being unable to earn further promotions. This principle can be modeled and has theoretical validity. Peter's Corollary states that "in time, every post tends to be occupied by an employee who is incompetent to carry out his duties" and adds that "work is accomplished by those employees who have not yet reached their level of incompetence".

When discussed in organizations, the Peter Principle says "work is accomplished by those employees who have not yet reached their level of incompetence."

How to avoid the Peter principle effect
1. Have a policy that requires termination of an employee should they fail to attain a promotion after a certain amount of time.
2. Promote a worker until he shows the skills and work habits needed to succeed at the next higher job. Thus, a worker is not promoted to managing others if he does not already display management abilities.

[From the Great Books Series. Also see The Success Manual  - Encyclopedia of Advice, which contains summaries of 100+ Most useful books.]