The Peter principle is a concept in management developed by Laurence J. Peter which observes that people in a hierarchy tend to rise to "a level of respective incompetence": employees are promoted based on their success in previous jobs until they reach a level at which they are no longer competent, as skills in one job do not necessarily translate to another.

The concept was explained in the 1969 book The Peter Principle (William Morrow and Company) by Laurence Peter and Raymond Hull. Hull wrote the text, which was based on Peter's research. Peter and Hull intended the book to be satire, but it became popular as it was seen to make a serious point about the shortcomings of how people are promoted within hierarchical organizations. The Peter principle has since been the subject of much commentary and research.

The Peter principle states that a person who is competent at their job will earn a promotion to a position that requires different skills. If the promoted person lacks the skills required for the new role, they will be incompetent at the new level, and will not be promoted again. If the person is competent in the new role, they will be promoted again and will continue to be promoted until reaching a level at which they are incompetent. Being incompetent, the individual will not qualify for promotion again, and so will remain stuck at this final placement or Peter's plateau.

This outcome is inevitable, given enough time and enough positions in the hierarchy to which competent employees may be promoted. The Peter principle is therefore expressed as: "In a hierarchy, every employee tends to rise to his level of incompetence." This leads to Peter's corollary: "In time, every post tends to be occupied by an employee who is incompetent to carry out its duties." Hull calls the study of how hierarchies work hierarchiology.

Laurence J. Peter's research led to the formulation of the Peter Principle well before publishing his findings.

Eventually, to elucidate his observations about hierarchies, Peter worked with Raymond Hull to develop a book, The Peter Principle, which was published by William Morrow and Company in 1969. As such, the principle is named for Peter because, although Hull actually wrote almost all of the book's text, it is a summary of Peter's research.

In the first two chapters, Peter and Hull give various examples of the Peter principle in action. In each case, the higher position required skills that were not required at the level immediately below. For example, a competent school teacher may make a competent assistant principal, but then go on to be an incompetent principal. The teacher was competent at educating children, and as assistant principal, he was good at dealing with parents and other teachers, but as principal, he was poor at maintaining good relations with the school board and the superintendent.

In chapter 3, Peter and Hull discuss apparent exceptions to this principle and then debunk them. One of these illusory exceptions is when someone who is incompetent is still promoted anyway—they coin the phrase "percussive sublimation" for this phenomenon of being "kicked upstairs" (cf. Dilbert principle). However, it is only a pseudo-promotion: a move from one unproductive position to another. This improves staff morale, as other employees believe that they too can be promoted again. Another pseudo-promotion is the "lateral arabesque": when a person is moved out of the way and given a longer job title.