The truth about promotions

How do you choose the right people to be in charge? It's a question that businesses have wrestled with for as long as corporate hierarchies have existed. Back in the early days of the Industrial Revolution, factory owners had a pretty crude system: They just chose male family members to supervise things, even if their sons or nephews knew absolutely nothing about the trade. That was obviously a bad idea, and since then, we've spent a century and a half honing the art and science of promotions. The days of blatant nepotism have been replaced, for the most part, by a system that strives for meritocracy: a deliberative process involving search committees, job descriptions, performance ratings, and reference checks that gets more complicated by the year.

But what if we're still going about it all wrong? That's the conclusion of a new study published by the National Bureau of Economic Research. In some cases, researchers found, the dominant practices that businesses use to promote managers are so bad that they'd actually be better off picking names out of a hat. The way we pick supervisors, it turns out, is worse than the whims of chance.

To study promotions, the researchers conducted a series of clever experiments. They divided people into groups of three — one manager and two workers — and gave them various problems to solve collaboratively. The manager's job was to assign tasks, motivate workers, and monitor the group's progress; the workers' job was to complete the tasks they got from their manager.

Then came the variable. In some groups, the managers were chosen at random, by lottery. But in other groups, managers were selected based on their own preferences. The researchers call this self-promotion: The people who most wanted to become managers became the managers.

Self-promotion, as it happens, is one of the primary ways companies select managers in real life. Employees who want a bigger title and more responsibility express their interest in moving up the corporate ladder and do the requisite lobbying to clinch the role. The louder you are about your ambitions, the more likely you are to realize them.

But the study found that the groups in which managers were selected by self-preference actually performed worse than the groups in which managers were chosen by lottery. And therein lies an irony at the very heart of corporate life: The people who most want to become managers end up being bad managers.

To understand why, the researchers looked at the traits of the people who were eager to be in charge. These self-promoters, as the study called them, turned out to be pretty full of themselves. They tended to overestimate their ability to perceive other people's emotions — a key component of good management. And the more extroverted they said they were and the more highly they rated their own political skills, the worse the teams they led performed.

"It boils down to some people being overconfident about their own managerial abilities," says David Deming, one of the authors of the study and an economist at the Harvard Kennedy School. "You might think you're really good with people when actually you're not."

And in what will come as a surprise to absolutely no one, self-promoters in the study tended to be male. It's the Dunning-Kruger effect for management: In corporate America, few things are as dangerous as the overconfidence of mediocre men.

So that's how we wind up with the wrong people running the show. And it matters a lot for how companies perform. Because despite all of the nonsense that the likes of Mark Zuckerberg and Elon Musk are spouting these days, middle managers actually play a huge role in things like productivity, collaboration, and morale. Good supervisors, the study found, have nearly twice as much impact on team performance than good rank-and-file workers — which means companies are losing out on quite a bit of productivity by choosing the wrong managers.

But that doesn't mean Deming and his coauthors think companies should choose managers via lottery. There were some measures in the study that successfully predicted whether someone would make a good manager. One was the person's performance as a rank-and-file worker, as measured by their individual score on the kinds of problem-solving tasks each group was given. The better they did as workers, the better they did as managers.

That's precisely how a lot of businesses select managers — by elevating their most talented line workers into positions of leadership. But in the study, teams overseen by supervisors who did well as workers performed only slightly better than those overseen by lottery-selected managers. That still leaves a lot of potential productivity on the table.

What did much better at predicting good managers was intelligence, as measured by a common IQ test. And what did best of all was measuring a manager's competence at decision-making. Researchers administered a quick test, which the Harvard Skills Lab has made available online, to measure how a potential manager would allocate resources. (I scored at the 85th percentile, which Deming says is good, even though I don't think I was a particularly good manager back when I was one.) The best managers, it turns out, are those who are actually good at one of the primary responsibilities of a manager — assigning the right projects to the right people.

That might sound like a no-brainer — selecting managers based on their ability to manage — but unfortunately, it isn't. Deming, who has spent more than a decade studying performance, notes that companies seldom assess potential supervisors based on the actual tasks they'll be expected to perform. "It sounds really obvious," he says. "But we don't do it."

Deming points to the decade or so after Congress passed No Child Left Behind in 2001, when foundations sank huge sums into studying how to screen for effective teachers. Only one measurement worked: actual classroom performance. Teachers who did well in their first year, researchers found, also performed well in their subsequent years. The best tests for selecting teachers involved having them give short lessons and then grading them based on their performance. The best way to choose teachers, in other words, was to watch them teach.

Testing candidates for their core competence is something businesses routinely do in hiring for many jobs. Tech companies ask software engineers to take coding tests; media outlets require reporters to write a memo pitching story ideas. Some companies even pay job candidates to work as part-time contractors for a few weeks to evaluate how they perform the actual tasks they'll be expected to do.

But here's the thing: Companies rarely deploy any kind of formal test, let alone a trial period, to decide who to promote internally as managers. That process, by and large, still remains largely informal and subjective. Employers tend to pick managers based on their track record as workers — things like how hard they hustle and how well they collaborate with their colleagues. But that process evinces a profound misunderstanding of what makes for a good manager. Ambition, as Deming's study demonstrates, is a lousy indicator of effective leadership. And "plays well with others" is a completely different skill set than "gets others to play well with others."

It's long past time for companies to recognize that managing is a distinct skill of its own — one that, given the right approach, can be effectively measured and evaluated. That might be as simple as giving managerial candidates a resource-allocation test, like the one Deming used in his research. Or companies can design assessments that are more specific to the supervisor roles they're looking to fill. Either way, we need to recognize that it's not enough to hand out promotions to extroverted men who mistakenly assume they'll be great leaders.

"The very simple — almost too simple — lesson is: If you want to predict who's going to be a good manager, have them manage a few people and measure their performance in some kind of systematic way," Deming says. "Don't think, well, they like to talk, and therefore they're going to be a good manager."

Aki Ito is a chief correspondent at Business Insider.