The Peter Principle

"When people in a sufficiently large hierarchy are promoted because of their competence, the end result will tend to put everyone into a position for which they are not competent."

The theory behind the Peter Principle is this: when Alice is competent in her position, she will be promoted to another position because of her competence. Alice may or may not be competent at that new position. If she is incompetent, then she will become ineligible for promotion and stay put; she will be kept in that position indefinitely, even if there are other positions in the hierarchy which may suit her skills. The workers who are competent will keep being promoted for as long as they are competent and there are open slots above; they will be promoted out of the positions they are competent in but kept in the position they fail at. Since the only way to stay in a position below the top of the hierarchy indefinitely is to be incompetent, the hierarchy will eventually stabilize into an organization that is mostly incompetent.

A common example of this is in any technical field where an especially good engineer may be promoted to lead engineer and then made a supervisor. Now, his strongest skillset is going unused—supervisors don't get to engineer directly—and he struggles to get by using his less developed management skills.

The Trope Namer is the book co-authored by Raymond Hull and hierarchiologist Dr. Laurence J. Peter (who did the research), which is about this principle, and discusses it in about twelve chapters worth of detail.

A common cause of the Pointy-Haired Boss and Modern Major-General. The Career-Building Blunder is one method of defying this trope. Compare and contrast Brain Drain.

The counterpoint is The Dilbert Principle, which states that incompetent workers will always be promoted first, in order to keep them from interfering with the efforts of the competent.

Film

 * In Star Trek II: The Wrath of Khan, Spock reminds Kirk that he is more competent as a captain than as an admiral. "Being a starship captain is your first, best destiny," he explains. "Any other calling is a waste of material."

Literature

 * The author of the comic Dilbert wrote an entire book - The Dilbert Principle - dedicated to how promotion has changed from this to what he calls the Dilbert Principle, in other words, instead of people getting promoted to their lowest level of competence, any and all incompetent employees are placed in the one place where they can do the least damage: Management.
 * Which in turn leads to the creation of managers like the Pointy-Haired Boss.
 * It's plausible enough in the high-skilled area he works in, Engineering and similar fields. If you wanted to avoid promoting your most talented workers out of roles in which they could use their talents (averting the Peter Principle) but you were determined to promote internally, you would end up promoting, not the most incompetent employees perhaps, but individuals who have less of a grasp on what is going on than those they supposedly supervise do.
 * In E. E. "Doc" Smith's Skylark Series, the Osnomian King is much relieved by his son's adequate performance in a critical test. Had the younger man failed, the king would have had him executed for it and then would commit suicide for failure himself, "as only an incompetent would delegate an important task to another incompetent."
 * Played with in the Honor Harrington cycle. The Ace Pilot Scotty Tremaine, despite his preference and obvious knack, gets promoted to command a squadron of cruisers, but his superiors know of it and give him this post so he could gather some experience beyond the small-craft operations. One may presume he'll return to light attack craft and carriers, once he finishes this tour of duty.

Live-Action TV

 * The Office's Michael Scott, Regional Manager of the Scranton branch of Dunder-Mifflin. It's shown that he used to be a great salesman and still is when called upon but has none of the right skills for management. His UK counterpart is less this and more simply a guy that flaked out once cameras started being pointed at him.
 * By extension, Dwight would be a clear example of this too if he ever got promoted, and even Jim Halpert, who is very intelligent but still somewhat immature, has fallen victim to this.
 * Jack Donaghy of 30 Rock, who was promoted from the oven division of GE, was written this way early on. Liz Lemon, too: she is a comedy writer by experience and inclination, but her job is as much management as anything else, she's received no management training other than what Jack has given her on the job, and much of the show's comedy is derived from how in-over-her-head she is.
 * Strangely justified for Jack, as Real Life GE has been known to routinely shuffle upper-level management between unrelated departments.
 * As of the 100th episode, this is really starting to haunt Jack, who never expected to be stalled on one corporate rung for five years.
 * Archie "Snake" Simpson in Degrassi: competent, well-liked and respected, Reasonable Authority Figure tech teacher who has the school spiral out of control as principal, cracks down hard, and has already begun capitulating less than five episodes later, in one case to a student who covered his car in Post-It notes!
 * The title character of The Brittas Empire is so far above his competence level at this point that people will write him glowing recommendation letters in order to get rid of him.

Sports

 * Golden Tee Golf's original prize structure drove this home hard. Players were grouped into Bronze, Silver, and Gold classes, each with correspondingly greater prizes. One official tournament was held every month, after which the top Bronze finishers advanced to Silver and the top Silver finishers advanced to Gold. The kicker was that in Silver, it wasn't too hard for reasonably skilled players to consistently finish in the money, and they'd drop to Bronze if they came up empty for three straight tournaments. Gold, however, paid off only the top 75 finishers - about a quarter of the class at any given time - and demotion to Silver happened only after losing out in six straight tournaments. Worse, Gold had, of course, the best Golden Tee Golf players in the world, many of whom were good enough to cash in every tournament, leaving even fewer spots for the new blood. The net result was that for many, many players, promotion to Gold meant having absolutely no chance to win anything for half a year!
 * In sumo, a rikishi getting promoted to a rank where he's completely over his head isn't a big deal; he'll simply have a terrible tournament and be demoted. The exception is ozeki. Reaching the rank requires an exceptional record over three tournaments, generally 30-15 and one runner-up at minimum. However, he cannot be demoted unless he has two consecutive losing records. He is merely "kadoban" after one losing record; if he has a positive result the next tournament, even 8-7, the slate is clean. This has allowed quite a few ozeki to remain at the rank long after they've dropped WAY below the level they were when they got it:
 * Chiyotaikai - Promoted to ozeki after his breakout January 1999 basho, he stumbled horribly out of the gate in March and May, but recovered and had a pretty good track record through 2000...before suffering two nasty injuries in 2001 and 2002 that completely ruined his form (the pressure of being Kokonoe-beya's next great hope after Chiyonofuji certainly didn't help either). From then on he was doomed to a 6 to 9 win treadmill and a humiliating parade of kadobans. He finally was demoted in January 2010, where he blasted off to a 0-4 start and promptly retired.
 * Musoyama - A good-but-not-great oshi specialist and one of the then-formidable Musashigawa stable, he had one amazing stretch of dominance in early 2000 which made him ozeki...and he never lived it down. Inconsistency and seemingly endless injuries would plague the remainder of his career; he only ever topped 10 wins once more (March 2001) and was kadoban 6 times.
 * Miyabiyama - Another Musashigawa stalwart, he shot up the ranks like a rocket in his early career, needing a mere 12 tournaments...two years!..to make ozeki. He was the surest lock for yokozuna since Takanohana. So how did his ozeki stint go? He goes 54-51 over his next 7 tournaments (barely adequate for a komusubi), going kadoban 3 times in the process, then in September 2001 suffers a devastating injury which knocks him out of the next TWO tournaments and catapults him back into the rank and file. The Sumo Association was so disgusted by his collapse that they refused to promote him back to ozeki in July 2006, even though he'd gone 34-11 with a runner-up, which should've been more than enough.
 * Kaio - One of many outstanding ozeki who just wasn't quite good enough to make the final jump to yokozuna. Despite never contending for a championship after 2004 and having to miss a lot of tournaments to injury, he hung on for tournament after tournament, one losing record never becoming two. He had an amazing knack, however he did it, for getting that all-important 8th win; he was 8-7 for all six tournaments in 2009. He finally succumbed to the inevitable, at the age of 37, in July 2011. He's tied with Chiyotaikai for the most tournaments at ozeki (65) and is the sole holder of most tournaments in makuuchi (107). He was never demoted.
 * Tochiazuma - Formidable multi-talent who made ozeki during his peak from September 2001 to January 2002. Unfortunately, that's when his myriad health problems decided to come crashing down on him en masse, and his ozeki tenure was a horrendous roller coaster where he was as likely to finish with 2 wins as 12. Did manage to pull in one championship and two runners-up before his body completely gave out in March 2007.

Video Games

 * Not an individual example, but the Turian race in Mass Effect actively tries to avert this. From the in-game codex: "Throughout their lives, turians ascended to the higher tiers and are occasionally "demoted" to lower ones. The stigma associated with demotion lies not on the individual, but on those who promoted him when he wasn't ready for additional responsibility. This curbs the tendency to promote individuals into positions beyond their capabilities."
 * This is the reason given, via All There in the Manual, for why Dawn of War's Indrick Boreale was such a raging General Failure. He was one of the Blood Ravens' chapter's greatest scout snipers, but his achievements lead to him being promoted far above his level of competence, culminating in him being given the unenviable task of trying to subjugate an entire solar system overrun with over a half dozen different enemy factions, with predictable results.
 * He's arguably an Expy (if possibly an unintentional one) of real-life General Sir Redvers Buller, VC. Buller made his reputation with some really fearless battlefield behaviour that deservedly won him Britain's highest honour. Unfortunately it also won him promotion in line with this trope. When he was immediately subordinate to a better field commander, he did as well as any other general. Left to his own devices, not so much. The fact that the 'd' in his forename is silent meant that he got called "Reverse" Buller after his disasters in the Boer War. Again, deservedly.