The Peter Principle is a theory originated by Dr. Laurence J. Peter. It states that successful members of a hierarchical organization are eventually promoted to their highest level of competence, after which further promotion raises them to a level just beyond their highest level of competence. The term is a pun on Sigmund Freud's theory of the pleasure principle.
The theory was set out in a humorous style in the book The Peter Principle, first published in 1969. Peter describes the theme of his book as hierarchiology. The central principle is stated in the book as follows:
- In a Hierarchy Every Employee Tends to Rise to His Level of Incompetence.
Although written in a lighthearted manner, the book contains many real-world examples and thought-provoking explanations of human behaviour. Similar observations on incompetence can be found in the Dilbert cartoon series (such as The Dilbert Principle). In 1981 Avalon Hill made a board game on the topic. 
The employee's incompetence is not necessarily exposed as a result of the higher-ranking position being "more difficult" — it may be simply that the position is different from the position in which the employee previously excelled, and thus requires different skills, which the employee may not possess. An example used by Peter involves a factory worker whose excellence at his work results in him being promoted into a management position, in which the skills that got him promoted in the first place are no longer of any use.
One way that organizations attempt to avoid this effect is to refrain from promoting a person until that person already shows the skills or habits necessary to succeed at the next higher position. Thus, a person is not promoted to manage others if he or she does not already display leadership qualities. The corollary of this is that employees who are dedicated to their current jobs will not be promoted for their efforts, but might get a raise instead.
Relatives and corollaries to the Peter principle predate the naming of the theory itself. In the Kalila wa Dimna, a Sassanid Persian collection of fables, one of the characters states that "The baseborn weakling is always sincere and useful until he reaches an office he is unworthy of."
- The Dilbert Principle
- The Pleasure principle
- Parkinson's law
- Negative selection
- List of human resource management topics
- Adages named after people
- Software Peter principle
- The Peter Principle: why things always go wrong by Dr. Laurence J. Peter and Raymond Hull. William Morrow & Company, Inc. New York 1969, 179 pages
- The Peter Principle by Dr. Laurence J. Peter and Raymond Hull, Pan Books 1970 ISBN 0-330-02519-8