How should a growing company handle job titles and promotions?

”Any title, choose one. Which am I equal to?”

”I’m a Boss like Tyson, a captain like Kirk, but I’m destined for failure because I work too hard for “Employee of the Month”.”

In a young company, everyone does everything, everyone owns everything, and everyone pulls together in any direction at any time. The lack of a defined hierarchy is pretty great because nobody needs to spend time on politics or rank. As a company grows, this gets harder and harder until it’s just not feasible anymore. What system can you use to grow that fixes some of these problems?

There are two reasons that titles are unavoidable as a startup matures.

As employees grow in their own careers, some of them will move on. They’ll need other jobs, and because you don’t have clear titles internally, they have nothing to put on a resume.

Before long, there are enough tasks that one person doesn’t know what everyone is working on anymore. At that point you need titles so you can tell someone “I’m the VP of Engineering” which tells them a whole list of things you do and don’t do without having to explain. If you talk to a vendor or customer, how do you explain what you do in one word? “Software Developer” or “VP of Engineering” at a glance should clearly communicate your role. When someone wants to talk to a Marketing person, they have to know whom to ask.

Internally, though, everyone will compare to each other. It’s easier to compare titles than accomplishments, and because titles are easily comparable, they tend to cause friction. Many people think titles are a proxy for their worth and their pay. This creates jealousy, resentment and politicking.

The Peter Principle and the Law of Crappy People

Think of five to ten job titles, assign everyone a title, hire new people and give them titles, and repeat the process. What could go wrong? You know this frustration because you see your bosses, and the bosses of your bosses make stupid, incompetent decisions.

The first answer is the Peter Principle. This principle was introduced in 1969 by Laurence J. Peter and Raymond Hull in a book. Quickly summarized, it claims that people in a hierarchy tend to rise to their “level of incompetence”. People work hard, get promoted, and this continues. Eventually, they’ll get promoted to a role they are not qualified for and they will stay there. Andy Grove discusses it in High Output Management. At best, he claims, a company can hope to contain it and limit it.

The second danger is the Law of Crappy People.

In a large organization: “For any title, the worst person holding it will set the bar for acceptable performance for that title”.

Say your weakest vice president is Jasper. Now that Jasper has set the lowest bar, the range of acceptable performance has been established. The VP title at your company now means anyone who performs better than Jasper. Your directors may not be VP’s, but that’s who they compare themselves to. They will shoot to rise to the level of the worst performing vice president, “no worse than Jasper”. In their minds, they should be promoted because they are not clearly worse than Jasper.

Though it sucks, both the Peter Principle and the Law of Crappy People are inevitable. You can’t avoid them in any hierarchy system. They can only be contained, limited and managed. There will always be a least productive executive, and this is the bar people will shoot for, so you better choose your bar carefully.

A Rigorous Promotion Process

If you want productive employees, you need a rigorous promotion process. Look at the best karate dojos. You fight someone as a test. Your opponent is a person who has already earned that belt. If you want to be a black belt, or a blue belt, you have to beat the current one. It keeps one weak link from rising and pulling the entire bar down.

There is no agreed upon means of testing to see if you can do a job. So how do you hold the line?

There are two components to a good job spec. The first is the responsibilities, but the second is the skills the person is expected to have. Be fair: Write them down before you consider who you will promote. This should be an explicit list of what each level requires. It’s crucial to be very specific and define that each level has a set of hard and soft skills it requires. When you read the spec of each level, there should be no room for doubt whether you have passed it or failed it.

Too many great companies delegate promotion choices to a single manager. This creates problems like politics, the Peter Principle and the Law of Crappy People. For all roles from individual contributor up, if someone wants a promotion, it’s not the manager that decides, it’s a panel of the higher-ups in the organization. The manager is expected to argue why the candidate deserves the promotion. They compare the candidates performance against the job spec. Remember your purpose here: the candidate must be superior to the weakest performer at that level, so that the bar doesn’t lower. If you have a weak Engineering team, they may allow a weak person through and set a terrible bar. The opposite is also true: some strong departments may make a candidate work insanely hard to earn promotion. Neither should be allowed. Managers aren’t allowed to say “In my department, we do things differently.” The bar is the bar.

The Two Schools

Some companies give everyone giant, impressive titles. Others keep them small. Marc Andreessen and Mark Zuckerberg represent the two schools.

Employees want salary, bonus, stock options, span of control and titles. Andreessen says that the least expensive of these is the title. Since it costs the company nothing, give each employee the biggest possible title. If you can’t compete on salary or stock options, you can offer a huge, impressive title as compensation. If they are an assistant VP of this or that and you offer them a senior VP, they just might go with you.

Zuckerberg went the other way. Facebook’s titles are deliberately lower than the industry standard, and people who were Senior Vice Presidents elsewhere have to accept titles of Director or Manager. It’s important to avoid jerking the ladder out under the feet of people who have already done a lot to get where they are. If you give the new hire a title that your current VP thinks he is better than, it creates resentment and morale problems.

Zuckerberg doesn’t want people who don’t have influence having titles that make others think that they do have influence. If everyone is a vice president, nobody is a vice president.

In many companies, Marketing, Sales and Finance will get Vice Presidents, while Engineering and Product Management get Directors. The result is that engineers, without impressive titles, feel like lesser citizens of the company. If you are VP of Sales, it is easier for you to get meetings with heads of companies than if you were Director of Sales. That helps outside, but Zuckerberg wants product people and engineers at the center of Facebook’s culture.

Could they land some more hires if they had higher titles internally? Certainly. But someone only interested in the title should not be hired in the first place. Facebook built its hiring and onboarding so that the right people opt in and the wrong ones opt out. The goal is to hire people for whom the other parts of the compensation package are much more valuable than the title.

The truth is, each solves a different problem for a different company. Facebook has many recruiting advantages, so it can afford low titles. If you need the hires and can’t pay market rates, you may need Andreessen’s approach. Whatever system you use, be clear internally what the titles mean, and let everyone know where they are on the ladder and how to climb.

Without that structure, people will invent their own. Don’t let people who need to focus on their work waste time worrying about anything besides the work. The sooner you establish that no-one gets extra say or votes because of a title, the sooner you go back to working together as a team. Get it wrong and you get petty politics, bureaucracy and your team stops growing.