It sounds like a Dilbert strip but it's true.
From the abstract at Physics arXiv:
The Peter Principle Revisited: A Computational Study
...Here we show, by means of agent based simulations, that if the latter two features actually hold in a given model of an organization with a hierarchical structure, then not only is the Peter principle unavoidable, but also it yields in turn a significant reduction of the global efficiency of the organization.Here is the paper presented at Econophysics Colloquium 2009 (55 page PDF)
Within a game theory-like approach, we explore different promotion strategies and we find, counterintuitively, that in order to avoid such an effect the best ways for improving the efficiency of a given organization are either to promote each time an agent at random or to promote randomly the best and the worst members in terms of competence.
Here is the layman's version in the NYT's 9th Annual Year in Ideas:
...They also tried alternately promoting the absolute best and absolute worst performers. That, too, worked out better than promoting on merit. The scientists say these strategies work because they harness "Parrondo's Paradox," a piece of game theory in which you win by alternating between two losing strategies. "In physics or game theory, this isn't new," says Andrea Rapisarda, a physicist at the University of Catania in Italy and a co-author of the study, which was recently published in the journal Physica A.HT: Improbable Research who awarded the authors the 2010 Ig Nobel Prize in Management for this work.
As Rapisarda points out, if you could know for sure that the people being promoted would excel in their new jobs, that would be the best strategy of all. But if you aren't sure — and in the real world, we rarely are — then random works better.
"The Ig Nobel awards are arguably the highlight of the scientific calendar." --Nature
See also last month's: