The "Peter Principle" is an example of a limitation regarding the use of performance appraisals in making internal staffing decisions.

It is based on the promotions of employees on the basis of their past job performances which can eventually lead to employees not being promoted when they don't perform well. This can then lead to positions being filled by incompetent individuals.

The best way to address the situation is to look more thoroughly at past job evaluations of an employee. Looking for known or unknown skills that match the postion that you are currently wanting to fill. Keep in mind that each supervisior has their own way of evaluating employees, which could lead to bias of some sort.

Taking a good look at the skills needed to perform a job and what the current skills are of a candidate would be very helpful in making a competent choice.