Peter Principle Discussion - Do you experience it at your workplace?

The Peter Principle states that "in a hierarchy every employee tends to rise to his level of incompetence", meaning that employees tend to be promoted until they reach a position at which they cannot work competently.

One of my lecturers had told me in my MBA preparation class that Peter Principle is one of the must 'know' principles in corporate world. I'd like to listen to your views on why this happens? Also tell me whether you agree with the principle or not.