Promotions assign employees to jobs better suiting their abilities and quickly move up the more talented workers but there are other purposes behind promotions (Baron and Kreps 1999; Lazear 1998; Gibbons 1997).
Employees can be promoted because those employees left behind are motivated to supply more effort and invest in hard to verify human capital by the lure of their own advancement at a later date (Lazear and Rosen 1981; Rosen 1986).
There is no need for tasks, responsibilities and rates of output to change between the pre-promotion and post-promotion jobs (Lazear 1998). More senior jobs may be handsomely paid not because a higher rate of output is expected from the promoted employee but instead, in part at least, to stand as a prize to encourage greater effort by more junior employees (Lazear 1998; Lazear and Rosen 1981).
Promotions as prizes are more common where the individual contributions of team members to joint outputs are costly to measure and reward with accuracy. In such dilemmas, it is often still possible to rank who are the more productive and talented members of teams and to promote their higher performers based on these relativities (Lazear and Rosen 1981; Lazear 1998; Baron and Kreps 1999; Prendergast 1993, 1999).
A major contribution of newly promoted employees to the productivity of their workplaces may be enlivening greater employee effort at the more junior levels in the hope of filling their shoes later (Lazear 1998).
Sports tournaments are an example of promotion tournaments. The huge prize is awarded for a very small advantage in productivity over the next best player.This prize motivates everyone to work harder in something of a rat race.
Utopia, you are standing in it! 
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