We study optimal promotion decisions of hierarchical firms, with one junior and one

senior managerial position, which interact in a search and matching labor market. Workers

acquire experience over time while being employed in a junior position and the firm has to

determine the experience level at which the worker receives a promotion which allows her to

fill a senior position. Promoted workers move to the senior position in their current firrm, if

it is vacant, otherwise they search for senior positions on the market. The promotion cut-offs of the competing firms exhibit strategic complementarity, but we show that generically a

unique stable symmetric general equilibrium exists. If workers have homogeneous skills, then

an increase in the skill level induces faster promotion. In the presence of two skill levels in the

work force an increase of the fraction of high skilled leads to slower promotion of both types

of workers, where the promotion threshold for high skilled workers is substantially below that

for low skilled workers. This implies earlier promotions of high skill workers compared to

the low skilled consistent with available empirical evidence. Finally, we show that inserting

pyramidal firms, which have twice as many junior than senior positions, into the market

induces all firms to promote later. Pyramidal firms in equilibrium promote substantially

later than vertical firms which is supported by the existing empirical findings. The paper

also makes a methodological contribution by combining search and matching theory with

simulations in order to characterize the general equilibrium promotion cut-offs in a market

setting with heterogeneous hierarchical firms.