Smo Case

Merck & Co. * Compensation for exempt salaried employees at Merck has traditionally ranked among the top 25% of large US companies. * Progressive personnel policies and aggressive pay practices have contributed to high levels of employee loyalty, characterized by low turnover rates. * Performance Appraisal and Salary Administration program: supervisors rated employees on a scale from 1 to 5, with 5 designating exceptional performance and 1 indicating unacceptable performance, + and – included (13 point scale). * Salaries for exempt employees are based on a combination of job characteristic and merit. * Hay points determined based on knowhow, problem solving, and accountability. * Hay points are converted to a control point (average monthly salary) using a salary line formula: Control point= $1502 + $4.69 X (Hay points). * Employee salary can range from 80% to 125% of the control point. * Compa-ratio goes up each time a person gets a merit increase. * Control points pay at 75% for similar positions in the sample of large firms. * Employees with higher ratings tend to get larger pay increases * Issues arise related to identifying and rewarding performance. * There was general agreement among employees that rewards for excellent performance were not adequate: outstanding performers got salary increases that were, in many cases, only marginally better than those given to average performers. In many cases outstanding performance was not even clearly identified. * Complaints include: managers are afraid to give experienced people lower ratings, it is impossible to get a 5, there is no point in working hard because everyone gets the same 5% increase, 83% of people are exceeding expectations, can’t objectively rate people because all the other bosses give their employees 4s, the best are not getting recognized properly, very little differentiation. * Part B * Evaluation of the Performance Appraisal Program,