Smo Case

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  • Published : January 19, 2011
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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, revisions were made. * 13 point scale replaced by five rating descriptor, with a 6th category for new hires. * The new system focuses on performance measured relative to Merck peers. * Performance categories and definitions were clarified and expanded. * Targeted distributions: maximum percentages specified for differentiation b/w employees in order to recognize performance surpassing peers. * New guidelines showing the range of suggested merit pay increases for each rating and compa-ratio category. * Salary revisions can occur any time during the year.

* A Discretionary Award Program was designed to further reward superior performers. Bonuses came as a surprise to high performers, which averaged 10% and 6% of base salary. * 50% of employees felt the performance appraisal program revisions were better, 25% thought it was worse, and 25% saw no difference in the programs. * 63% saw the salary administration program as an improvement, only 8% thought it worse and 29% were equally happy. * Criticisms: Shouldn’t force distribution at the low end or high end to fit the targets, labels are a problem should just rank people, people don’t like finding out they are in the middle, the old program had more gradations and you can’t move someone through with small rewards now, need to begin getting rid of people who are not as good as others, good to have all appraisals at the same time, forced distributions are a problem when people deserve a high rating but don’t get it because there is not enough to go around, the “its his turn” syndrome- providing high ratings in alternative years to be fair * Part C

* Recommendations: Labels should be renamed to underscore percentiles, plan should allow for differences in employee rating distributions depending on the employee’s division performance for the year, employee ratings will depend on divisional performance, more gradations of performance within the old “High Standard”, no forced distribution within...
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