Brief Background on Merck & Co. Performance Appraisal System The past and existing performance appraisal of Merck & Co. was ineffective to identify and reward performance to a certain extent. Although the company was paying their employees around seven to eight percent more than the average compensation in other large companies, the performance appraisal system did not clearly identified outstanding performance, which caused inequity in rewarding performance and led to unhappiness among the employees, especially the high performers. Compared to the average performers, there was only marginal increase in salary for outstanding performers. Without proper recognition and rewards, the company was at risk of losing its high performers and keeping the worst performers. Core Problems and Its Causal Identification: High Degree of Criterion Deficiency and Criterion Contamination The core problems identified for inequity in performance appraisal was the high degree of Criterion Deficiency and Criterion Contamination in performance appraisal, forced distribution in performance rating and biasness in performance appraisal. There were 3 causal for the core problems. The 3 causal were namely: 1) the company's absolute performance rating scale, 2) company's salary determination under the old plan and 3) superiors' biasness in appraisal. Recommendation Using Core Concepts to Solve the High Degree of Criterion Deficiency and Criterion Contamination The 3 proposed recommendation to address the 3 causal are namely: 1) identifying conceptual criteria through employees' job analysis to eliminate criterion deficiency and contamination in performance appraisal, 2) employee comparison models (rank-order method) to identify outstanding performers under salary determination and 3) introducing an ongoing assessment to eliminate superior's biasness. 2) WHAT?
Causal 1: Performance Appraisal under the Old Plan (Criterion Deficiency & Criterion Contamination) The Absolute performance rating scale could only rate the individual's performance independent of the performances of other employees. In my opinion, this individual's performance rating scale was no longer relevant or sufficient in big company like Merck & Co in the present. From the case, it was noted that an employee was dissatisfied that the company's performance was average and 83 percent of the employees were actually exceeding job expectations. This had proven that the performance appraisal system was inaccurate in measuring the employee's performance. For example, it might be due to the fact that the effectiveness of the company depends on an individual's performance, that was interdependent on his subordinates, superior and even colleagues in a team context. Thus, an absolute performance rating scale would be ineffective in identifying and rewarding true performance as it had caused a criterion deficiency of excluding the team performance as one of the important criteria for performance appraisal. Causal 2: Salary Determination under the Old Plan (Forced Distribution for Performance Rating) In Merck & Co., the salaries of the employees were determined by a salary line formula comprises of the Hay points system. The employees would then get their actual salary based on their percentage for compa-ratio on the control point. On the surface, this system seems to be structured in rewarding based on merit, but in fact, it was not effective in rewarding outstanding performers. Firstly, an employee's compa-ratio would always be capped at the maximum of 125 percent. In other words, an employee can only earn a maximum of 25 percent more of the normal 100 percent salary even he had performed exceptionally well in his job. Secondly, consistent good performers were unable to maintain compa-ratio of 120 percent and above due to the annual revision on the control points. When the control points increased, the compa-ratio of an employee would dropped for most of the...
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