Merit Pay

    Case 1 Appraising Performance at Precision Precision Manufacturing produces machine parts and has nearly 200 production employees and 50 employees in their front office withresponsibilities ranging from data entry to marketing. Jackson Smith is the new Compensation Manager at Precision and his first task is toimplement a merit pay program that would tie to the company?s performance appraisal process. For the last ten years, all employees havereceived an annual pay increase, but it has been an across the board increase, with all employees receiving the same percentage increase inbase pay. Jackson and the company President have agreed that implementing a merit pay program to provide pay increases based on performancewould support the company?s competitive strategy by rewarding employee productivity. The first step in developing the merit pay program is to ensure that the performance appraisal process aligns with the proposed program. Thepurpose in implementing the merit pay program is to provide the employees with pay increases as a reward for performance, and therefore,effective measurement of performance is essential. Jackson must now review the current appraisal process to ensure it will tie to theproposed merit pay program. The current appraisal process is fairly simple. Once each year the supervisors at Precision provide their employees a written performanceappraisal. The supervisors use a generic form to conduct their appraisals, and the same form is used for all employees. The form asks thesupervisor to rate the employee on a scale of 1 to 5 in four areas: quantity of work, quality of work, attendance and attitude. Once the formis completed, the supervisor meets with the employee to share the results. Both the supervisor and the employee sign the form, and then it isplaced in the employee?s personnel file. Jackson?s initial research on the appraisals has brought several concerns to his attention. First, employees do not have written jobdes?r?ptions that clearly state their performance expectations. Further, his review of past appraisals suggests that the supervisors tend torate all of the employees about the same. Very rarely is an employee rated exceptionally high or low, most are rated as average. Finally, itseems that employees and supervisors communicate very little about performance. Aside from the one meeting a year to deliver the performanceappraisal, the supervisors tend to only talk to employees about their performance if the employee is having a problem. Jackson knows he has a lot of work ahead of him to create a performance appraisal process that will provide a reliable assessment to supporta merit pay program. First he must clearly identify the problems with the current performance appraisal process, and then he must lay-out aplan to correct any deficiencies. 1. What are some problems with Precision?s performance appraisal process that might cause challenges for Jackson to implement a merit payprogram? 2. What changes do you recommend Precision make to the performance appraisal process to align it with a merit pay program?:

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