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 time, regarding his performance.
Thirdly, an outstanding employee with high compa-ratio would get lower pay increase compared to an employee with average compa-ratio, given the same performance ratings. This salary determination system discouraged outstanding employees to continue to perform as the reward they get out of this system was capped and limited, and similar to what average employees would get for their effort. From the case, one of the employee had actually voiced out that it was demoralizing and demotivating as no matter how hard he work, he will still get the same rating as everyone else and the same 5 percent increase in salary. In addition, as reflected from the case, the vast majority of the employees received 3 or 4 while very few received 1,2 and 5. There was a forced distribution for performance rating. This system had caused criterion deficiency as the determination of the employees’ salary was not clearly assessed on their performance and thus, making the outstanding performers to feel inequity. Causal 3: No fairness in the Performance Measures (Biasness) There was a significant amount of complaints from the employees on the performance appraisal system as there were no fairness in the performance measures. This was caused by the biasness of the appraiser.
The contributory factors of biasness could be vanity, narcissism, laziness and frivolity (Michael, 2007). For vanity, the appraiser would want to give high ratings to his subordinate so as to make his people and department to look good and get good bonuses and other rewards. In the case, an employee who was an appraiser commented that he was unable to rate his people objectively as other directors were giving all their people a rating of 4, and it makes him hard to give his people a rating of less than 4. For narcissism, the appraiser would measure performance using his own point of view. An employee reflected that managers were afraid of giving experienced people a rating of less than 4 but willing to give new people a rating of 3. The managers’ point of view was that experienced employees would get a rating of 4 and above while new employees would get a rating of 3. In the case of laziness, the appraiser measures assumed performance without any thoughts and efforts. This could be related to the case whereby the experienced employees would be rated higher than the newcomers as it was assumed by the appraiser that the experienced employees were better than the newcomers in term of performance.
Lastly, for frivolity, the appraiser was not serious in the appraisal and would look for ways to blame others rather than shouldering the responsibility for improving performance. From the case, an employee who performed well was not given a rating of 5 by his supervisor, as his supervisor did not get a 5 for his performance appraisal. It might be due to the supervisor’s self-interest that made him reluctant to give a rating of 5 to his subordinate. These errors of appraisal had caused the performance measures to lose its values and resulted in criterion deficiency and contamination as the appraisers were not doing their appraisal properly. 3) How?
Recommendation 1 to address Causal 1: Identify Conceptual Criteria through Employees’ Job Analysis Firstly, the company should use job analysis as the procedure to find the criteria and job performance scope for its employees in order to eliminate criterion deficiency and contamination and increase criterion relevance. Job analysis would help to identify conceptual criteria such as observable job behaviors and characteristics of the job environment. Based on a relevant set of performance criteria, the management would then be able to measure and reward their employees’ performance effectively and would in turns, accurately reflects the effectiveness of the organization and eliminate cases whereby most of the employees exceeded job expectations when the company was only doing average in performance.
Recommendation 2 to address Causal 2: Employee Comparison models (Rank-order method) as the Appraisal Method for Salary Determination Secondly, in order to improve on the way that the company determine the employees’ salary, the management can implement rank-order method as the performance rating for salary determination. In the company’s existing performance appraisal program, the management used forced distribution whereby the vast majority of the employees were given an average ratings and very few employees were given in the high and low ratings. This was reflected in the salary determination for the employees where there were no significant difference in the salary among the employees. It was ineffective to some extent in rewarding the outstanding performers as only a small proportion or percentage of the employees would get high ratings for their performance. Thus, it was recommended for the management to use the rank-order method so as to force the appraiser to perform detailed analysis on the employees and rank them in order of their performance.
Unlike forced distribution, the rank-order method can be motivating for the employees to perform as it objectively identify the worst and outstanding performers without the restriction of the quotas to meet in these two categories. When the salary determination system was paired up with Rank-order Appraisal method, according to the order of employees’ ranking, it can create a distinct gaps in terms of Hay points and Compa-Ratio between poor to average and high performers. Also, the employees in top rankings would get higher ratings in performance appraisal. Based on the salary line formula, rank-order performance rating method would significantly increase the salary gap between average and high performers contributed by the increase in the Hay Points, Compa-Ratio and performance ratings earned by the high performers.
Recommendation 3 to address Causal 3: An Ongoing Assessment & Self-Assessment (360 Degrees Feedback) Thirdly, in addition of the yearly formal performance appraisal, the company can introduce a weekly or monthly ongoing performance assessment and self-assessment to measure its employees’ performance effectively. The ongoing assessment must be objective, job-related and provide appeal process for employees who are not satisfied with the performance rating. With an ongoing assessments put in place, the management would minimize biasness by using and compare a variety of performance evaluations such as 360 degrees feedback that involve multiple appraisers and would also prevent the appraiser to appraise based on their own biasness without any substantial proof on the employees’ performance. The ongoing assessment would promote fairness in performance appraisal.
1) Merck & Co., Inc. (A)
2) The 7 Deadly Sins of Performance Measurement and How to Avoid Them