Precision Manufacturing produces machine parts and has nearly 200 production emp

Question

Precision Manufacturing produces machine parts and has nearly 200 production employees and 50 employees in its front office with responsibilities ranging from data entry to marketing. Jackson Smith is the new compensation manager at Precision, and his first task is to implement a merit pay program that would tie to the company’s performance appraisal process. For the last 10 years, all employees have received an annual pay increase, but it has been an across-the-board increase, with all employees receiving the same percentage increase in base pay. Jackson and the company president have agreed that implementing a merit pay program to provide pay increases based on performance would 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. The purpose in implementing the merit pay program is to provide 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 the proposed merit pay program.

The current appraisal process is fairly simple. Once each year, the supervisors at Precision provide their employees a written performance appraisal. The supervisors use a generic form to conduct their appraisals, and the same form is used for all employees. The form asks the supervisor 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 form is completed, the supervisor meets with the employee to share the results. Both the supervisor and the employee sign the form, and then it is placed 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 job descriptions that clearly state their performance expectations. Further, his review of past appraisals suggests that the supervisors tend to rate all of the employees about the same. Very rarely is an employee rated exceptionally high or low; most are rated as average. Finally, it seems that employees and supervisors communicate very little about performance. Aside from the one meeting a year to deliver the performance appraisal, the supervisors tend to talk to employees about their performance only 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 support a merit pay program. First, he must clearly identify the problems with the current performance appraisal process, and then he must lay out a plan to correct any deficiencies.

Questions:

What are some problems with Precision’s performance appraisal process that might cause challenges for Jackson to implement a merit pay program?

What changes do you recommend Precision make to the performance appraisal process to align it with a merit pay program?

Identify and define the central dilemma presented in the case

Select and gather pertinent areas of consideration, and identify critical data and stakeholders (if you need to make assumptions about any of the facts in the case, be sure to specify these assumptions in your analysis)

Gather additional information and research as necessary

Identify and investigate all appropriate possibilities to resolve the central issues, and present at least three different options

Select and present the best solution and include support for the decision that recognizes positions of all the stakeholders

Describe how to implement the best solution and include strategies to address the known challenges. Also include the likely implications of the selected solution.

Explanation / Answer

Merit pay program was being implemented in the company to increase the base pay of the employees as per their performance. Although there were several problems associated with Precision’s current performance appraisal process that might cause a challenge in implementing a merit pay program in the organization.

In merit pay program, the employees’ pay increase is required to be made based on their performance. However, the company did not have written job description for its employees. Hence, it would be difficult for the HR team to understand the performance criteria of employee and judge their actual performance. Besides this, the performance appraisal process contained errors like central tendency as most of the employees were rated average by their supervisor. Leniency errors were also observed as most of the employees got similar reviews. All these factors would hamper effective measurement of employee performance that would further result in problems in effective implementation of merit pay program.

In order to align the performance appraisal process of the company with the merit pay program, Precision needs to make several changes. First of all, it needs to provide a written job description to all its employees after careful evaluation of their roles and responsibilities. Besides, it needs to develop a more comprehensive employee rating technique that can judge the employees on several parameters. Supervisors needs to be provided training on how to measure and rate the employees’ performance without any biasness or errors. Besides, instead of having annual performance review meetings, the performance review meetings should be held more frequently.

The central dilemma in this case includes the impact of new merit pay program on the competitiveness of the company and its impact on different stakeholders of the company. From the last 10 years, the employee of the organization were getting same pay raises. Therefore, implementing a merit based pay might cause dissatisfaction and demotivation of the employees. It would also result in turnovers and layoffs of nonperforming employees. It can also impact the revenue, profit, and growth of the company that would directly impact the shareholders. Merit based pay might also result in unhealthy competition in employees and it might also impact the quality of work, which can further impact customer satisfaction.

The central issues of the case can be resolved with the help of following techniques:

Getting help from experts would be a better option for the company as they can provide an effective merit pay program for different type of employees. The employees’ performances can be improved when their performance will be linked to their pay. It would enable the company in achieving employee satisfaction and enhanced performance. Improved performance of employees would improve the overall growth of organization. Hence, it would benefit the other stakeholders as well.

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