Precision Manufacturing produces machine parts and has nearly 200 production emp

ID: 360865 • Letter: P

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:

3-7. What changes do you recommend Precision make to the performance appraisal process to align it with a merit pay program?

Looking at the above scenario, I would recommend following changes to the Precision to the Performance Appraisal Process:

If Precision implements the above changes it would be in alignment with Jacksons merit pay program and thus support the compensation structure.

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