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Companys History

Employee Relations Review Committee Performance Appraisal Salary Determination Flaws in Appraisal System Compa ratio calculation and analysis Recommendations

It is a pharmaceutical company headquartered in Rahway, New Jersey.


Founded by Friedrich Jacob Merck.

Expanded in drug manufacturing in 1827.


Today, it is nations largest provider of prescription medicines. Introduced Indocin, Aldomet, Timoptic, Clinoril, Mefoxin, Pepcid, Mevacor Annual sales grew from $218 million in 1960 to $6.6 billion in 1989.

Selected Americas Most Admired Corporation by Fortune magazine.


Ranked first in innovativeness, shareholder value, product quality and financial soundness. Higher than average return on assets. But Mercks ROA declined in early 1980s and its performance lagged behind by 1983. Some causes were disappointing new products, inflation and change in foreign exchange rates.

The committee was formed keeping in mind various flaws in the system and appraisal issues which emphasized on the following issues:
Examine employee policies and practices to determine if they create and environment that encourages and rewards greater productivity and employee excellence. Determine whether policies and practices are being adequately communicated to employees in a way they can clearly understand. Review the application of these policies and practices to determine whether they are being applied consistent with objectives set forth.

Mercks Performance appraisal and Salary Administration program was first introduced in 1978
Supervisors rated employees on a scale of 1 to 5

5 = exceptional performance and 1 = unacceptable performance


Plusses and minuses were allowed, thus supervisors chose from 13 different rating categories. The scale was absolute and the rating assigned to an individual was to reflect only the performance of the individual independent of performance of others.

Based on job characteristics(measured by HAY POINTS) and merit Hay points are determined by individually evaluating each position in terms of the three hay factors-know how, problem solving, and accountability. Numerical scores are assigned to each factor according to guidelines provided by Hay Associates, and the sum of these scores defines the Hay points for each position in the organization. Hay points are converted to a control point using a salary line formula. For example, the 1986 salary line formula was:;

control point = $1502 + $4.69x(Hay points)

Thus, a mid-level employee with 500 Hay points had a 1986 control point of $3,847 per month.

An employees compa-ratio(actual salary as a percentage of the control point) goes up each time he/she gets a merit increase, and falls whenever the salary line formula is moved upward.
Salary revisions are linked to both control point increases and performance ratings through guidelines established by the personnel department Employees with higher ratings tend to get larger pay increase, while raises for a given performance rating tend to be smaller for employees who have already attained a high compa-ratio.

actual salary as a percentage of the control point = Compa ratio


The employees actual salary range from 80% to 125% of the control point

Thus salary range = 80% of 3847$ = 3077.6 = 3078 approx 125% of 3846 $ = 4808.75 = 4809 approx
Min salary range = 3078$, Maximum salary = 4808$

When control point is 3847$, salary range as above: Min Compa ratio = 80 mid= 100 Max = 125

Negative feeling of some of the best performers concerning rewards. Outstanding performers gets salary increase only marginally than those to average performers. No clear identification of outstanding performances Different ideas regarding how to structure a performance appraisal system. Managers afraid to give experienced people low ratings. Supervisors are reluctant in giving high ratings despite of working hard.

Lack of equity as bosses were afraid to give anything less that an average.
Homogenized the rating method by giving uniform rate to everyone. Outstanding performer rarely received an outstanding reward as people in the division were rated the same.

Performance appraisals are typically conducted by the managers who work closely with the employees every day, because these managers have the specific knowledge required to evaluate their subordinates' performance. Because performance appraisals are often a required but unrewarded managerial task, it is rational for managers to spend no more than the minimum acceptable time and effort in evaluating subordinates' performance

Merck & Co. is an example of a firm which though very successful in its venture can go wrong when it comes to employees and their demands

Merck & Co. should definitely give away with the absolute rating system and adopt relative grading among the employees which will make the employees more competitive.

Advantages:
They force reluctant managers to make difficult decisions and identify the most and least talented members of the work group. They create and sustain a high performance culture in which the workforce continuously improves. Forced distribution is primarily used to eliminate rating errors such as leniency and central tendency Disadvantages They increase unhealthy cut-throat competitiveness; They discourage collaboration and teamwork; forces discriminations between employees even where job performance is quite similar For this reason, raters and ratees do not readily accept this method, especially in small groups or when group members are all of high ability.