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       Company’s History Employee Relations Review Committee Performance Appraisal Salary Determination Flaws in Appraisal System Compa ratio calculation and analysis Recommendations .

Timoptic. Clinoril. Founded by Friedrich Jacob Merck. Mefoxin.     Expanded in drug manufacturing in 1827. Mevacor Annual sales grew from $218 million in 1960 to $6. Introduced Indocin. Aldomet. It is a pharmaceutical company headquartered in Rahway. New Jersey. Today. Pepcid.  . it is nation’s largest provider of prescription medicines.6 billion in 1989.

Ranked first in innovativeness. shareholder value. inflation and change in foreign exchange rates. Selected “ America’s Most Admired Corporation” by Fortune magazine. But Merck’s ROA declined in early 1980s and its performance lagged behind by 1983. Higher than average return on assets. product quality and financial soundness. Some causes were disappointing new products.     .

Determine whether policies and practices are being adequately communicated to employees in a way they can clearly understand. 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.    . Review the application of these policies and practices to determine whether they are being applied consistent with objectives set forth.

 . 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. thus supervisors chose from 13 different rating categories. Merck’s 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.



847 per month. . a mid-level employee with 500 Hay points had a 1986 control point of $3.  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. Hay points are converted to a “control point” using a salary line formula. and the sum of these scores defines the Hay points for each position in the organization. For example. the 1986 salary line formula was:. and accountability. problem solving. Numerical scores are assigned to each factor according to guidelines provided by Hay Associates.  control point = $1502 + $4.69x(Hay points)  Thus.

 An employee’s compa-ratio(actual salary as a percentage of the control point) goes up each time he/she gets a merit increase. 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.   . and falls whenever the salary line formula is moved upward.

  actual salary as a percentage of the control point = Compa ratio The employee’s actual salary range from 80% to 125% of the control point     Thus salary range = 80% of 3847$ = 3077. salary range as above: Min Compa ratio = 80 mid= 100 Max = 125 . Maximum salary = 4808$     When control point is 3847$.75 = 4809 approx Min salary range = 3078$.6 = 3078 approx 125% of 3846 $ = 4808.


Managers afraid to give experienced people low ratings. No clear identification of outstanding performances Different ideas regarding how to structure a performance appraisal system. Homogenized the rating method by giving uniform rate to everyone. Outstanding performers gets salary increase only marginally than those to average performers.    Lack of equity as bosses were afraid to give anything less that an average. Outstanding performer rarely received an outstanding reward as people in the division were rated the same. . Supervisors are reluctant in giving high ratings despite of working hard.      Negative feeling of some of the best performers concerning rewards.

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  . 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.

 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.

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