Case study
appraising performance at precision
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

Question

CASE STUDY
Appraising Performance at Precision
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.
Source:
Questions:
1. What are some problems with Precision’s performance appraisal process that might cause challenges for
Jackson to implement a merit pay program? Discuss and justify your answer with relevant examples.
2. What changes do you recommend Precision make to the performance appraisal process to align it with
a merit pay program? Discuss your answer with relevant justification.

Sierra Fleming · Answer

Problems with Precision’s Performance Appraisal Process:
- Lack of Clear Job Descriptions: Without written job descriptions and clear performance expectations, employees and supervisors lack a reference point for evaluations. This absence makes it difficult to measure and evaluate individual performance objectively, which is crucial for a merit-based pay system.
- Generic Appraisal Form: The use of a single generic form for all employees fails to account for the diverse roles and responsibilities across different positions. This approach can result in evaluations that are not tailored to specific job functions, leading to inaccurate assessments.
- Uniform Ratings by Supervisors: The tendency for supervisors to rate employees similarly indicates a potential lack of differentiation in performance levels. This could be due to appraisal bias, insufficient criteria, or a lack of supervisor training, making it hard to justify varied merit-based pay increases.
- Infrequent Feedback: Limited interaction concerning performance discussions—only being addressed if problems arise or during annual reviews—prevents ongoing developmental feedback. Regular feedback is essential for continuous improvement and helps employees understand how they can enhance their performance.
Recommended Changes to Align with a Merit Pay Program:
- Develop Comprehensive Job Descriptions: Create detailed job descriptions with clear performance criteria and expectations for each role. This clarity sets a benchmark for both employees and supervisors and aids in fair and objective evaluations.
- Customize Appraisal Forms: Develop role-specific appraisal forms that reflect the unique responsibilities and competencies required for each position. This customization can lead to more accurate performance assessments.
- Implement Supervisor Training: Provide training sessions for supervisors on how to conduct evaluations effectively and without bias. Educating them about recognizing different performance levels and giving constructive feedback will enhance the accuracy and fairness of appraisals.
- Introduce 360-Degree Feedback: Implement a 360-degree feedback system that includes input from peers, subordinates, and other relevant stakeholders. This method can offer a well-rounded view of an employee’s performance, improve objectivity, and increase credibility in the appraisal process.
- Increase Frequency of Performance Discussions: Establish regular performance check-ins throughout the year to offer continuous feedback and address issues as they arise. This practice can encourage employee development and align ongoing efforts with organizational goals.
- Set Clear Connection Between Performance and Pay: Clearly communicate how performance ratings will influence merit pay. Employees should understand how their efforts translate into financial rewards, which can motivate higher productivity and improvement.

By addressing these areas, Precision Manufacturing can create a robust and fair performance appraisal system that supports and justifies their merit pay program, ultimately aligning employee incentives with company objectives.

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