Merck Analysis

Their appraisal system was introduced in 1978

Merck rates employees based on scale from 1 to 5

Merck's performance appraisal system was the biggest issue in identifying and regarding performance and therefore no one ever seems to be satisfied with it

Outstanding employees get salary increase only marginally better than average performing employee

Managers afraid to give experienced people low rating which does not encourage further learning and growth

Lack of equity because bosses were afraid to give anything bellow average (majority of employees are rated between 3-4 leading to creation of sense that everything is on satisfying level and therefore no need for aggressive further development)

Company's review committee felt that the only way is that we need to improve as a company diminishing importance of personal development and further individual growth

In order for them to become learning company Merck should implement absolute rating and adopt relative among the employees which would make employees more competitive and keen for further growth and development

Majority of people get average grades, very few people graded 5 or 1. This is supported by the data in Exhibit A2:

Only 1.42% received 5

Only 0.12% received a grade of 1

Inadequate rewards for excellent performers

The limitation of 125% compa-ratio limits the opportunity to reward high performers

No clear criteria to assign a certain grade

Managers are afraid to give experienced employees grades 1,2 or 3

Some managers refuse to give a 5

Over-performers leave because they didn't receive adequate rewards and underperformers stay within the organization

Lack of alignment between performance grading and actual company performance

Managers don't "play by the same rules"

Most of the problems are evident in exhibit A2, but not all of them (e.g. lack of clear evaluation criteria cannot be observed)