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Performance Appraisal System: Case Study


In 1985, the chief executive officer (CEO) of Merck established a new committee aimed at analyzing and reviewing personnel practices and policies. The case reveals that the biggest challenge affecting this pharmaceutical company was the best way to reward and identify exceptional and talented workers. The absence of an effective employee performance appraisal system made it impossible for the company to offer adequate rewards and compensation depending on the contributions of workers. This gap requires a new or superior model in an attempt to improve productivity and minimize turnover.

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For many years, Merck has been using these three Hay points to compensate its employees: problem solving, know how, and accountability. The surveys undertaken annually resulted in pay increases for individuals with better ratings. Salaries were capped at around 125 percent of the set control point (Murphy, 1990). Despite such procedures, the company did not have an effective performance appraisal system. The findings of the report revealed that managers gave normal ratings of 3 or 4 to the targeted employees (Murphy, 1990). Despite such ratings, the company continued to perform averagely. With such issues in place, many workers believed that the level of turnover would increase significantly in the future and affect organizational performance.


The current predicament affecting this company is attributable to the nature of the established performance appraisal system. The use of Hay points can become an effective model for identifying employees’ contributions and rewarding them accordingly. Unfortunately, those in charge fail to consider the achievements of exemplary employees and treat majority of them as average in terms of performance. This gap explains why jobs should be measured based on a systematic framework that fosters consistency and fairness (Murphy, 1990). Managers fail to consider the significance of parity and transparency when appraising their workers. This malpractice makes it impossible for them to feel empowered and continue improving organizational performance.


After examining the predicaments affecting this company, there is a need for its leaders to consider various alternatives that can transform the current situation. The first one is to revise the existing performance appraisal and salary administration. The rationale behind this alternative is that it will address the current gaps and empower more employees (EL-Hajji, 2015). The second option is doing away with the existing system and introducing a new one. This model should be informed by the challenges and problems different stakeholders present. The rationale is that the approach will address the outlined issues and eventually deliver positive results. These two options will deliver various consequences, such as reduced turnover, increased performance, and desire to increase profitability.

Proposed Solution

The most realistic and suitable solution is to revise the existing performance appraisal system. The first change is to ensure that employees are rated accurately or rationally depending on the aspects of the Hay scheme (Khan, Khan, & Khan, 2017). The second one is focusing on practices that can maximize the level of retention. This option is the best since it is affordable and less expensive for the company. It is also capable of transforming the established practices within a short period (EL-Hajji, 2015). The anticipated consequence is that the organization will overcome the current predicaments and increase workers’ contributions.

The best follow-up actions revolves around supporting the outlined option using a powerful change model and implementing the concept of continuous improvement (Idowu, 2017). These initiatives will promote sustainability and ensure that emerging issues are addressed. In conclusion, this solution is effective and capable of making the Merck a profitable organization in its industry.


EL-Hajji, M. A. (2015). The Hay system of job evaluation: A critical analysis. Journal of Human Resources Management and Labor Studies, 3(1), 1-22. Web.

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Idowu, A. O. (2017). Effectiveness of performance appraisal system and its effect on employee motivation. Nile Journal of Business and Economics, 5, 15-39. Web.

Khan, Z., Khan, A. S., & Khan, I. (2017). Impact of performance appraisal on employee’s performance including the moderating role of motivation: A survey of commercial banks in Dera Ismail Khan, Khyber Pakhtunkhwa, Pakistan. Universal Journal of Industrial and Business Management, 5(1) 1-9. Web.

Murphy, K. A. (1990). Merck & Co., Inc. (A). HBS No. 491-005. Boston, MA: Harvard Business School.

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