Human Resources Management 3400
Work Assignment 3 – Performance Evaluation and Management
The Case: The ABC Software Company
You have just taken over as HR manager of the ABC Software Company, joining the company from the outside, the DEF Company. The date is January 25, 2020 and one of the things demanding your immediate attention is the company’s system of appraising performance. Your predecessor has given you the following information on ABC’s appraisal process before retiring (and immediately going on a cruise round the world where she cannot be reached for the next six weeks):
- Responsibility for appraising performance rests with first line managers who do not have to seek approval from their second liners before finalizing the rating and appraising their employees.
- The company’s performance evaluation (PE) system is MBO based, i.e.managers appraise employee performance based on results achieved. Managers are encouraged, however, to obtain 360 degree feedback on behavior before finalizing the rating.
- The rating scale has four points and goes from A to D, A being outstanding and D being unsatisfactory.
- First line managers receive no guidance on the desired rating distribution from senior management.
- The company has a merit based compensation system according to which A performers get a one-time lump sum bonus of 5 % (based on the previous year’s compensation) whereas B performers get a 3 % bonus. C performers receive no bonus at all. In case no rating exists, employees receive a 3 % bonus. No other salary differentiation takes place.
- The company has a policy of managing out all D performers immediately. C performers, so the policy, are to be managed out if they receive three consecutive C ratings.
- When it comes to promotions, the company has a policy of only promoting A performers. When promotions come up, the company will scan employee records and select from among those rated A.
- Management development training is only open to those rated A or B.
- The performance evaluation system follows an annual cycle according to which all appraisals must take place by the end of January. By the end of February, all objectives for the current year must be in place.
You are asking your staff for a report on the current status and find the following:
- The current completion rate of performance appraisals for 2019 is 65 %, i.e. 35 % of all appraisals due have not yet been completed. Final completion rates for 2018were 82 %; for 2017 the corresponding number was 86 %.
- Rating distributions were as follows:
|2019 (preliminary, based on 65 % of appraisals completed)
- Nobody has ever been managed out because of unsatisfactory performance.
You are appalled by what you have found. Your previous role as Assistant HR manager of the DEF Company simply did not prepare you for this situation. At DEF, rating distributions were balanced, i.e. bell-shaped, and completion rates were always close to 100 %, i.e. managers made sure that all employees were appraised without exception.
- What exactly is wrong with the ABC Software Company’s PE system and what changes will you want to implement to the PE system to prevent the problems from reoccurring in the following appraisal period? Please focus on both the rating distribution and on the completion rate for appraisals.
- Can you think of a quick fix for the problems regarding 2019 appraisals? You realize you cannot change the ratings for appraisals already performed but could you do something to improve the completion rate for 2019appraisals?