Merck & Co: An analysis


Merck & Co. , Inc. , a significant pharmaceutical company was originally a family owned or operated business in Germany. In 1887, Merck exposed an office in NEW YORK. The venture became incorporated in america in 1908. Today, Merck companies 80 prescription pharmaceuticals and vaccines. At onetime Merck grew from $218 million in 1960 to $6. 6. Billion in 1989.

Mercks Mission Affirmation is as follows:

The mission of Merck is to provide society with superior products and services by growing innovations and alternatives that improve the quality of life and satisfy customer needs, and also to provide employees with important work and progress opportunities, and traders with a superior rate of come back.

For years Merck received many accolades from Fortune publication for best employer. In 1983, Merck experienced a decline and commenced to lag behind their competition. In 1985 the Worker Relations Review Committee was founded. This committee is along the way of critiquing and analyzing its personnel policies and routines, and evaluating adequate communication to employees, and if the policies and routines are effectively being applied constantly with the employees aims and results.

The committee examined employee plans and practices to ascertain if they created an environment that motivates and rewards increased productivity and worker excellence. Worker interviews uncovered that rewards for excellent performance weren't adequate: outstanding performers received salary increases that were, oftentimes, only marginally better than those directed at average performers. A lot of the employees received a rating of three or four 4, there is hardly any differentiation among the organization. In so many cases, outstanding performance was not even clearly revealed.

The second area that the committee evaluated was to determine whether guidelines and tactics are being sufficiently communicated to employees and clearly recognized by all. And most significantly were the guidelines and applied were obtaining the organizations goals. The committee experienced that was certainly had not been the way to encourage the sort of performance we have to excel as an organization. (page 5)

For this case study, I am going to review common problems of performance appraisal systems, why employees may not be ranked objectively predicated on their performance, performance appraisal techniques, Competency-Based, MBO, Force-Ranking, Merit Grid, training, communication and recommendations for enhancing Mercks performance management process.

A companys performance management

A companys performance management process acts as an important foundational element for managing skill and allocating rewards. From a ability management perspective, performance management programs should aid the id of high-potential employees, guide job development and donate to succession planning decisions. From a output and pay perspective, performance management continues to be the most immediate way for management to talk to employees about objectives and link employee performance goals to business goals. Such communication helps to ensure employees understand their job definitions.

In 1978 Performance Appraisal Program was not identifying the very best and bottom performers in the business. Compensation was dependant on characteristics of the job called Hay factors; -know how, problem fixing, and accountability (bottom part level salary) and merit (measured by performance rankings). There were little variations in rewards for great and poor performers.

After revisions in 1986, Merck mandated that performance evaluation be allocated across 5 categories. This was done to help spread the awards tightly related to worker performance and contribution to the organization. The scales modified from absolute to that of relative performance steps were to be used moving forward.

For years Merck has been assigning scores on a range from 1 to 5, predicated on absolute performance) this would only represent the individuals performance from that of others) and were unrestrained. Employee ratings were congested together; only a few employees received the most notable rating 5, and even less received the lowest rating. It is suggested that the salary plan be revised and tied to the comparative performance ratings and relationship pay increases. As shown in Show A2, the majority of the employees (93%) received evaluations from 3 to 4+ in support of 6 received the cheapest ratings of 1 1. This also shows most employees are grouped jointly into few ranking categories. This limited distribution of rankings in Show A2 in part reflects ineffective performance appraisals by the managers. It also signifies few employees whose performance were generally received small rewards for superior performance and small penalties for low performers.

Employee interviews disclosed high degrees of employee dissatisfaction within the performance appraisal system. Whats the utilization of eradicating yourself? You still get the same ranking as everyone else, so you still obtain the same 5% increase. It demoralizing and de-motivating. The committee then felt that certainly was not the best way to encourage the sort of performance we need to excel as a company. At the moment Merck acquired a performance management system that was not doing work for them.

Merck requires a performance management system that stimulates a performance culture where the performance and contributions of the labor force are recognized and rewarded more effectively and fully.

Common Problems of Performance Appraisal Systems

Oberg(1972) identified some typically common problems that hinder the success of appraisal program.

Performance appraisal may be looked at as challenging too much from supervisors - difficult for the first lines supervisor to really know what each is doing.

Standards and evaluations tend to vary with some raters being troublesome as well as others more lenient.

An appraiser may replace organizational benchmarks with personal principles and bias.

Because of lack of communication, standards that your employee thinks he's judged with are occasionally different from those their supervisors actually use.

Appraisal techniques tend to be used as performance panaceas and cannot replace sound selection, location and training programs.

The validity of the evaluations may be reduced by supervisors resistance to making the rankings, due to the pain they feel when needing to confront the employee with negative ratings and negative responses.

Ratings can boomerang when communicated to employees because negative opinions fails to motivate the typical staff and may cause that worker to perform more improperly.

Performance appraisal may hinder a lot more constructive coaching romance between your supervisor and the employee. Supervisors may see the evaluation process as placing them in role of judge.

Despite its standard practice generally in most open public and private organizations for more than 50 years, performance appraisal still has many problems. Raters show amount of resistance to criticizing subordinates, and the judgmental facet of evaluating human performance is subject to both covert (subjective and specific) and overt (prejudice and bias) problems. Raters often aren't trained in employee counseling and may be required to carry out performance appraisals with insufficient or erroneous information about ratee performance. To make a performance appraisal system effective and successful, an organization results in various problems and problems.

The main issues involved in the performance appraisal process are:

Determining the analysis criteria

Create a rating instrument

Lack of competence

Errors in ranking and evaluation


Why employees may well not be scored objectively predicated on their performance

The problem with subjective strategy is the ranking which is not verifiable by others and has the opportunity for bias. The rate biases include: (a) halo effect (b) the problem of central trend, (c) the leniency and strictness biases (d) personal prejudice, and (e) the recent performance effect

Halo Impact: It's the propensity of the raters to rely exceedingly on the ranking of one trait or behavioral awareness in rating others characteristics or behavioral factors. One way of lessening the halo effect is appraising all the employees by one characteristic prior to going to rate based on another trait.

The mistake of Central Tendency: Some raters follow play safe insurance policy in score by score all the employees around the center point of the ranking scale plus they avoid rating individuals at both the extremes of the level. They follow play safe coverage because of answerability to management or insufficient knowledge about the job and person he's rating or least desire for his job.

The Leniency and Strictness: The leniency bias vegetation when some raters have a tendency to be liberal in their rating by assigning higher rates consistently. Such scores do not serve any purpose. Similarly damaging some may be assigning consistently low rates.

Personal Prejudice: In case the rater dislikes any staff or any group, he may rate them at the low end, which might distort the ranking purpose and impact the career of these employees.

The Recent performance Effect: The raters generally remember the recent actions, of the staff at the time of score and rate based on these recent activities beneficial or unfavorable than overall activities.

Based on the worker interviews, I believe the employees felt the appraisal is based on subjectivity, not reliable and the in the middle ratings have an effect on interpersonal relationships and produced setbacks for the organizations. A lot of the employees walked from the process convinced that the management strictly based their rankings on think work. This could be corrected by training raters to rate more accurately

Rater-error training to reduce psychometric errors

Performance dimension training

Performance-standard training

Performance Appraisal Techniques

There are four main approaches for the process of performance management.

Comparative; using standing, forced distribution, paired comparison

Attribute; graphic rating scales, blended standard scales

Behavioral; critical situations, BARS and essay

Results; use of MBO

Performance appraisal is a multistage process relating several activities, which may be administered using a variety of solutions. Some of these approaches are believed below, based on Einstein and LeMere-Labonte, 1989; and Monga, 1983

Intuitive strategy; In this approach, a supervisor or administrator judges the worker based on their understanding of the employee's behavior.

Self-appraisal procedure; Employees examine their own performance using a common format.

Group procedure; The employee is evaluated by a group of persons.

Appraisal based on achieved ends in this kind of approach, appraisal is based on concrete, measurable, work successes judged against set goals or goals established mutually by the subject and the assessor.

Behaviourial method; This technique focuses on detected patterns and observable critical incidents


Another significant feature of any Performance Management Program is the competency-based construction. The HR should take extensive efforts to recognize and validate core performance competencies (i. e. , measurable or observable knowledge, skills, ability, conducts, and other characteristics required by a position) that apply broadly to numerous, if not all, of the positions at Merck.


Management by targets is both a planning and appraisal tool that has many different variations across organizations. As an initial step, organizations aims are recognized from the strategic plan of the business. Each successful lower level in the organizational hierarchy is costed with figuring out work targets that will support attainment of organizational goals. At the beginning of an performance review period, the staff and the supervisor discusses performance aims. At the end of the review period, both again meet to track record results, they are really then compare against targets, in a performance score is determined established about how well the targets were found. The MBO portion of the performance review is regularly up to date to ensure the individual targets are lined with corporate and business and department goals. MBOs provide route, improve the planning process, and increases employee supervisor communication. Using a measurement-based performance appraisal process is the most objective approach to evaluating employees. Among its significant advantages is that it makes the procedure predictable for employees; they'll know precisely what they have to do to earn rewards. And inserting the focus on objective financial, production, quality, or customer results is a lot more useful than centering employees on pleasing their professionals.


I would recommend a Force-ranking where each supervisor goes through his / her list and shares the brands that appear in each quality level. As they discuss and justify their classifications, others on the management team may task the administrator when they have a different point of view on or evaluation of an employee. The management team contains any reclassifications and arrives at your final grouping of the employees by their level of performance.

Force-ranking employees into top-, midsection-, and bottom-performing groupings have intensified this technique in some companies. Standard Electric sorts employees into these three categories, then systematically weeds out the bottom 10%. Others have implemented forced-ranking analysis systems too, including IBM, Hewlett-Packard, Ford, and Sun Microsystems. This technique is somewhat controversial in some organizations. Although the procedure positively differentiates performance in the workplace the key to effective staffing reviews is not in the ranking, however in the discussions about any of it.

Merit Grid for Staff Increases

Developing a Merit Grid for worker increases will provide Merck away for tying pay with their appraisal performance. It will determine what the poorest performer increase should be, what the common and top performers should be paid as a rise. In addition, it differentiates between different levels of performance. Merit Grids Combine 3 Parameters: Level of Performance, Circulation of Employees Within Pay Runs, and Merit Budget Increase Ratio.

The most recent survey data signifies that 94 to 95 percent of private-sector companies have merit pay programs to provide individual pay increases to their eligible ("exempt") employees, and 71 percent of companies have merit pay programs for their nonunion hourly employees. Performance appraisal reaches the center of merit pay plans. Although you'll find so many modifications in systems labeled as merit plans, some kind of rating of each employee's performance precedes reimbursement decisions.

The plan is linked with a management-by-objectives system of performance appraisal for exempt employees and a work specifications or graphic ranking level performance appraisal for salaried nonexempt employees.

The typical appraisal summary format has four to five degrees of performance.

Pay rises are administered via a matrix (merit grid) that uses both an employee's performance level and position in the pay quality to ascertain a pre-specified ratio increase (or increase range) in bottom salary. The other components of the merit grid are the organization's pay increase budget and enough time between pay increases.

(cited in http://www. nap. edu/openbook. php?record_id=1751&page=10)


In order to effectively administer the performance appraisal process, it is crucial that employees understand their job expectations and how those expectations relate with the performance requirements. This can be accomplished through immediate, ongoing communication between supervisor and subordinate. Coach all employees along the way. Perhaps the solo most important key is to provide training to employees on

The specific details of the new appraisal process and

How to provide constructive opinions in a beneficial, noncritical manner.

Learning to receive feedback.

Instructions for the Performance Appraisal Form direct supervisors to utilize employees in developing their performance plans by discussing goals and objectives of the work group and how the employees work plays a part in the planned results and the business enterprise objectives.


Performance targets should be communicated at the beginning of the review period and reinforced periodically during that period. On top of that, it is inspired that the supervisor review the performance requirements used in the appraisal process and the ways in which they relate to job expectations. In this way, the employee will have an ongoing perception of the level of performance they're delivering and the foundation upon which that performance will be scored. This will stay away from the "surprise" factor often associated with a performance appraisal process.

There is not a standard time intervals set up as to when or how frequently the ongoing communication relative to expectations should arise. This is influenced by several factors including the level and type of job, the type of the work performed, etc. However, it is prompted that conversations regarding performance objectives occur as a minimum at the beginning of the review period with least an added time through the review period. Encourage professionals/supervisors to keep records on each worker through out the year. This will help ensure that supervisors are knowledgeable about subordinates performance.


I would make the following suggestion to Merck. Have a Performance Management Program that engages the entire organization in handling performalnce and bettering productivity. Develop a procedure for employee performance appraisal that;

Is results-oriented

Is competency-based

Is reinforced by a paperless, automatic system that helps performance plan development, performance monitoring during ranking cycles, and performance rating by the end of the cycle

Results significant distinctions in performance levels

Enables substantive employee involvement

Helpful tools include;

1) Performance Publications - Individuals and their managers trail performance.

2) Self-assessment - Require employees to utilize this best practice worker participation process.

3) Multi-rater feedback - Harness the observations of peers, coworkers, and customers to provide a complete picture of performance.

4) Second Level Supervisory Review - Have the leaders engaged and hold professionals accountable at the same time for on-time, correct, and comprehensive reviews.

5) HR - HR leads the way and also becomes the final step in the product quality confidence process by determining, implementing, and monitoring the performance management process.

Currently at Merck

Total Reimbursement at Merck is comprised of three particular programs, made to recognize and praise different facets of your performance.

Base Pay - Dependant on an employees genuine position available on the market and suffered performance as time passes, as well as development of skills and capabilities.

Incentive Pay - Cash bonus that rewards specific performance through the accomplishment of specified goals and allows employees in any way levels to share in Company and divisional results.

Long-Term Incentives - Equity centered incentives, such as stock options, that acknowledge employees future potential for significant contribution to the Company.

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