Precision Manufacturing is a company that produces machine parts. It can be stated that Precision Manufacturing is a significant player in this particular industry because it employs 250 employees. In order to remain competitive, the corporate leaders appointed Jackson Smith, the new compensation manager, to implement a merit pay program which is linked to the company’s performance appraisal process. Upon closer examination of the problem’s context, the recommendation was to modify and enhance the company’s performance appraisal process in order to develop a merit pay program that would motivate employees to toil harder. Smith must realize that “increased worker motivation results in increased job performance” (Aamodt, 2010, p. 322). There is not other option but to create an effective and efficient merit pay program that can be harmonized with the company’s vision.

Merit Pay Program

In order to develop an effective merit pay program, it is important to point out that Precision Manufacturing now applies an ill-conceived and defective program of this type. Thus, at first glance it seems that the merit pay program is not established at all because the workers enjoy an annual salary increase. But, in the past ten years, the salary increase was across-the-board. Technically speaking the company utilizes a merit pay program because evaluators were tasked to implement a performance appraisal process. In other words, the salary increase was supposed to be the direct outcome of the abovementioned employees’ performance evaluation. However, this merit pay program is not clear to the employees, which renders it ineffective and useless in gauging performance as well as in motivating workers to increase the quality of their outputs.

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It has to be made clear that from this point forward, Precision Manufacturing must develop an easily comprehendible and effective merit pay program characterized by realistic and measurable evaluation of individual performance. Many significant aspects and factors have to be considered. First of all, Jackson Smith must deal with the problems concerning the Precision Manufacturing’s performance appraisal in order to align it with the implementation of a merit pay program.

The first issue Jackson Smith has to deal with is that there is only one way to evaluate all 250 employees. However, the work description of these 250 employees is varied. There are 200 employees that belong to the manufacturing department. The other 50 employees are part of the front office, though their responsibilities range from data entry to marketing. It is futile to have a standardized evaluation process for someone who works on the factory floor and someone who deals with sales.

Another problematic feature of the abovementioned performance appraisal process is the fact that it is very subjective. The supervisors are given a form to rate their employees under their authority and measure their performance in four key areas using a scale from 1 to 5. These four areas are quantity of work, quality of work, attendance, and attitude. These areas are difficult to judge without a system that can properly measure performance. At the same time the supervisor cannot guard against his personal bias.

Jackson Smith will need to consult experts specializing in the merit pay programs’ development. In the course of his study he will discover that “merit pay is more likely to be preferred by those in higher-level, white-collar positions; by those who are male, good performers, and achievement oriented; and by those who like to work in a climate where performance differences are emphasized and teamwork is not diminished” (Heneman & Werner, 2005, p. 85). Based on this insight, Smith will have to develop a different set of performance evaluation process for the factory workers, a different one for the marketing personnel and another one for those who perform clerical work for the company.

Smith will also have to consider that the “performance standards should be closely linked to the business strategy of the corporation” (Heneman, 2002, p. 385). Smith will have to determine the core competencies or capabilities of the organization, such that state “the organization must be clear about what it does best – what differentiates it from its competitors” (Heneman, 2002, p. 385). In the Precision Manufacturing’s case one only needs to examine the name of the company in order to understand what the group stands for.

Corporate Values

Another important standard is corporate values. Smith will also have to determine the level of performance measurement for the three groups mentioned above. For example, in the case of the factory workers, they must be compensated based on individual outputs and on the performance of their team or business unit. On the other hand, the marketing personnel will have to be compensated based on the merchandize they were able to sell. They have to be compensated based on the amount of contribution they were able to bring into the company.

After the development of the merit pay program, Smith must write it down and he must be able to explain the intricacies of the new system to the employees. There must be an agreement between employees and the employer. In this case Jackson, as the compensation manager, must ensure that every worker at Precision Manufacturing fully understands the arrangement between two parties and, in the established agreement, Jackson must reveal how performance is defined, managed and rewarded. The manager must not allow miscommunication to create misunderstanding and conflict (Greene, 2011).

The following factors must be considered: 1) the need to develop confidence and trust in the performance appraisal process; 2) there must be a clear separation between merit pay from regular pay; and 3) there is a need to establish job-related performance criteria against which merit pay will be determined (Odgers, 2005, p. 186).

There must be a total enhancement of the current performance appraisal process. There is a need to bring in consultants and experts to help them build a Management Information System (MIS). The MIS will enable them to collect pertinent information with regards to the employees’ performance. The MIS will enable them to track the number of units produced by a particular factory worker. The said system will help them track the number of units manufactured by a particular team or business unit. This MIS will help the company track down the number of units sold by the marketing personnel. The same MIS will help the corporate leaders to be informed of tardiness and other performance issues.

In conclusion, Smith has to develop a new performance evaluation process that will help the company reward those who deserve a salary bonus, salary increase and other monetary perks to show them that they are valuable to the company and that their efforts are appreciated. In the process, Smith will discover many types of loopholes. He will be able to solve the crux not only through a thorough investigation, but also by seeking the assistance of experts. He will discover that he needs to develop a system that will be able to measure the worker’s performance based on the goals and vision of the company. He will realize that one critical component, which should be considered during managing the company’s activities and performance, is the development of an efficient and effective Management Information System. This MIS will enable the company to develop a merit pay program that is not biased against gender, age and other sociological factors. The merit pay program is strictly focused on the workers’ performance. As a result the company will experience a surge in productivity.

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