CASE STUDY: Appraisals At Yarra Bank Assessment

Yarra Bank has a five?level performance appraisal system using a forced ranking distribution. Superior performers (the top 10 per cent) are rated 1, good performers (the next 25 per cent) are rated 2, acceptable performers (the next 45 per cent) are rated 3, marginal performers (the next 15 per cent) are rated 4 and unsatisfactory performers (the bottom 5 per cent) are rated 5. Employees rated 5 are given 3 to 6 months to improve their performance before they are considered for termination. Salary increases (awarded to those rated 1, 2 or 3) and bonus payments (awarded only to those rated 1 or 2) are performance related. Employees rated 4 and 5 are given only legally required increases. Although meant to be confidential, employees quickly learn the ratings of other people in the organisation. Those with a 1 rating are referred to as ‘stars’, those with a 2 rating are called ‘starlets’ and those with a 4 or 5 rating are called ‘dogs’. Employees rated 3 are called ‘workhorses’. Problems arise when a ‘star’ is perceived by co?workers as really belonging to another ranking group. This fosters envy and a reluctance to communicate and cooperate. The typical attitude is that if they are hotshots, let them solve the problem. Likewise, a problem exists with a number of employees rated 3 because they regard their rating as really meaning that they are only average. As a result, they become demotivated, and the better ones (the borderline 2’s) quit the company. Finally, a major source of contention exists with those graded as ‘dogs’. Employees rated 5 who belong to a union are seen as being treated more leniently when it comes to pay increases and terminations than employees who are not union members. Although the company denies favouritism occurs, it is recognised that some managers are reluctant to fire troublesome non?performing employees who belong to a union (and especially those who are members of the United Union of Australia). A major problem also exists with those rated marginal. Although a distinction is made in the performance appraisal record between employees who have been given a 4 rating because they are new or learning a job and those whose performance is rated marginal because, although trained and experienced, they are failing to meet performance standards. Although originally promoted as a management program, over time the performance appraisal program has become regarded more as an HR department exercise. One consequence of this is that many managers claim that the forced distribution of employees (where managers rank each employee from 1 – 5) creates too much ill feeling and is not fair. Some managers (especially the more politically powerful), argue that their department is different (because most of their people are stars or starlets) and refuse to rank anyone as a 4 or 5. Managers who strictly follow the system feel that their employees are disadvantaged as a result. The annual performance appraisal program thus creates considerable tension and dissatisfaction among Yarra Bank’s managers and workers.

Discussion Question

Imagine you are given the task of revamping Yarra Bank’s performance appraisal program. What changes would you make? Why (justify and substantiate your changes)?