StopNShopToday, Inc.'s management team has implemented several of your ideas on incentive pay and is now reviewing the company's performance appraisal forms. These appraisal forms are very old: No one remembers where the forms came from or who made them. When the annual performance appraisals window comes up each store year, managers and assistant managers cringe. This reaction does not occur because the managers hate doing performance appraisals-they simply have not seen very much positive impact from the appraisal discussions, and at least one employee always reacts badly and has a downturn in performance as a result of the criticism. The managers feel that being honest with some employees is a huge risk, and they are not sure the process is worth the trouble.

The current performance form includes the following performance assessment categories:

Procedural knowledge and skill
Verbal communication skills
Creativity
Consistently good judgment
Attendance
Customer service skills

The performance appraisal is an 8-page form with a copy of the employee's job description attached and 6 large blocks for the manager to write down his or her comments on each of the 6 categories. Managers differentiate between poor- and well-performing employees by using words such as great, okay, always, or rarely. An employee can usually infer the manager's overall perception of his or her performance from the way the appraisal is phrased.

The performance appraisals are primarily used for manager and employee feedback. After they are completed and received at corporate headquarters, employees receive a 3% pay increase unless they are about to get fired, which they may receive a lower-pay increase percentage or no increase at all. This creates tension among the employees.

Managers are not given guidance regarding how to describe the employees' positive behaviors and areas needed for improvement. Some managers take this much more seriously than others and are better at choosing factual scenarios to explain their perceptions of the employee's work performance. Several times in the past, the company's vice president of human resources has had to chastise managers regarding the quality of comments the managers included on the form.