THE MANAGER'S MEMO

FROM: P. Wilcox, President
TO: O. Hansen, Vice President, Human Resource Management
RE: Dissatisfied Former Employees

As you know, within the past 6 months, three of our most capable divisional vice presidents have left the company to take positions with our major competitor. Clearly, pay was not the problem, as these executives received a level of salary plus bonuses that was until then unprecedented in the industry. From recent conversations with them and some of the remaining executive team, all I have been able to learn is that there is some dissatisfaction with our performance appraisal system. One of the departing executives made a comment about there being no incentive to innovate. I really don't understand these remarks. We spent a great deal of time trying to develop a performance rating scale that is fair and that rewards results, not personality.

I cannot think of a better system than our method of assigning points for each product that exceeds expected performance, deducting points for failed ideas, and paying a generous bonus based on accumulated points. The system penalizes executives for failures, but it also encourages them to think carefully before launching risky ventures.

Furthermore, one of the departing executives had never had an idea that failed. Clearly, they benefited from the performance rating system. I would appreciate your letting me know what you learned from your exit interviews with these former executives. If the performance appraisal system really is the reason they left, how can we modify it to avoid losing key people in the future?

CASE DISCUSSION QUESTIONS
Assume that you are the vice president of the human resource management division and respond to the president's memo. Assume that the executives who left were in fact dissatisfied with the performance appraisal system. From the information given in the president's memo, what types of compensation was the company generous in providing, and what types were lacking? How can the company modify its performance appraisal system to offer the rewards it is not providing?