Daphne Jones has recently been appointed as Personnel Manager of the Cavendish Hall Hotel, a 200-bedroom, four-star country house hotel located in rolling hills a few miles south of a major northern industrial conurbation. The hotel provides a wide range of conference and banqueting facilities and is a popular wedding location. Despite poor reviews from guests concerning the cost of drinks and the quality of the food on offer, the hotel is financially successful, having recently recorded increased annual profits.

Soon after her appointment, Daphne decides that it is necessary and desirable to introduce a new payment system which links reward to individual effort and competency. She is concerned that the present system of paying everyone in a job role the same rate irrespective of their individual performance is unfair and tends to demotivate the best performers. She therefore decides to take a different approach when determining this year’s annual pay rises:

1. Each member of staff will receive a 1% salary increase regardless of performance to take account of the increased cost of living.

2. Each line manager will be required to score their staff based on their individual performance over the past year. There are four options:

• Excellent 

• Good 

• Satisfactory 

• Unsatisfactory.

3. Staff scored as ‘excellent’ will receive a 4% pay rise (3% plus the 1% cost of living increase), those marked as ‘good’ will receive 3% and those as ‘satisfactory’ 2%. People who are marked as ‘unsatisfactory’ will simply receive the 1% cost of living increase.

The hotel has not hitherto operated any kind of formal performance management system.

There are no annual appraisals or development reviews. Managers vary greatly in the extent to which they communicate with their staff at all, let alone to discuss their individual performance. For many the only indicator they have that they are doing a good job is the amount they receive from guests in the form of tips. As a result, when the new scheme is announced in a series of staff meetings, there is enormous excitement. There is massive anticipation among staff in the days and weeks running up to the announcement of the pay awards.

At the last minute, however, there are hitches and as a result the announcement is delayed for a week. This occurs because Daphne finds herself disagreeing profoundly with the scores awarded by two of her managers.

George Clapham, the Head Porter, has awarded all his staff excellent ratings. When Daphne questions him about this, he replies that he thinks all his lads are wonderful, that they have all worked very hard over the last year and that they all deserve the full 4%. Surely, Daphne argues, he cannot give Graham Dudd an excellent rating? Not only has he been absent most of the past year, but he is regularly found away from his post chatting up chambermaids in the staff room?

George argues that Graham means well and is greatly liked by his colleagues. Daphne insists he is downgraded to ‘satisfactory’.

Henry Oldham-Down, the Head Chef, has awarded two of his senior staff excellent ratings, but has rated all the commis chefs and kitchen porters as ‘unsatisfactory’. When questioned about this, Henry says that they are all ‘crap’ and a waste of space as far as he is concerned and that giving them the 1% cost of living rise is much more than they deserve. Daphne lists some names of kitchen staff who she thinks do a good job. After each name is mentioned Henry just says ‘crap’.

Daphne insists that one or two of the staff are upgraded to ‘satisfactory’.

The following week letters are sent to all staff telling them how they have been rated by their managers and what the implications are for their pay. At the end of the letter is a sentence that asks staff who are unhappy with their pay rises to see Daphne Jones.

The following day a long line of disappointed staff forms outside Daphne’s office. There is a perceivable drop in morale and this leads to reduced effort. In the coming weeks absence rates increase and guest complaints rise. There are particular problems in the kitchen, leading several guests to write very strongly worded letters of complaint.

Daphne is not surprised that poor performers are disappointed, but she finds it hard to understand why so many strong performers who have been rated ‘good’ are so negative about the whole exercise. What is more, she finds herself under fire from the Finance Director of the company which owns the hotel. He says that the pay bill is now too high and that it will have to be cut back next year.

The General Manager of Cavendish Hall thinks that the problems with the scheme have mainly been caused by different managers rating people according to different criteria. Next year, he says, a forced ranking system will be used. This will mean that each line manager will be asked to rank their staff in order of performance. The top 25% will then receive the excellent rating and highest pay rise. Those in the second quartile will be scored as ‘good’ and those in the third and fourth quartiles as ‘satisfactory’ and ‘unsatisfactory’ respectively. This system also means that a budget can be set and that it will be adhered to in practice.

Questions

1. What was wrong with the design of the payment system?

2. What was wrong with the way it was introduced?

3. What do you think of the new ‘forced ranking system’ that is planned for next year?

4. What alternative type of system would you argue should be introduced and why?