Company Name: ____________________________Date: _____________

Scenario: In a continuing effort to boost morale and motivation among your employees, youve decided that you need to implement a performance appraisal system and a merit pay plan. You truly want to establish a strong psychological contract with your employees as you know it can lead to strong employee loyalty and reduced turnover. Youve agreed that you and your partners will not be included in these systems, and that you will continue to pay yourselves only from company profits.

Instructions: Use concepts from this chapter to develop a performance appraisal system and a merit pay plan for your employees. Take care to implement a system and plan that will not need to be adjusted in the future, as you do not want to break your psychological contract with your employees.

Performance Appraisal System:

1. What mix of formal and informal appraisals is best? Explain your decision.

2. What performance factors will be evaluated? Why did you choose this?

3. What methods of appraisal will be most effective? Explain your decision.

4. Who will appraise performance? Why did you choose this?

Merit Pay Plan

5. Will your merit pay plan be based on individual, team, or organizational performance? Explain your reasoning.

6. Will merit pay be given as a salary increase or bonus? Why did you choose this?

7. Specifically, what type or types of merit pay plans will you implement? Explain your choices.