1. What problems do you see in the performance appraisal system and accompanying merit pay system? Did any of these problems contribute to the people problems John had with his two employees in the performance review process?

2. What might John have done differently in the early communications process to improve later performance review sessions?

3. Should Billy Ray have quit? Why? Should John have accepted his return? What other action might Billy Ray have taken that could have been hurtful to the company?

4. Was Elizabeth treated fairly? Should initiative be a performance dimension? What other action might she take? Could she make a case that she was discriminated against? What defense, if any, might the company have?

Background American Energy Development (AED) drills for oil using both vertical and horizontal ("fracking") drilling procedures. Financing for these operations in Pennsylvania and Texas comes largely through limited partnerships. The company identifies investors who become limited partners sharing in any successful drilling operations for the wells they have partially funded. The founder of AED, Ron Robertson, recently passed away. His son John Robertson took over as CEO in 2014 and is steering a much more aggressive land acquisition strategy (for drilling wells) than was advocated by his father. Two hundred million dollars was raised last year to purchase land in Texas. Indeed, much of the operation is shifting to Texas and away from Pennsylvania because Texas has more lenient environmental laws govering fracking. Sixteen months ago, six new employees were hired to help kick-start the Texas operation. Additionally, seven employees were voluntarily relocated to Dallas Fort Worth (DFW) from the Buffalo, NY, headquarters. John Robertson also relocated to DFW as a sign of his commitment to this new facility. Don Welch, chief operating officer and president, remains behind in Buffalo to run that operation. Present John Robertson is a transplant from the aggressive, fast-moving trenches of Wall Street, where as a broker he was weaned on tough performance appraisals and an incentive system that richly rewarded success stories and quickly discarded poor performers. He wants to instill a culture exactly like that in the DFW office. When he hired the six new key employees sixteen months ago, his early discussions with them included the fact that failure would not be accepted. No one was entitled to a job, and it must be earned each day. Of the six new employees, two stand out for different reasons. piul.. Billy Ray Jenson Billy Ray is a petroleum engineer with 30 years' experience after graduating from the University of Texas petroleum engineering program. He was hired in as senior engineer at a base wage of $216,000, a figure that matched the market rate. Market rate is a difficult figure to determine in Texas these days. More than 100.000 employees have been terminated in one of the worst downtums in the gas and oil economy in recent decades. Billy Ray is very grateful to get a job with a very competitive salary. He also is eligible for a 3 percent bonus on any wells that "hit" if he is the engineer of record for that field. As per agreement with John Robertson, Billy Ray will get his first full performance review in two weeks. Elizabeth Andrews Elizabeth also is a petroleum engineer. She has fourteen years' experience and is paid $165,000 with the same bonus arrangement as other petroleum engineers. Elizabeth is very bright and brimming over with initiative. She has made several suggestions for drilling procedures using a holographic technology that has reduced the number of dry wells by 11 percent. The Performance Appraisal System John Robertson told the new employees when they were hired that they would be evaluated by him based on his perceptions of their performance. About one year ago he provided a performance appraisal form that had four performance dimensions rated on a five-point scale. He also communicated base pay increases that would be associated with each rating. The factors and merit increases are as follows: Page 421 Performance Dimension Performance Scale Very Good Good Average Not Good Bad 1 2 3 4 5 Merit increase %) 8 5 3 1 0 Teamwork Productivity Quality Hard Working Not Good Bad Very Good 1 1 8 Good 2 Average 3 3 4 5 5 1 0 Merit increase %) Teamwork Productivity Quality Hard Working Teamwork: Someone who works well with fellow team players and values their efforts and contributions as much as his/her own. Productivity: Amount of assigned work completed in an agreed upon time frame Quality: Elimination of errors and absence of complaints Hard Working: Shows up on time and works more hours than expected. John Robertson's Concerns John Robertson clearly has his dad's DNA. He purposely chose general performance dimensions because he believes the oil business is fast-changing and demands people who are willing to work with a great deal of ambiguity. He doesn't want to be tied down to specific performance dimensions that employees can then use to lawyer up" on him if they believe they didn't get a fair shake. He gave average or good ratings to most of his employees. Two employees, though, are causing him some problems. He likes to link ratings to performance. He's inclined to give Billy Ray Jenson a very good rating, and this would be associated with an 8 percent increase. John is reluctant to give Billy Ray this large an increase because he feels he overpaid the Petroleum Engineer to begin with. After all, there are hundreds of people who could fill his job in Texas, and all of them he believes would work for less. He can't rate Billy Ray Very Good and only give him a 3 percent increase. The merit pay guide is known to all employees. John has decided, therefore, to rate Billy Ray only Average. Billy Ray was great on the teamwork and hardworking dimensions. No question. So John has decided he'll downgrade Billy Ray on productivity and quality. Billy Ray has some promising wells that look like they might deliver, and he is right on target with the number of wells sunk in a one-year time frame. But none of the wells have produced yet. So John figures he can rate Billy Ray lower on that. John also has decided to rate Billy Ray lower on quality. There aren't any hard and fast measures of quality, so John can justify whatever he wants to get an overall rating of average. John has a different issue with Elizabeth Andrews. She is hard-driving and aggressive. She shows great initiative, but he has had many complaints from other engineers that isn't a team player. They ask her for help using her holographic technology, claiming it will help them decide whether a well is worth pursuing. For the most part she tums these requests down, claiming that she is too busy exploring her own wells. She suggests that the others take the same online class at UT Dallas to learn to use holographic technology. On other dimensions Elizabeth is quite good. She works as hard as Billy Ray, has two wells that are producing already, far better than the industry standard for one year, and there have been no quality problems that he knows of. John is inclined to give Elizabeth an average rating because of complaints from other workers. The guys just don't think she is a team player. Page 422 John's Action John gives both workers an average rating. In the performance review Billy Ray takes the news and feedback stoically. However, six days later he tenders his letter of resignation, effective in one week. Two days after that, though, in a very bizarre move, he asks to have the resignation revoked and return to his job. John accepts his change of heart and continues Billy Ray as an employee. Elizabeth is far more confrontational. She maintains that she was indeed a good team player, and that others were taking advantage of her so much that she didn't have time to do her own job. She asserts that she took an online course on her own time and at her own initiative, and that others could do that too. Plus, she says, in response to his rating of her on the quantity dimension, she has two producing wells in only one year's time. That is a phenomenal record, she maintains, and certainly better than any of the other petro engineers John hired for the new office. This statement is accurate. Elizabeth says nothing else during the meeting but leaves the office unhappy, perhaps unhappy enough to do something about it