How do you manage incentives for middle managers? Middle managers are embedded in the middle of the organization, where objective performance measurement is difficult. In addition, they potentially get incentives from the hope of winning promotion. Thus, we will consider two general issues: performance appraisal systems and processes, and the consequences of promotion-based incentives. Merck takes an unusual approach to performance ratings.

What are the organizational problems facing Merck in the (A) case?

Consider the new (forced curve) system put in place in the (B) case. Does it solve the problems seen in the (A) case? Will it cause any problems of its own?

How important is the relative nature of the new appraisal system (employees ranked against colleagues)?

Is pay more closely tied to performance in the new system? Are incentives stronger?

What, if any, changes would you now recommend?