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Case Study

Johnson arrived with much acclaim from being the head of Apple’s successful retail operations. At Penney’s, he immediately began one of retailing’s most ambitious overhauls, trying to position the company for success in a very challenging and difficult industry. His plans included a “stores- within-a store” concept, no sales or promotions, and a three-tiered pricing plan. He suggested that “Penney needed a little bit of Apple’s magic.” From the start, analysts and experts questioned whether Penney’s customers, who were used to sales and coupons, would accept this new approach. Long story short…. customers didn’t. For the full fiscal year of 2012, Penney had a loss of $985 million (compared to a loss of $152 million in 2011). Now, you may be asking yourself, what does this story have to do with HRM? Well, a lot it turns out! When a company is struggling financially, it is going to impact its people.

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And for JCPenney employees, that impact came in the form of a “traffic light” color-coded performance appraisal system. In a companywide broadcast, supervisors were told that they should categorize their employees by one of three colors: Green—their performance is okay; Yellow—they need some coaching to improve performance; and Red—their performance is not up to par, and they need to leave. Many employees weren’t even aware of the system

and supervisors were given no guidance one way or the other regarding whether to tell them about it, although company headquarters chose not to disclose the light system to employees.

Although the uncertainties over how to inform or even whether to inform employees about this HR initiative is troubling, communication and HR experts say there are other problems with this green/yellow/red approach. One is that it’s insensitive to “approach the livelihoods of human beings” this way. The easy-to-understand simplistic nature of green, yellow, and red colors doesn’t translate well to what will be a tremendously personal and difficult situation for many employees, especially those with a “red” appraisal. Another problem is that labeling employees can create difficult interpersonal situations. The labels can become a source of humor and teasing, which can deteriorate into hurt feelings and even feelings of being discriminated against. “No matter how benign a color-coding system may seem, it’s never going to work.” This doesn’t mean that employers don’t evaluate employees. But companies should be open about it. Employees should know that they’re being rated, what the criteria are, and if they have a poor rating, what options they have for improving. There should also be a fair process of appeal or protest if an employee feels the rating was unfair.

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