Financial distress plagued Scripps Health, a private nonprofit community health system located in San Diego, California. The company was losing money, the chief executive officer resigned, turnover among nurses was high, and employee morale was poor. Under the leadership of a new CEO, a new strategic plan was developed that included streamlining business operations, increasing the efficiencies of operations, and improving employee satisfaction and performance. Implementation of the strategic plan was successful.

A new performance management system that focused on leadership development, metrics, recognition of employees and business unit performance, and using compensation to motivate employees was a key contributor to the successful turnaround of Scripps Health. Scripps Health performance management system plays an important role in helping Scripps Health motivate and engage employees, which leads to delighting customers through providing excellent patient care and service.

Patient admissions and donations are high and employee turnover dropped below industry standards. Today, Scripps Health system includes five acute-care hospitals, more than 23 primary and specialty care outpatient clinics, home health care services, and more than 2,600 affiliated physicians and 13,000 employees. Scripps also provides health education and wellness events and programs such as exercise classes, heart health seminars, parenting classes, and fund raising events across San Diego County. Since 2008 Scripps has been named one of the 100 Best Companies to Work For by Fortune magazine.

Performance managements is part of Scripps’ annual planning, business strategy, financial and operations processes through collaboration between HR, finance, strategic planning, and operations departments. This helps ensure that the performance management process helps Scripps meet its strategic business goals and employees engage in behaviors that support the achievement of these goals. The performance appraisal evaluates employees on annual objectives and behaviors related to the Scripps core values (respect, quality, and efficiency). The performance management process is aligned for all employees in the organization including board and senior executive management and staff employees. Also, Scripps Health performance management process encourages managers and employees to work together in evaluating performance, setting measurable goals, indentifying areas for performance improvement, and recognizing excellent performance.

HR introduced an automated, online performance evaluation that simplified the performance management process. Managers can more easily track employee performance strengths and weaknesses and ensure performance appraisals are valid by linking them to the job description. The online system makes it easier for managers to set personal, employee, and department goals that are linked to functional and organizational goals (a process known as “cascading” goal setting). Also, the online performance management system helps managers review and track their own, their employees’, and the department’s progress in reaching performance goals.

One of the most important uses for performance management systems is to help motivate and reward employees for effective performance. Scripps Health uses its performance management system to help determine pay increases and reward bonuses. Employees can receive annual pay increases up to 5% based on their performance appraisals. Scripps also has a gainsharing program called “Success Shares” which helps motivate and reward teamwork. Gainsharing programs such as Success Shares are designed to reward outstanding patient care and employee contributions toward financial performance based on the overall performance of their department or business unit. Employees only receive rewards if department or business unit goals and objectives are met or exceeded. Rewards are calculated using formulas which include a combination of patient satisfaction scores and financial objectives. For example, one year Scripps paid out $7.8 million to more than 9,300 employees. On average these employees received $900 with a maximum payout of five days’ pay.

For successful performance management, employees need to receive effective and timely performance feedback from their managers. Employees need to receive feedback on a day-to-day basis as well as during the formal annual performance review. In addition, managers need to understand how to set goals that link employee performance to department and business goals. To facilitate effective performance management, Scripps managers receive extensive performance management education and training. Also, managers’ performance evaluation includes leadership competencies including character, relationships, serve, change, and results which help hold them accountable for evaluating and developing employees.

The chapter discusses five criteria for effective performance appraisals: strategic congruence, validity, reliability, acceptability, and specificity. Evaluate the Scripps Health appraisal system on each criterion, that is, decide whether the appraisal system meets the criterion, falls short of the criterion, or exceeds the criterion. Provide evidence of each.