AMECO BEIJING: BENEFITS OF
PERFORMANCE APPRAISAL
OVERVIEW OF THE COMPANY
Located: Beijing Capital International Airport
A 40-years Joint Venture between Air China & Lufthansa AG
Started Its official operations in August 1, 1989
Air china with 60 % of the company’s shares and Lufthansa with 40 percent
of shares.
Registered capital: US$ 187.53 Million
Problem Statement
Designing Performance Appraisals to serve 3 pronged purposes of:
Employee Retention, External Competition Threat, Cost
Cutting/Optimization While increasing the overall performance of the
company
Organization Structure
Ameco
Airline Aircraft Engine
Maintenance Overhaul Overhaul
Department Product Product
Department Department
Employees: 2500+ 1,100 268
People
Li Ma CEO
Jingxing Cao Party Secretary
Langtai Qian CFO
Renxin Zhao Director, Airline Maintenance Dept
Mingham Xiao Director, Marketing Dept
Li Wang Director, Overhaul Dept
Yao Lu Director, Human Resource
Income lower than Expenses
Rapid growing China’s economy
Increasing no. of passengers
Increase in Market Demand
Adoption of “follower” market development business strategy
Addition rate in employee: 300 per year
National Average Wage issued by state ministry of labour and social
security
Stakeholders’ one third salary expense regulation
A Possible Solution: Monthly Appraisal
Yearly Appraisal Program Monthly Appraisal Program
A long assement period. Shorten assessment period
Difficulty in identifying problems in Ease of identification
time
Difficulty in controlling process Will force product managers to look
efficiency for operational efficiency
Feedback Issues Timely feedback
Executive Meeting
Slow income increase and high costs.
Specific focus on the rapidly increasing labor cost
Crisis of Survival
Ameco must reduce cost and increase revenue
Weighing pros and cons
Assessment effort is weak Should be people oriented
Disadvantage of process Employee Benefits cannot be reduced
supervision and problem control
Stability and moral of staff – a problem
Goals not distributed over time
Current costs of components of
Departtment Revenues to be company is 60 % and personnel cost is
compared with its own budget 40 % - misplaced focus
instead of Market Level
Already have a good appraisal system
If revenues increase, its all worth
Extra workload for HR & Finance
the effort
departments.
Evaluation Indicators
Fewer in number but better in quality
Communication with the employees should be simple and easy to
understand.
Interest of the shareholder should be taken care of.
3 Month observation period
To determine the monthly performance appraisal
Implementation of the Monthly
Appraisal program
Total amount of the actual monthly variable salaries of the product
departments = Total amount of the standard monthly varable salaries * The
key performance indicators (KPI)
KPI = Input-output ratio * 70%
+ Non-economic indicators * 30%
- Deducted points of quality and safety
Actual labor income / Budget of labor income
Input-output ratio =
Actual labor costs / Budget of labor costs
To the Delight of some
and the Dismay of others
Project team initiated 3 month trial period for the monthly assessment of
program
Small scope report on results of the first month
Simple and Clear assessment indicators concerned operational efficiency
and customer demands
Auto overtime approval
Monthly corporate management meeting
DCPC Assessment Results (KPI):
Airline Maintenance Dept - 93 %
Aircraft Overhaul Product Dept – 107 %
Engine Product Dept – 120%
Promoting Production with Vigor & Vitality
Focus of Zhao changed form stability to the balance between safety and
efficiency
3 suggestions for increasing efficiency and decreasing costs
Improve internal working efficiency
Sign more orders to increase customers (other than Air China)4
Optimize workflow
Managers forced to work on increasing efficiency, save labour costs, and
increase revenues
Zhao established a project team for Aircraft maintenance plan and
process optimization
Generated achievement within 3 months
Soliciting more work
Workload not as full as before
More work were demanded
Marketing team already ready with potential customers
DCPC monthly appraisal program inspired all product departments
No complaints, only requests of more work
Emergence of New Problems
Rapid changes in External Environment
Engine Product Dept:
2 main engine modules out-fashioned
Workload reduced to half
Monthly Variable Salaries decreased
Tech workers started leaving the company
New contracts did not help much
Temporary solutions were ineffective
Continued…
Airline Maintenance department:
New aircrafts for maintenance
Workload increased dramatically
No new benefits
Reduction in the dept income due to appreciation of the Chinese Yuan
Heaviest workload, but not the highest salaries
Employee Turnover increased
Another Executive Meeting
Air Maintenance Dept – 80 %
Engine Product Dept – 80 %
Furore in the meeting
Conclusion
Implementation of DCPC generated many positive results.
Sharp Inter-department conflicts resulted due to changes in external
environment
Questions without any apparent answers.
Recommendation
Go for Quarterly Assessment Program instead of Monthly or Yearly
Formulae Change.
