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Performance Management At Vitality Health Enterprises, Inc.


Why was the earlier performance management system revised? What were its inherent problems?


Due to decreasing earnings in 2009, the company adopted a strategy that focused on:
Adopting cost-cutting measures Reviewing the current performance management system and making it coherent so as to increase employee accountability and motivation ii.

Till 2009, the company used a PMS which had 13 different rating levels (A-E and pluses and minuses) and
managers were asked to rate employees on the scale based on their individual performance levels. In order to decide salary, first, job evaluation points were computed for each position depending on the technical knowledge, problem-solving skills and level of accountability required for that position. Then, a target salary, known as pay policy line, was established for each position based on these job evaluation points.
Control point = Base salary + (Job evaluation points * Increase per point)

Finally, an employees actual salary ranged from 80 to 125% of the control point based on his/her comparative ratio which was defined as the employees current salary divided by the current market rate as defined by the companys competitive pay policy.

In order to prevent offending low-performing employees or making the top performers complacent, managers tended to award similar grades to all employees which resulted in homogenous ratings and defeated the purpose of the evaluation.

Top performing employees, due to being graded similar to other less productive colleagues, were not rewarded sufficiently monetarily (since performance ratings were used to determine wage increases), which led to high levels of frustration among them.

The comparative ratio technique used by the company led to consistently high performers receiving smaller
raises than their less productive colleagues. That was because the increase in compa ratio decreased as the ratio moved higher up its range.

The compensation structure did not give due concern to overall performance since there was no bonus or alternative form of reward/recognition. The structure simply provided for a salary increase with tenure, keeping the salary 7-8% higher than competition.

As a result, it was difficult to identify and reward top performers or terminate low performers and hence, the low

turnover experienced by the firm was among productive scientists and product engineers. This was crucial as the
rapidly increasing competition in the personal care products sector made the R&D engineers and scientists a highly valued asset for the company.

Is the new performance management system more effective than the previous one? Will it impact compensation levels for performers and

non-performers differently?

It was more effective than the new one as:

Employees were now rated w.r.t to each other, instead of a set standard where everyone could be a winner.
Entire company was kept in the same review cycle in order to better measure collaborative efforts. Compensation was also adjusted by the new program. Specific goals were developed for individual employees

Based on the feedback of the employees, and the exhibit 2, it can be seen that it did not

really differentiate the performers from the non-performers as still, the higher the comparatio, lower will the increment be. So, all in all, even though the increment has increased, it is still lower than people with lower compa-ratio and hence it fails to distinguish the

performers from the non-performers.

What are the disadvantages of the new performance system?

The new performance management system followed a Forced Ranking approach in contrast to the absolute ranking system that was followed previously. The approach was as follows:
Ranking Category Top Achiever (T) Achiever (A) Low Achiever (L) Unacceptable (U) Not Rated Target 10% 75% 12% 3% Constraints Max of 14% Min of 70% Min of 7% No Minimum

The disadvantages of the new performance system are as follows:

Transparency: The managers were not transparent in discussing the ratings with their employees. The rating which they actually gave, and the one they communicated to the employees were different. They did it in

apprehension of employees discomfort with the original rankings.

Increased burden on Managers: Managers found it difficult to discuss the ratings with employees because of their inherent relativity. Since these were

linked directly with the compensation, it added to the burden. Many

managers declared this task as unproductive and did not want to take so much of pain.

Faulty classification of Responsibilities: The responsibilities outside the job description or set goals did not form the part of the review. Hence it discouraged employees to take onus and work and think outside the box. Rigid: It was mandatory to declare some top performers. So, a forced relativity had to be introduced even if the results were achieved because of the group as a whole. This degrades team building in a real scenario and promotes individualism. Not Rated: The leverage given to managers to rate someone as not rated created discomfort. The veteran employees of the team were given higher ratings at the cost of some deserving performers new to the team. Persistence of old problems: Though small in number, but some managers still continued to submit uniform ratings. A practice of Rotation of rankings was devised by the managers to keep their subordinates happy.

Can the new system be revised to address certain inherent issues? How? Justify your answer.

There can be several changes implemented into the new system

Rating shall be frozen for each employee only after approval from both sides and no further changes can be made to the same.

Changing the review system and including tasks performed outside the job description as well in deciding rating. To stop managers from thinking appraisals are unproductive tasks, it can be included into their KPAs. Not rated ranking should have an upper limit of 3 months, beyond which it is compulsory to start rating his performance.