Performance ManagementAt

Vitality Health Enterprises, Inc.

GROUP -6

RITESH PANDEY

RAMYAA RAMESH

NEHA AGGARWAL

ASHIMA

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:

i. Adopting cost-cutting measures

ii. Reviewing the current performance management system and making it coherent so as to increase

employee accountability and motivation

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 employee’s actual salary ranged from 80 to 125% of the control point based on

his/her comparative ratio which was defined as the employee’s current salary divided by the

current market rate as defined by the company’s 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 compa-

ratio, 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 Target Constraints

Top Achiever (T) 10% Max of 14%

Achiever (A) 75% Min of 70%

Low Achiever (L) 12% Min of 7%

Unacceptable (U) 3% No Minimum

Not Rated

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 employee’s 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.

THANK YOU!!