This is an analysis of the performance management at Vitality Health Enterprises, Inc. which is a cosmetic and beauty products arranged business. The business began off well with a quick extension approach. As the organization develops, performance management of its staff was important to reward top performers as a motivation factor, and furthermore to distinguish poor performer so they could be trained further or relieved from their positions. Vitality Health Enterprises, basically a medium-sized firm that manufactures health and personal care products, has encountered six straight quarters of strong revenue growth. The performance management system had 13 distinctive rating levels (from A to E, including minutes and pluses). This system had later ended up being less effective since managers who utilized it was dishonest and preferably appraised employees averagely rather than deservedly. Since this system was made to give rewards to the highest performers but they ended up feeling under-appreciated because they were evaluated as average as any other employee, regardless of their productivity. As per Bingham and Beer (2012), the employee’s frustration was caused by the point system of calculating salaries and performance-based raises. The formula which was used at the early stage was: pay policy line = Base Salary + (Job Evaluation Points *Increase per Point, which was later changed by a comparative ratio, based on individual performance in the company. Comparative ratio analysis is technique organizations use to survey their financial performance, with competitive ratio, the employees with consistently higher performance sometimes even receive smaller raises than their less productive colleagues. The Vitality Health Enterprises Inc. had later decided to increase the salaries across the entire workforce, with no provision for bonuses or alternative forms of remuneration. Now it is upon James ; his team to how they will be evaluating the effectiveness of the new team.
Vitality Healthcare companies decided to roll out their new business strategy in the face of declining revenues in 2009. The focus was primarily on reviewing the current performance management system and its alignment to ensure increased employee motivation and accountability.
Analysis of the old PMS system (by 2009)
• There were 13 different levels of classification (A-E and Pros and Cons) and managers were asked to assess employees on the scale based on their individual performance levels
• A policy line was made on the following basis
Pay Line Policy = Primary Payroll + (Task Assessment Points * Point Increase)
Points for job evaluation were calculated based on the level of accountability, technical knowledge and problem solving skills
• Individual salaries were further modified with a relative ratio. This ratio was defined as the employee’s current salary compared to the current pay rate in the industry.
Problems with the old PMS system (by 2009)
1. The employees who perform better gets similar ratings as compared to those who perform poorly, hence it results to reduced motivation and more frustration.
2. The benchmarking technique used by the company has resulted in consistently high achievements, which receive lesser increases than less productive counterparts. The reason why the increase in the benchmark ratio continues to decline on a per-cent basis as the employee has jumped to the range.
3. The current compensation structure has not raised much concern about the overall performance as there is no bonus or alternative form of reward / recognition. The level of compensation was set at the 75th percentile in respect of their compensation group, which made the actual compensation amounts to be 7-8% higher than the competition. This guaranteed high salary, regardless of the overall job. As a result, it is difficult to identify and reward the best performers or to end the low-performance performance and therefore the low turnover that the company’s experience has been among the productive scientists and product engineers.
Analysis of new PMS (introduced in 2009)
The new system replaces the earlier 13-point scale with a 5-point scale, which makes it easier to define the category that each employee posts. This has led to the replacement of the existing absolute ranking system with a relative rating where employees were assessed in terms of their colleagues’ work and the predetermined standards for their work. The ranking was designed to be fit for distribution to give a different picture of the relative performance of all employees.
• Incorporated incentives based on productivity in the compensation structure. These include short and long-term cash and equity bonuses and limited stock options for senior executives and were aimed at retaining the best talent.
• Examinations and announced results for all employees at the same time of the year, thus ensuring a better measurement of joint efforts and reducing the impact of external factors on the relative classification.
• Employees are to be evaluated in terms of their achievement in specific goals that are assigned to them.