Performance Management
Assignment
Submitted by-
Shivani Negi
06009152023
1. Issues with Vitality Health's Previous Performance Management System and Root
Causes Issues:
Too many rating levels (13 levels, A to E with pluses and minuses), leading to
confusion.
Inflated ratings: Managers gave most employees a middle-of-the-road rating (B/C),
shying away from extreme scores.
Lack of differentiation: High and low performers were given the same ratings and
rewards.
Poor linkage to compensation: Pay raises were almost uniform irrespective of
individual performance.
Demotivation: High-performing employees felt undervalued and began to leave.
Root Causes:
Manager reluctance to provide truthful, negative feedback for fear of damaging
teamwork or relationships.
Egalitarian culture discouraging differentiation.
Inadequate design of the rating system: too complicated, subjective, and promoting
"safe" ratings.
Misaligned incentives: Increases were linked with pay tenure and compa-ratio
advancement over actual performance.
2. Salary Determination and Compa-Ratio at Vitality Health
Salary Formula: Pay was determined from a pay policy line based on Job Evaluation Points.
Formula (example for 2009):
Salary = $2,900 + (Job Evaluation Points × $9.06)
Compa-Ratio:
The ratio of an employee's actual salary to the target salary for their job (market midpoint).
Compa-Ratio = (Employee's Salary) / (Target Salary)
Range: Usually 80% to 125%.
A high compa-ratio meant a salary higher than the market rate; a low one meant lower than
the market rate.
Raises were smaller for employees with higher compa-ratios, which discouraged salary
advancement for top performers over time.
3. Vital Features of Vitality Health's Updated Program
Forced distribution ranking: Employees were ranked comparatively to one another, rather
than to absolute criteria.
Target distributions:
Top Achiever: 10% (up to 14%)
Achiever: 75% (down to 70%)
Low Achiever: 12% (down to 7%)
Unacceptable: 3%
Simplified categories: Reduced from 13 to 4 primary rating groups.
Introduction of bonus programs: Short- and long-term cash and equity rewards were
introduced.
Clearer goal setting: Managers were required to establish measurable goals for
employees.
Consistent review timing: All employee reviews were planned at the start of the
calendar year.
4. Issues with the New System and Suggestions
Issues:
Forced rigidity: Managers were forced to make ratings fit quotas regardless of team
performance not necessarily following the distribution naturally.
Manager resistance: Managers resented being "the bad guy," which resulted in
cheating (inflating ratings, switching top performers year-to-year).
Training gap: Managers and employees were given little training on the new system.
Morale issues: Good teams were punished; good collective performance wasn't
properly rewarded.
Review overload: Annual review timing (all in January) caused operational
bottlenecks.
Recommendations for Improvement:
Flexible calibration sessions: Permit managers to explain deviations from the forced
distribution if needed.
Improved training: Give thorough training to managers and employees on using the
system justly and efficiently.
Multi-source feedback: Include 360-degree feedback (peers, subordinates,
supervisors) to get a clearer view.
Erase pay from feedback: Provide more opportunities for mid-year feedback sessions
solely on development, not associated with raises.
Continuous performance management: Transition toward continuous performance
discussions instead of an annual occurrence.
Team recognition options: Include bonus plans that reward entire-team success to
balance morale problems when the entire team does well.
