Group 6_FD
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Transcript of Group 6_FD
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!!