Performance Management Vitality Health, Case Study Example

Question 1:

Due to disappointing earnings in the first quarter of 2009, Williams started looking at the current system they had in place. She organized the Performance Management Evaluation Team that evaluated the performance management system including employee reward system, and other factors. (Bingham, Beer, 2012) In evaluating the old system the PMET discovered the system was a serious problem for Vitality Healthcare 2500 employees including scientists, staff, and other personnel. Vitality Healthcare Enterprises old system contained 13 various rating levels which made them susceptible to the mangers’ biases, a major problem with performance management systems.(Lawler, 2012)

The 13 rating levels ranged from A to E and pluses and minuses. The managers often tended to give homogeneous ratings to maintain the feeling of equality among the employees. Within the old system the managers did not want to offend employees, so they only rarely gave E’s, a few D’s or A’s, but instead handed B and C ratings to employees. (Bingham, Beer, 2012) The rating system was consistently abused by managerial staff that would manipulate the system for their own benefit. The way that the rating system was running was an inconsistent way of evaluating the performance of employees that were actually doing their job and the employees that were not.(OPM.GOV, n.d)

Upon further evaluation of managers rating, since managers rarely gave A ratings because they did not want to upset the environment in the workplace. Because of fear of upsetting the status quo of the teams in R&D, it left the top employees feeling slighted and not deserving of the merit based wage and rewards systems that they were entitled to.(Bingham, Beer, 2012) The employees either low or high performing were all judge on the same level, which tended to frustrate rather than encourage employees to be productive. The rating levels were contributed to the company point system used for determining salary calculation and raises. The formula was calculated by “Pay Policy line= Base Salary + (Job Evaluation Points *Increase per Point)” (Bingham, Beer, 2012) Based on their base salary for 2009, “f(x) = $2900 + (Job Evaluation Points * $9.06). (Bingham, Beer, 2012) In addition employee salaries were also formulated based on comparative ratio of individual performance within the company. The compensations figures were 7%-8% higher than the competition. (Bingham, Beer, 2012) Although the workers did not complain the way that the system was set up left the top employees without the due credit and the firing of the low employees difficult that was in essence harming the company instead of helping it.

The biggest difference seems to be that the old system would only correctly compensate someone for their efforts the first time they produce well. After that, their compensation increases at a slower rate than peers regardless of their effectiveness. Even though, people were paid 7-8% over the industry averages, the structure of the compensation made people feel undervalued and eventually led many to devalue the marginal contribution to the company. The new system is an attempt to focus the pay on performance measurements and eliminate free-riding by underperforming employees. By increasing the correlation of performance to compensation, the marginal efforts of an employee becomes more valuable to them. (Billikop, n,s)Top employees that were frustrated with the lack of recognition then left the company, leaving the company not being able to hold onto top prospects, scientists, and engineers.

The root cause of the problems was the managers, they had the free will in order to oversee the system without a second checkup of employee performances.(Lawler, 2012) They abused the system out of fear of the employees disliking them, an interruption in the work flow, and less productivity, however since they were not another system in place that provided a second set of eyes top employees were left frustrated due to the nature of the salary, a raise based system. Another root cause was that were too many contributing factors to the salary.(WPI, n.d) There were three factors that determine the salary of workers and the rewards systems, instead of a sure way of guaranteeing a rewards system.

Question 2:

After the PMT evaluation of the old system, Williams stepped into gear and implemented a new system that would replace the old system with improved performance management system with a better distribution model of performance rankings. The absolute ranking system that was in place was switched to a relative one that employees would be measured not only on “predetermined standards in which “everyone could win,” employees were now rated with respect to one another.”(Bingham, Beer, 2012) In implementing the new system they eliminated on of the key problem of the managers giving all employees high grades even when the department the employees were working in failed to meet their productivity output. The ranking categories instead of the A-E system there were based on four options that were made more visible of the performances of employees.

The new system replaced the excessive 13 level point scale with a more practical 5 point categories, that easily fit employees of ; Tip Achievers, Achievers, Low Achievers, and Unacceptable categories. While a fifth category was made for employees that were new to the company and not yet rated. (Bingham, Beer, 2012) In the new system not only were the employees evaluated on their performance of achieving goals outlined by their job, but the managers are also evaluated on their performance of meeting the needs of their staff, the effects of training of the employees, employee relations, communication methods, and implementation of the company initiatives.

The new system also differed from the old system as part of its performance review of employees by conducting reviews and reporting results at the start of each calendar year, in efforts to align with the company’s performance reviews in order to better measure collaborative efforts and reduce the impact of outside factors on relative rankings. (Bingham, Beer, 2012) The new system was able to change the performance based compensation and wage increase structure that included changing to performance short and long term cash and equity bonuses.(Incentive Research Foundation, n.d) This was put in place to keep top talent, and leaving the workers that deserve the recognition with feeling confident in their work. A change that was made also was that it limited the options of stock available to the managers and executives as an incentive.

In the breakdown of the change of the old system to the new system was the rankings in which the employees were originally graded, scaling down the 13 point system to a modest visible 5 category system. A clearer rating criteria that took into account both the performance of fellow employees and the meeting of job specific goals. The new system not only rated the employee performances but also the managers as well that lead to more reliable ratings, and a restructure of the performance based incentives for compensation in order to keep the top performing employees.

However, the new system was not without its problems as, seen with the new performance based incentive compensation system, the employees became more defensive of their ratings and were not as open to coaching in order to improve. The managers felt they could not discussed the employee’s performance due to the closeness of the merit based incentives. The system reviewed performance based on goals that were specific to the job, employees were stuck doing tasks that were only laid out in their goals, and unwilling to step outside of that because they would not be rewarded. Since the managers were also evaluated their new system, managers felt that the system required much more of their time, and they felt they were not adequately rewarded. Another problem was that the managers felt that the distribution system was to “rigid”.(Bingham, Beer, 2012) The new system did not account for the group having a good year there would still be top achievers and poor performers. Mangers were still able to manipulate the system for veteran employees as they decided to give the “not rated” ranking to them in order for them to keep their high rankings. They still submitted rankings they felt would not differiate between employees, they would lie to the employees by telling them they received a specific ranking but did not, and rotated higher rankings in order to not put in much effort in reviewing performances of employees. (Bingham, Beer, 2012) All of these factors lead to inaccurate rankings that still harmed the company, and the employees did not like the feeling of pitted against each other.

Question 3:

Recommendations for the Vitality Health in going forward with their system is to change the performance reviews from annually to quarterly. This allows for a better use of the reviews in alliance throughout the year while performing the tasks, and taking pressure off the tightly schedule of the merit based incentive and the reviews. What the new system did not change is the comparative ration that contributes to salary as well, instead of the using the model the base pay of the employees can be closely related to the market. This also is a recommendation of changing the entire formula by changing the percentage of basic pay that should be based on the level of employment instead of securely on job performance that have been found to be an unreliable source of measurement.

In the new system the ratings categories are broken down into 5 clear options, for each review in each team there are top achievers and there are poor performers. However, as pointed out earlier if an entire team has an impressive year, the team members that were not as up to part but still a top achiever would most likely be ranked as a poor performer. It is an unfair assessment as those ranked as a poor performer get a lower pay than the top achievers in the same impressive team. Instead, the pay should be based not only on the team effort or performance but also the individual performance ratings so that workers will not be group together as like the old system and the current system. This way the team and employees feel mutually responsible for a positive outcome, and nobody takes the blame if the team is to receive a poor rating. This not only solves the problem of the rigidness of the system but also the manager’s feelings of not being able to approach the employees with their performances.

Another recommendation to change the want of employees to do work outside of their job requirements is incorporating collaboration of other departments apart of the goals that laid out in their job so that all work that they do is adequately rewarded. In order for employees to not feel as if they are being pitted against each other is to not make the system around comparing employees to each other. One solution is to set up job goals that are objective that each employee must achieve in order to obtain their salary pay. This way all the employees would be able to set out the time to reach the extra goals if they wanted to receive the extra compensation of the merit based incentive system. This would ensure that compensation is based on each individual’s effort, rather than how they compare to other employees. All employees would be compensated fairly and productivity would remain high.

References

Bingham, John, Beer, Michael. 2012. Performance Management a Vitality Health Enterprises, Inc. Harvard Business Cases.

Billikop, Gregorio. N.d.. Incentive Pay (pay for performance). University of California. Retrieved from http://nature.berkeley.edu/ucce50/ag-labor/7labor/08.htm

Heathfield, S.M. Performance Management Process Checklist Step-by-step to a Performance Management System. About.Com. Retrieved from http://humanresources.about.com/od/performancemanagement/a/perfmgmt.htm

Incentive Research Foundation.2008. Incentives, Motivation & Workplace Performance. Incentive Performance Center. Retrieved from http://www.incentivecentral.org/employees/whitepapers/incentives_motivation_workplace_performance.1824.html

Lawler, E. III. 2012. Performance Appraisals Are Dead, Long Live Performance Management. Forbes. Retrieved from http://www.forbes.com/sites/edwardlawler/2012/07/12/performance-appraisals-are-dead-long-live-performance-management/

Management Study Guide n.d. Performance Appraisal Tools and Techniques. Retrieved from http://www.managementstudyguide.com/performance-appraisal-tools.htm

OPM.GOV. n.d. Performance Management Performance Management Cycle. Retrieved from https://www.opm.gov/policy-data-oversight/performance-management/performance-management-cycle/

WPI. N.d. Performance Appraisal Process. Retrieved from http://www.wpi.edu/Admin/HR/performance-appraisal.html