VITALITY HEALTH ENTERPRISES, INC.
Performance Management Analysis
October 7, 2014
Vitality Health Enterprises, Inc., a manufacturer and distributor of beauty products, is at risk of losing market share in this highly competitive industry. James Hoffman, the newly appointed Vice President of HR, has been tasked with the evaluation of Vitality’s performance management system, to ensure that it is generating the outcomes Beth Williams, the CEO, is expecting. ISSUE IDENTIFICATION
After a period of strong revenue growth, Hoffman is concerned that the workforce is becoming complacent. The research and development department is not producing quickly enough, resulting in a growing number of missed product launches. The company has realized a slow but significant turnover of highly talented research scientists, leading Williams and Hoffman to suspect that the performance management system is ineffective. ISSUE ANALYSIS
Prior to 2009, Vitality was operating an old performance management system that failed to properly incentivize and recognize top performers and did not emphasize employee accountability. As a result, there was a lack of differentiation between top talent, average performers, and poor performers, which frustrated some of the company’s most valuable scientists and engineers. In an effort to keep the peace, managers categorized almost everyone as average performers, and because performance ratings were tied to merit-based wage increases, top talent felt slighted. Vitality used a flawed comparative ratio system to determine wage increases, which often resulted in giving low performers a greater raise percentage. Because high performers were not adequately recognized or compensated for their efforts, the performance management system failed to keep them engaged. In 2009, Vitality implemented a new performance management system based on forced distribution, which saw an increase in employee buy-in, but a decrease in manager buy-in. Many managers disliked ranking their employees as it has the potential to cause conflict and animosity; however, top performers saw the new system as fair. Despite significant modification to the performance management system, problems still existed including a continuation of uniform ranking, and the mentality that the system was too rigid. Managers and employees had difficulty comprehending the new system, particularly considering there was little to no training. Thus, many of the issues share a similar cause - poor implementation and thus poor understanding of the system. ACTION PLAN AND SOLUTIONS
There are four interrelated issues that the following action plan addresses. These issues include the following: compensation related to performance, managers who give uniform rankings and do not rank new hires, a lack of training on the new performance management system, and managers who lie to employees about rankings. Each section of the action plan is designed to work in coordination with the other three sections in order to resolve these issues. To improve issues with compensation related to performance within the performance management system, we recommend eliminating all target percentages as well as constraints on the low achiever and unacceptable categories, and eliminating the use of the compa-ratio. By eliminating the target percentages and some of the constraints on the ranking, the flexibility of the performance management system will be increased. No manager will be forced to rank employees as top achievers, low performers, or under performers if there are none. However, the constraint for top achievers not exceeding 14% will stay in place to prevent managers from ranking all their employees as top achievers. To supplement this, we also eliminated the compa-ratio. Instead, top achievers will have the option of receiving a 3% raise plus stock options, or a 5% raise with no stock options, and average employees will receive a 2% raise...
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Pulakos, E. D. (2004). Performance Management: A roadmap for developing, implementing and evaluating performance management systems. Alexandria, VA: SHRM Foundation.
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