2. SHOULD THE NEW PERFORMANCE MANAGEMENT SYSTEM AT VITALITY
HEALTH ENTERPRISES BE REVISED
IS THE REVISED PMS WORSE OR BETTER THAN THE PREVIOUS ONE?
JUSTIFY
HOW IMPORTANT IS THE RELATIVE NATURE OF THE NEW
PMS
CONTENTS
3. Vitality enterprise was founded in 1987 in
Ames Iowa by Hikaru “Fred” Kikuchi.
Initially it started with importing products
from Japan and marketing them. It went
success within 3 months and resulting to
more than 15,000 in sales
CASE
BACKGROUND
4. CASE
BACKGROUND
In 1994, Vitality partnered with several leading pharmacy retailers to
market their products. In 1995, company went global, targeting markets
around the Pacific Rim including Taiwan, China and Japan. In 1997,
Vitality acquired HerbaPure Nutraceuticals. Vitality’s name was changed
as Vitality Health Enterprises. Also in this period company went public.
With the expansion, Kikuchi maintain his vision by matching it to the
corporate strategy to one his favorite sayings: “Outer beauty can only be
achieved as inner harmony is reached”
5. CASE
BACKGROUND
In 2009, during the economic crisis, Vitality discovered some problems
related with its performance management system. The company
started to review its business strategy and, in particular, the current
system of performance appraisal and management. This system, which
ran until 2009, had some problems and some of them were identified
by a committee, Performance Management Evaluation Team (PMET),
which was assigned by the new CEO, Beth Williams, in order to evaluate
it and suggest changes to this system
6. SHOULD THE NEW PERFORMANCE MANAGEMENT
SYSTEM AT VITALITY HEALTH ENTERPRISES BE
REVISED
The new performance management system should be revised in light of the
following problems
The system was too rigid. A failing department would still have a number
of Top Achiever rankings. The company shouldn’t force distribution at
either end of the scale, low or high. If there isn’t a “true” Top Achiever in
the department, one shouldn’t be picked just to fit the target.
The review process was tied very closely with the merit increases because of
which employees were more defensive and less prone to coaching
7. SHOULD THE NEW PERFORMANCE MANAGEMENT
SYSTEM AT VITALITY HEALTH ENTERPRISES BE
REVISED
The new performance management system should be revised in light of the
following problems
Employees were less likely to perform duties outside their job
description because those responsibilities weren’t part of their review
and, therefore, were less likely to be rewarded
Some managers were unwilling to spend the necessary time and effort
on effectively implementing the process because they felt it was an
under-rewarded task that simply
detracted from their other, more important duties
8. SHOULD THE NEW PERFORMANCE MANAGEMENT
SYSTEM AT VITALITY HEALTH ENTERPRISES BE
REVISED
The new performance management system should be revised in light of the
following problems
Assigning a Not Rated ranking to any employee who had been in the
group for less than a year, regardless of actual performance. In doing so,
managers were able to save the higher rankings for their veteran
employees
Rotating the highest rankings between their employees from one year to
the next to avoidthe relatively unrewarded time and effort of performing
effective reviews, or to avoid angering their teams.
Submitting uniform rankings, rather than following the new guidelines,
forcing HR to change the rankings to fit the distribution curve
9. IS THE REVISED PMS WORSE OR BETTER THAN
THE PREVIOUS ONE? JUSTIFY
Yes, for the following reasons, the current PMS system was better
than the previous one
Rather than measuring it against defined criteria, the program
introduced a method of assessing employee efficiency as opposed to
other employees
Rather than measuring it against defined criteria, the program introduced
a method of assessing employee efficiency as opposed to other employees
The new program also introduced new framework of compensation which
would help to reward high performers
10. IS THE REVISED PMS WORSE OR BETTER THAN THE
PREVIOUS ONE? JUSTIFY
Yes, for the following reasons, the current PMS system was better
than the previous one
As the performance assessment was to be carried out at the beginning of the
calendar year, this placed the whole organization on the same evaluation
period to better assess collaborative efforts and to reduce the impact of
external factors on the relative rankings
The new program also introduced a scheme of short- and long-term cash
and equity incentives linked to performance.
As an incentive to effectively introduce the new PMS, it provided restricted
stock options to upper management levels and directors
11. HOW IMPORTANT IS THE RELATIVE NATURE OF THE
NEW PMS
A new performance management system was implemented by
PMET with the purpose of identifying in a more accurate way the
high-performing employees, as well as the low-performers.
This way, they would be able to allocate rewards in a better way and,
consequently, r
etain and attract top talent and
incentivise low performers to put a bigger effort in their tasks,
motivating improved performance throughout the company. The
new features of this new method implemented included
12. HOW IMPORTANT IS THE RELATIVE NATURE OF THE
NEW PMS
Shift from an absolute ranking system to a relative one. In the first
one, the employee is evaluated based on his own performance in
respect to objective criteria, without any kind of comparison with
other workers. On the other hand, relative method consists in rating
employees with respect to one another, comparing their
performance with that of employees in similar positions and roles
13. HOW IMPORTANT IS THE RELATIVE NATURE OF THE
NEW PMS
Institution of a forced distribution model of performance ranking
that consists on a rating system that requires the managers to
evaluate each individual, and rank them into one of five categories
(Top Achiever; Achiever; Low Achiever; Unacceptable; Not Rated),
each one constrained to meet a certain target in terms of percentage
of employees. This forced the managers to differentiate employees
based on their performance and, having fewer categories This
system can be controversial due to the competition it creates, which
may increase stress levels and result in an unpleasant working
atmosphere.
14. HOW IMPORTANT IS THE RELATIVE NATURE OF THE
NEW PMS
Codification of responsibilities and measures for each job class in
order to have a straight evaluation, based in more objective criteria,
and further clarify the ratings process. Defining key duties in a more
formal way may enhance operational performance and improve
internal controls by establishing accountability for each specific task.
On the other hand, there is a risk that employees’ vision narrows and
they lose sight of ‘the big picture’. They restrict their duties only to
those which are involved in their job description, neglecting others
only because they are not really rewarded
15. HOW IMPORTANT IS THE RELATIVE NATURE OF THE
NEW PMS
Development of specific individual goals for each employee, which
would be elaborated by managers in coordination with their
individual workers and used as a secondary assessment tool. This is
likely to promote personal development, employee satisfaction, align
personal goals with organizational objectives leading to higher
productivity that will have impact in the company results
16. HOW IMPORTANT IS THE RELATIVE NATURE OF THE
NEW PMS
Rating of managers based in their performance in five aspects:
meeting staffing needs, their effectiveness in training, development
and employee relations, their clarity in communication, and their
implementation of corporate initiatives. This may incentivize and
help managers to focus in some core areas that are being neglected
or to correct some management mistakes that impact the company
performance
17. HOW IMPORTANT IS THE RELATIVE NATURE OF THE
NEW PMS
Evaluation starting in the the beginning of the calendar year at the
same time as the annual goal-setting is delivered to employees
(same review cycle). This feature potentiates higher effectiveness in
the measuring process of workers’ effort and avoids in a certain
extent the influence of external factors/events
18. HOW IMPORTANT IS THE RELATIVE NATURE OF THE
NEW PMS
Besides salary compensation, this new plan uses a system of
performance-related short and long-term cash and equity bonuses
and limited stock options to upper levels of management. Since
increases in the value of a company and its stock are highly
correlated with employees’ dedication, attributing these bonuses will
motivate them to work harder so they can reap a greater return in
the future. On the other hand, it increases the complexity of the
compensation systems, especially in fiscal terms
19. HOW IMPORTANT IS THE RELATIVE NATURE OF THE
NEW PMS
Vitality’s new performance management system operated in a trial
period for the two following years. Despite the best intentions of the
new CEO Beth Williams, the outcome of the new system were not
the most satisfactory, with employee surveys indicating that just over
half of the affected employees preferred the new system. Therefore,
the system should be further improved, taking their concerns into
consideration
