1.     
What were the problems with Vitality Health’s
old Performance Management System? What were the root causes of those problems?

 

 Ans) Following were the problems with Vitality
Health’s old Performance Management System:

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·        
It had 13 different rating levels from A
to E including pluses and minuses

·        
The rating system gave way to managerial
abuses

·        
As discovered by PMET, many managers who
were worried about offending their employees, gave almost everyone a C or a B,
a few D or A ratings and very rarely gave Es. This resulted in somewhat
homogenous ratings spread that failed to sharply distinguish between performers
and non-performers

·        
Managers rarely gave A ratings for fear
of upsetting a sense of teamwork and equality within the R&D groups, which
was demeaning for the top performing employees

·        
Since performance ratings were used to
determine merit-based wage increases and other rewards, employees felt
undervalued financially, when they saw that they received similar rewards as
compared to their less productive co-workers

·        
The frustration doubled because of the
point system used for salary calculations and performance-based raises as well
as modification by compa ratio which led to employee with consistently higher
performance sometimes receiving smaller raises than their less productive
colleagues

Root
causes of the problems were: lack of training for employers who rated the
employees, diplomatic attitude of managers and improper pay policy.

2.     
Would an employee with superior performance
year after year keep receiving higher and higher pay increases?

 

Ans) Higher
and higher pay increases is not the solution. As mentioned in the case study,
instead of relying solely on pay increases, the new plan of the company
incorporated a system of performance related short and long term cash and
equity bonuses, in order to incentivize top talent to retain them. The new plan
also allowed for limited stock options to upper level of management and
directors as an incentive to successfully implement the new performance
management system. Higher and higher pay would pose a high cost for the
organisation, so incentivising through the ways mentioned above was
appropriate.

 

3.     
What are the key features of Vitality Health’s
revised program?

Ans)  The
key features of Vitality Health’s revised program were:

·        
It helped
to recognise the contributions of high performing employees

·        
The
system used a forced distribution model of performance rankings

·        
Instead
of being measured solely against predetermined standards, employees were rated
with respect to one another

·        
A fifth
category “Not Rated” was incorporated, for employees who were too new to the
company or position to receive an accurate rating

·        
All
performance reviews were to be conducted at the start of the calendar year and
delivered to employees in conjunction with the annual goal setting process in
January

·        
The
revised program incorporated a system of performance related short and long
term cash and equity bonuses

·        
It also
allowed for limited stock options to upper levels of management and directors
as an incentive to successfully implement the new performance management system

 

4.     
What problems under the old system are solved
or mitigated by the new system?

Ans) Problems under the
old system that were mitigated by the new system:

·        
The new system provided employees with
heightened pay as compared to the old system which resulted in decreased
employee turnover and better retention of product scientists and engineers

·        
Bulk of employees receiving high
rankings even when their department was failing to meet development and
production goals as well as time-to-market schedules was solved by the new
system which introduced differentiation among employees on the basis of
performance

·        
A fifth category “Not Rated” included in
the new system for employees who were too new to the company or their position
to give an accurate rating with the idea that with fewer ranking categories, it
would be easier to determine which category the employee would fit in

·        
In the old system as there was no
specific cycle or time period for performance reviews, now in the new system,
all performance reviews were to be conducted st the start of the calendar year
and delivered to employees in conjunction with the annual goal-setting process
in January. This timetable made the entire company to perform reviews with
better collaborative efforts and it limited the effect of external factors on
the relative rankings

·        
Compensation was also adjusted by the
new program. Rather than relying only on salary increases, the new plan
incorporated a system of performance related short and long term cash and
equity bonuses in order to incentivize top talent. Also limited stock options
to upper levels of management and directors were allowed as an incentive to
successfully implement the new performance management system

 

5.     
What problems arise under the new system and
what issues are still not resolved from the old system?

Ans)
The problems under the new system were as follows:

·          
Managers felt that the new system made
it all the more difficult to assess performance because the yearly review
process was so closely linked to merit increases

·          
With the added burden of compensation,
managers felt employees were more defensive and less open to coaching

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