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1. What were the problems with Vitalitys old Performance Management System?
What were the
root causes of those problems?
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.
This system had the primary goal of evaluating performance of employees and to
reward the ones
who deserved it. In turn, the goal of rewarding employees performance is to
motivate them to
continue doing a good job. However, as we will explain, the system was not able to
achieve this.
Actually, the company registered a low employee turnover rate which was mainly a
turnover of
top-performers scientists and engineers who did not want to remain working
in the company
because they were underpaid and their effort was not recognized. Obviously,
it is not of the
interest of the company to keep away hard-working employees and to have a
reputation of not
treating them well.
So, why did this happen? What were the problems of this performance
management system?
The system was characterized as having too much rating levels (from A to E
including pluses and
minuses). Also, the PMET found that some managers were able to influence the rate
of employees
according to what were their own interests. Managers didnt want to have a bad
image among
their subordinates and so they didnt give the fair rating level because they
feared the
consequences. When analysing the distribution of the rating levels attributed in
2009 (related to
2008 performance), we can see that the majority of the employees is evaluated as
being of B or
C level and a very little percentage of them is evaluated as top-performer or nonperformer (low
frequency of the levels A, D and E). Concluding, this happened because
managers feared that
giving a D or E level would offend their employees and that, by giving A levels, it
would also upset
employees that deserved only B or C levels. The root of this problem can
be found in the
Managers freedom to give whatever level they wanted to its employees because
the evaluating
criteria is overly subjective.
When giving almost to everyone B and C levels, the company is not able to
distinguish topperformers and non-performers among the entire group of employees. So, a major
consequence
of this method is that employees feel demotivated. If they do a good job, their
performance is
not distinguished from average performing employees and so this policy does
not incentivize
2336 Human Resources Management
S1.T2 2015/16
system that Vitality used to determine salaries and raises. When developing this
system, Vitality
attributed each position a base level salary, that could be increased depending on
the number of
job evaluation points of each employee and the current position in the structure
hierarchy. These
evaluation points were calculated through the assessment of job
characteristics that were
defined as relevant for Vitalitys business and strategy. The salaries of each
individual were then
adjusted by a comparative ratio which reflected the performance evolution of
employees over
time and it usually ranged from 80% to 125%. This part of the salary led to
very unsatisfied
workers due to the fact that this process allowed employees with consistently
higher
performances to receive smaller raises than their less productive colleagues
(the increase in
comparative ratio kept decreasing on the percentage basis as the employee
climbed through the
range).
The current compensation structure did not give sufficient concern to the overall
performance
since there was no bonuses or
reward/recognition. The benchmark
alternative
form
of
whether an entire team performs well or poorly, the manager is still forced to
nominate Top
Achievers. Besides, the reality is that not all employees will fit neatly into
one of the
categories and might end up in a category that does not reflect their true
performance. The
Not Rated category, which is for those employees that can not receive an
accurate rating
because of their recent entrance into the company, is a too generic category
and leads
manager to some abuses. They used to rank all new employees as Not Rated,
neglecting
their performance and privileging in this way veteran employees.
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 the their job description, neglecting
others only
because they are not really rewarded.
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.
Rating of managers based in their performance in five aspects: meeting staffing
needs, their
effectiveness in training, development and employee relations, their clarity in
Vitalitys 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.
employees, managers.). Other comments such as Where was the training on all
these
changes?...Can someone explain me whats supposed to be happening?, confirm
that the
communication is actually weak. For this reason, Human Resources department
should build a
bridge with the management staff and enforce communication for example by
explaining them
all the measures and conducting surveys before implementing one, in order to
understand all the
needs and requests.
In conclusion, HR department should adopt tools for developing talent within the
company and
give incentives, bonus and financial reward not only to the top talents but also to
the bulk of
other employees that show a good performance and, in some cases, train those who
didnt meet
performance expectations, instead of work aggressively to weed them out.