Case Analysis: Vitality Health
STATEMENT OF PROBLEM
Founded in 1987 by Hikaru “Fred” Kikuchi, “Vitality Health Enterprises, Inc.” has flourished in the cutthroat personal care products sector, however, the 2008 global economic crisis has negatively impacted Vitality’s strategic planning and organizational design. Vitality is facing organizational uncertainty as employees are negatively motivated to “relax” due to Vitality’s previous chain of success. Combined with decreases in discretionary global spending and poor employee performance management, Vitality has experienced unsatisfactory company earnings. Examining and analyzing the given case, I have encountered two central issues related to Vitality’s performance management system that may better clarify the reasoning behind their organizational adversities. Connected to one another, the two issues consist of Vitality’s poor establishment of managing employee performance in relation to the company’s “rating system” and “forced distribution model of performance rankings”.
ANALYZE THE PROBLEM
Rating System:
Attempting to maintain their position as an industry leader in innovation, Beth Williams, CEO of Vitality, established a coherent performance management system named “Performance Management Evaluation Team” (PMET). Responsible for studying evaluations and the organizations rewards system, the PMET implements internal and external benchmarking, focus groups, and employee interviews. The performance management system was a “rating based” method of employee evaluation which resulted in various problems for the 2,500 professional engineers and scientists. Under this system, managers would give their designated employees a standard rating to avoid discouraging or demotivating certain employees (See Exhibit 1 in Appendix). As a result, it was nearly impossible for the PMET to differentiate superior from inferior employees. This would then translate to employee performance as superior employees felt under-appreciated and were displeased with the rewards received based on their ranking. Receiving rewards was a standard “pay policy line formula” and further modified by a comparative ratio “compa-ratio”. Rewards would potentially decrease if the “compa-ratio” was higher, resulting in various employees to receive fewer rewards than their colleagues who received identical ratings. It is apparent that the poor design of the original rating system was encompassed with many negative externalities. Williams and the PMET implemented a benchmark for compensating each peer group in hopes of reducing turnover. As a result, Vitality’s compensation system was prosaic with no opportunities to earn further bonuses. Employee salaries would have a standard increase or decrease which was ultimately unrelated to the employees’ actual performance. While inferior employees were content with this method of evaluation and reward, superior employees felt demotivated to better their working habits.
Forced Distribution Model of Performance Ranking (PMET2):
Attempting to revitalize the dreadful “PMET” system, Vitality implemented a “forced distribution model of performance rankings” where employees would be rated against one another, rather than a standardized quantitative method of evaluation (See Exhibit 2 in Appendix). Within this system, managers were accountable for setting specific goals for employees, which in result would earn them short and long-term cash and equity bonuses. This new system was embodied with an assortment of issues. Managers were given little to no information regarding the technicalities of this new evaluation system, and were unable to properly evaluate their employees. Under the new system, rewards and bonuses were directly related to the employees’ evaluation of performance. This negatively impacted Vitality, as employees would refrain from duties or tasks outside of their job description, only focusing on improving their monetary based evaluation rating.
STATE POTENTIAL SOLUTIONS FOR EACH PROBLEM
Rating System:
Many potential solutions can be applied to Vitality’s rating system to better evaluate employee performance. Rather than rating individuals with a standard letter grade, Vitality can use the same rating criteria to rate groups as it has been proven that groups perform 73% better when compared individual work (Heffernan, 2015). Vitality is a team-based organization where achievements are earned by individuals working together to produce an end-product. For this reason, fellow employees and colleagues are more knowledgeable about one another’s performance than a single individual (manager) can comprehend. Integrating employee reviews to the rating system would allow for the PMET to adequately disperse rewards and bonuses as they would receive absolute peer-review evaluations, and relative reviews from the managers. Considering Vitality’s team-based work environment, the ratio for rating employees should be 75% peer-review, and 25% manager review. This method has the potential of accurately detailing employee’s true effort and performance.