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Vitality Health enterprises decided to roll out its new business strategy in face of decreasing
earnings in 2009.The focus was primarily on reviewing the current performance management
system and making it coherent to ensure increased employee motivation and accountability. In
the old PMS the top performing employees ended up getting similar grades to other less
productive employees leading to decreased motivation and frustration. The comparative ratio
technique used by the company led to consistently high performers receiving smaller raises than
their less productive colleagues. The current compensation structure did not give much concern
to the overall performance since there was no bonus or alternative form of reward/recognition.It
was difficult to identify and reward top performers or terminate low performers and hence, the
low turnover experienced by the firm was among productive scientists and product engineers.
New PMS replaced the existing absolute ranking system by a relative ranking one wherein the
employees were evaluated with respect to the performance of their fellow colleagues and the predetermined standards for the respective job. The rankings were designed to be fit to a distribution
in order to have a distinct picture of the relative performances of all employees. Due to the
concept of relative ranking every team would have some top achievers and some poor
performers hence even if the team was performing poorly, there would be some top achievers
and even if a team performed excellently there would still be some poor performers.It required a
higher involvement of the managers but did not reward them appropriately for it.To play safe,
Managers rotated higher rankings between their employees from one year to the next either to
avoid putting in too much of effort or to avoid angering their team.Some managers submitted
rankings which would fit the curve but told employees that they had submitted something higher
to maintain good relations with employees.Some managers submitted uniform rankings to avoid
differentiating between their employees compelling HR department to change the rankings to fit
them to a distribution, further leading to inaccurate rankings.

Alternatives and evaluation

1. The burden on the managers should be decreased- Managers found it difficult to discuss
the ratings with employees because of their inherent relativity. Since these were linked directly
with the compensation, it added to the burden. Many managers declared this task as unproductive
and did not want to take so much of pain.
2. Changing the review system which should include tasks performed outside the job
description as well in deciding rating-In emergency sometimes some employees have to
contribute in tasks which does not lie in their domains.But for the benefit of the organization they
are compelled to perform duties.But with the new review system in the vitality enterprises the
performance outside the job description were less likely to be rewarded.So,employees were not
performing jobs which were not their part of responsibility.This will certainly hurt organization
at crucial times.On the other hand it is quite obvious if one is wasting his or her energy is certain

tasks and it is not getting recognized or rewarded then nobody would bear that extra pain in their
3. The forced distribution system should be made less rigid- It was mandatory to declare
some top performers. So, a forced relativity had to be introduced even if the results were
achieved because of the group as a whole. This degrades team building in a real scenario and
promotes individualism. But there was an advantage too. From the organizations point of view
each and every employee gave their full efforts in their work. This thing ensured that nobody is a
free rider and eventually organization was benefited out of this.
4. The ranking category target and constraints should be revised-The upper and lower limits
of the ranking categories should be changed. The constraint for the achiever category should be
50% and top achiever should be 35%.Due to the target distribution many great performers got
the rankings in the achievers category. It was disheartening for them because ultimately
managers had to adjust the rankings to fit the curve. The consequence was that many good
employees were still in the achievers category even when they performed well which
demotivated them. As a result there was some discontent amongst the top employees.
5. The Not Rated category should be removed- The leverage given to managers to rate
someone as not rated created discomfort. The veteran employees of the team were given
higher ratings at the cost of some deserving performers new to the team. There can be negative
effect of this thing. Many bright newcomers may feel demotivated and may switch their jobs
were their talent could be assessed regularly and rewarded accordingly.

The percentage increase should be different for different levels in the hierarchy. For example the
scientists can have a minimum incremental percentage much higher when compared to line staff.
And even the incremental is higher than low level hierarchies. The case does not have much
information about the organizational structure of the company. This will reduce the turnover of
the high performing scientists. The % increase in the basic pay can be divided into two heads.
One linked to the teams performance and the second linked to individual performance. Thus the
employees are incentivized to improve their own performance as well as contribute to the team
goal. It solves the problem of imposed rigidity of the new system. The points allotted to
individual by managers should be open and there should be proper justification for their point
allotment. This will solve the problem of managers finding difficult to discuss the appraisal with
the individuals. Under the current system the employees are less likely to do work outside their
JD. A 360 degree review would incentivize the employees to work with other teams and this
function can be incorporated in their goals.