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ENGEP305 HRM 1 – Class 16

Performance Management at
Vitality Health Enterprises, Inc.

Ass. Prof. : Sebastián Ugarte


Main source: V.H. case study
Announcements
 Quiz #4, Wednesday 22nd of May. Performance management
chapter from Snell, Morris and Bohlander, PPT on Performance
management, and Performance Management case study (“Vitality
Health”)

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Forced distribution
(Related to the Vitality Health case study)

 Performance appraisal method in which ratings of


employees are distributed along a bell-shaped curve
 Issues and concerns
 Assumes a normal distribution of performance.
 Resistance by managers to placing individuals in the lowest or
highest groups.
 Providing explanation for placement in a higher or lower
grouping can be difficult.
 Is not readily applicable to small groups of employees

 Which are the benefits?

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Forced Distribution on a Bell-Shaped
Curve

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Freehand Wage Curve
Hourly pay rate (USD/ hr)

Point value of jobs (Job evaluation points) 4


Pay rate ranges (Most common method)

 Pay rate ranges for


each pay grade
Hourly pay rate (USD/ hr)

 Overlap between
ranges

 Rate ranges
generally are divided
into a series of steps
that permit
employees to receive
increases up to the
maximum rate for the
range on the basis of
merit or seniority

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Pay grades
Range Midpoint, Minimum, and Maximum

𝑹𝑹𝑹𝑹𝑹𝑹𝑹𝑹 𝒑𝒑𝒑𝒑𝒑𝒑
Compa-ratio (Position in range) =
𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎 (𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎𝒎 𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓𝒓 𝒑𝒑𝒑𝒑𝒑𝒑)

What would be the compa-ratio of an employee earning


USD 45.000 for pay grade 2 of this example?
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Performance-Related Pay PAY MATRIX

Percentage pay increase according to performance rating and


position in pay range (compa-ratio)
Rating Position in pay range

75%–90% 91%–100% 101%–110% 111%–125%

Excellent 12% 8% 6% 4%

Very effective 8% 6% 4% 3%

Effective 6% 4% 3% 0

Developing 2% 1% 0 0

Poor 0 0 0 0
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Synopsis of the case

 To show how the complexities of a performance


management system are evaluated and applied at
Vitality Health Enterprises
 Four sections:
1. The first section of the case describes the CEO's recent
decision to turn the faltering performance management system
over to the company's new VP of HR
2. The second section details the company's history
3. The problems with a previous performance management
system (2009) and,
4. The development of a revision (2011) instituted to revitalize the
system

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Pre-class preparation questions
1. Who should evaluate employees' performance? What
should leaders do when (individual, team, organization)
performance is lacking?
2. Should the new performance review system at Vitality Health
be revised? What changes would you recommend to the
new performance management system? How should the
changes be implemented? Carefully consider the
consequences of your recommendations.
3. Is the revised performance management system better
than the system it replaced? In what ways? In what ways
is it worse?
4. How important is the relative nature of the new performance
management system?

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In-class Discussion Questions
a. What were the problems with related to performance under
Vitality Health's old the old system?
Performance Management
system? What were the root f. Would an employee with
causes of those problems? superior performance year
after year keep receiving
b. Is this evident from the 2008 higher and higher pay
data in Exhibit 2? increases?

c. How are the levels of salaries


determined at Vitality Health?
What is a compa-ratio?

d. Are salary levels at Vitality


Health High or Low?

e. Is pay (or changes in pay)


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In-class Discussion Questions
g. Discussion of Vitality's New k. Now they are forced to
(Revised) Performance distinguish, what will
Management System managers do?

h. What are the key features of l. When might relative


Vitality Health's revised performance systems be
program? preferred?

i. What problems under the old m. Why were managers lumping


system are solved or all employees together
mitigated by the new system? before?

j. What problems arise under n. Is pay more closely related to


the new system? (And what performance under the new
issues are still not solved system?
from the old system?)

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Discussion of employee reactions to the
new system
o. Do employees like the new r. What are other aspects of the
system? Why or why not? new system that are likely to
be (or be perceived as)
p. Notice that any change, effective/improvements over
holding the pie (Overall the old system?
Rewards) constant, is bound
to produce losers as well as
winners. Why then, would we
expect all employees to prefer
the new system?

q. Why won't targeted


distribution (i.e., forced
ranked) systems work for
small groups?

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Performance management distribution
2008

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Performance management distribution
2008

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Performance management distribution
2010

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