The Old Performance Management System

The Rating System

The rating system had 13 different rating levels from A to E including pluses and minuses. But
the managers were not comfortable with the rating system. They were feeling uncomfortable
about offending their employees and to avoid that gave almost everyone a C or B, few D or A
and infrequently provided E ratings. As a result, the rating system failed to differentiate
performers from nonperformers. Managers were afraid of disappointing a sense of teamwork, so
they rarely gave A within the research and development (R & D) teams, which left best
performing employees feeling ignored and undervalued financially and acknowledging that they
earned similar rewards like their less efficient workers as performance ratings or performance
points were used to determine merit-based wage increases and other rewards.
Job Evaluation Points
Each position had a base level monthly salary which was altered by upward with a pay policy
line depending on the number of job evaluation points linked with the position. Job evaluation
points were determined in terms of three factors:
 Technical Knowledge
 Problem-Solving Skills
 Accountability
The formula was:
Pay Policy Line = Base Salary + (Job Evaluation Points*Increase Per Point)
Comparative Ratio
Salaries of individual were further altered by a comparative ratio based on the performance of
individual. For example, an employee earned 500 job evaluation points would have $7430
monthly target salary and he or she had a compa-ratio of 90%, his or her monthly salary would
be $6687. The ratios actually ranged between 80% and 125% of the target salary and merit rises
to compa-ratio moved to drop on a percentage basis as an employee ascended through the range.
For example, with 85% compa-ratio an employee might reach an increase of 5% to 7%, on the
other hand, an employee with the same performance but a compa-ratio of 110% would reach a
rise of only 2% to 3%. Employees with regular higher performance sometimes earned smaller
raises than their less efficient colleagues.
Benchmarked Compensation
To retain best employees, Vitality benchmarked compensation to keep the pay policy line at
about the 75th percentile with consider to their compensation peer group. This technique
produced 7% to 8% higher actual compensation than the competition. Low employee turnover
was achieved by applying this method. However, the system only focused on the pay stability of
a flat salary which leaded to no opportunity for bonuses or alternative forms of compensation.
On the other hand, it was difficult to identify top performers to reward and low performers to
terminate, for the system. As a result, the small amount of employee turnover that did happen
tended to occur among more productive scientists and product engineers. Some of these
employees left the company for better opportunity as they were not valued by the employers for
their efforts in the company.
To find a better way to identify and reward top performers, Williams instructed PMET to
evaluate and go over the performance management system. After that rearrange the Vitality’s
compensation practices in order to keep best players in their positions and advance company
growth by attracting new top people. On the other hand, to identify low performers and train
them up for better performance was a related objective.