HRM 1 – Week 7 – Lecture 13

Performance Management at
Vitality Health Enterprises, Inc.

Ass. Prof. : Sebastián Ugarte

Main source: V.H. case study
Announcements
 April 22nd (by 23 hrs), Preliminary report submission via email
 Quiz #3 Wednesday 26th of April about Training:
 Chapter 7 S&B
 Case study reading: SUPERVALU - Professional Development
Program
 Presentations about training and development
 Remember to reply next week to your TA your self & peer
assessment
 We will begin with the mentoring sessions on Monday 24th.
 Only the groups to be mentored need to attend to the class
 3 groups per session (class)

2
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?

3
Forced Distribution on a Bell-Shaped Curve

4
Freehand Wage Curve
Hourly pay rate (USD/ hr)

Point value of jobs (Job evaluation points) 5

 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

6
Pay grades
Range Midpoint, Minimum, and Maximum

Compa-ratio (Position in range) =

What would be the compa-ratio of an employee earning

USD 45.000 for pay grade 2 of this example?
7
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

8
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

9
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?
10
In-class Discussion Questions
a. What were the problems with
Vitality Health's old
Performance Management
system? What were the root
causes of those problems?
b. Is this evident from the 2008
data in Exhibit 2?
related to performance under
the old system?
f. Would an employee with
superior performance year
after year keep receiving
higher and higher pay
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)

11
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?)

12
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?

13
Performance management distribution 2008

14
Performance management distribution 2008

15
Performance management distribution 2010

16