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Vitality Health Enterprises Was Founded in 1987 by Hikaru Kikuch.

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Vitality Health Enterprises was founded in 1987 by Hikaru Kikuchi, a Japanese entrepreneur. Using initial word-of-mouth promotion, Kikuchi transformed his company into an international business operation earning $3 million annually. In 2008, the global economic crisis slowed Vitality’s growth, which prompted the company to hire Beth Williams, an established and accomplished businesswoman to help reinvigorate Vitality. The Performance Evaluation Management Team (PMET) studied the company’s evaluation and rewards system and concluded that the performance management system was problematic across several dimensions. To combat these issues, Williams decided to implement a forced distribution approach with four categories to evaluate employees on. In addition, the compensation and rewards were based on a point system that initially calculates salaries using a salary-line formula (which is re-calibrated annually to maintain a level at 75% of group median) that takes into account a base salary and job evaluation points. This gives a control point which is then modified based on the employee’s compa-ratio, which also regulates employees’ merit raises.

While the company has been financially successful since the implementation of the new system, the extent of the relationship between the company’s success and the new system is still unclear, and morale among employees and managers is suffering -- only 54% of employees reported satisfaction with the new performance management system. Although the new system is clearly a step in the right direction, certain issues must be addressed if Vitality wants to retain its top talent and stimulate high performance. The challenge is to maintain the recent success of the company, while implementing a performance management approach that will effectively continue to identify both top and lower performers and satisfy employees and managers.

A number of issues emerged from the adoption of the forced distribution system. For instance, managers often chose to rank newer employees lower than veteran employees regardless of performance, were apprehensive about giving high or low ratings to avoid angering fellow team members, or were even unwilling to spend the necessary time on implementing the system because the task was not fairly rewarded. This fear of hurting employees has led managers to provide less honest feedback, refuse to rank employees, and alternate rankings from year to year. Meanwhile, employees were more defensive to criticism and less likely to perform duties beyond their job descriptions. Evidently, being rated against their peers caused tension among the employees. In addition, the compensation system could be one of the causes behind the increasing turnover of high performing employees. Even though salaries are higher than the market rate across the board, the difference between compensation of higher and lower performing employees can be very small which implies to high performing employees that they are not being valued. This is due to the regulation of merit raises through the compa-ratio.

Instead of employing a forced distribution ranking system, a set of other alternatives should be considered. Techniques such as behavioral observation scales (BOS) consist of identifying key tasks for a particular job. Employees can then be evaluated on how frequently they display the behavior for effective performance. It can be used to easily identify employees who are engaging in productive behaviors, has been shown to reduce bias (as its basis is in objective job analysis) and promotes direct feedback. In one 2010 study, researchers concluded “that the BOS methodology, combined with the 360 degree evaluation process, provides a broad and reliable manner” to conduct performance reviews within an organization (Buchko & Buchko 2010). This system can’t fully negate bias such as severity, leniency, and central dependence, however.

On the other hand, management by objectives is a results-based approach where employees and managers meet to agree on a set of goals that the employees should accomplish in a certain time period. At the end of the period, managers and employees meet again to evaluate their performance. The goals must be focused and easily quantifiable so that performance can be objectively evaluated. This approach seems like a viable option for Vitality since they have already been implementing



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