PERFORMANCE MANAGEMENT AT

VITALITY HEALTH ENTERPRISES, INC.

Case Background
Vitality enterprise was founded in 1987 in Ames Iowa by
Hikaru Fred Kikuchi. Initially it started with importing
products from Japan and marketing them. It went success
within 3 months and resulting to more than 15,000 in sales.
In 1989 import tariffs and supply constraints forced vitality
to start their own manufacturing unit. By the summer 1991,
business grown to 3 million per year.
In 1994, Vitality partnered with several leading pharmacy
retailers to market their products. In 1995, company went
global, targeting markets around the Pacific Rim including
Taiwan, China and Japan. In 1997, Vitality acquired
HerbaPure Nutraceuticals. Vitalitys name was changed as
Vitality Health Enterprises. Also in this period company
went public. With the expansion, Kikuchi maintain his vision
by matching it to the corporate strategy to one his favorite
sayings: Outer beauty can only be achieved as inner
harmony is reached
Case Background
By 2007 company had around 5,500 employees in HQ and nearly
1,500 employees in global offices.
In mid 2008, global economic crisis brought relatively stagnation
to Vitalitys growth and Beth Williams was made the CEO of
Vitality Health Enterprises. Williams brought a disciplined
operational mindset and was known throughout the industry for
reducing global production cost by 12% during three years at the
helm of B&W Beauty.
In the first quarter of 2009, Vitality began rolling out its new
business strategy. In addition, Williams organized a committee to
review the policies and methods for tracking the performance
goals of all non-sales and non-executive employees across the
entire company.
Over the next four months, the Performance Management
Evaluation Team (PMET) studied the evaluation and rewards
system.
The PMET discovered that the PMS presented problems for the
2,500 professionals staff.
Statement of the Problem
Choosing the BEST way to evaluate
performance and to distribute rewards at
Vitality Health Enterprises, Inc.
Performance Management
Before PMET
Performance management before the PMET
included 13 different rating levels from A-E
including plus and minus
Salary computation based on the point
system and adjusted by the comparative
ratio.

Comparative ratio= Employees current

salary
Current market rate
Weaknesses
Homogeneous rating which fail to distinguish
between performers and non- performers
Employees felt undervalued
Managers feared do things against teamwork
Did not keep or motivate top employees
The final salary was a combination of the Pay
policy line formula and the comparative ratio.
The merit increases could decrease if the
comparative ratio is higher. As a result, some
of the employees might have lower raises than
other employees with same performance.
Performance Management After
PMET
The performance management after PMET
used distribution model of performance
ranking.
Specific goals set by managers
Performance related short and long term
cash and equity bonuses
54% of the employee prefer the new
system more as it values top
performances more
Easy to determine which category
employee falls into.
Weaknesses
Managers where not trained to use it
Made it more difficult to discuss performance
Employees are less likely to do duties outside their job
The forced distribution is too rigid
Forced distribution initially helps to get rid off poor
performers but later it removes good performers as well.
Using not rated employees category as a tool to reserve
higher rankings for old employees
Uniform rankings
Reluctant to disclose the rankings to the employees
Rotation of highest rankings between employees from
one year to the next