Before we begin, I would like to ask everyone a question: If you were working, would you prefer

to be paid based on time or based on performance?

In fact, each method has its own advantages and disadvantages. From this question, we can move
to an important concept in human resource management, which is base pay – the main income
that employees receive.
Base pay is the basic compensation employees receive, typically in the form of hourly wages or a
fixed salary. In addition to base pay, organizations may also apply production-based pay to
reward employees based on their performance.
Next, I will talk about time-based pay. Simply put, this is a way of paying employees based on
the time they work, such as per hour, per day, or per month. So, the more hours you work, the
more you earn, because your income is calculated by multiplying your working hours by a fixed
wage rate.
This method is commonly used in jobs where it is difficult to measure performance, especially in
administrative or service roles. For example, if someone works part-time at a coffee shop, they
are usually paid per hour, like 25,000 VND per hour, instead of being paid based on how many
drinks they sell.
The advantage of this system is that it helps maintain work quality, because employees are not
under pressure to work faster just to earn more money. It also provides more stable income and
makes it easier for companies to manage costs.
However, the downside is that since pay is not directly linked to performance, employees may
feel less motivated to work harder. Also, companies need a reliable system to track working
hours accurately.
In conclusion, time-based pay is suitable for jobs where performance is hard to measure, but it is
often combined with other incentive systems to improve employee motivation.
Next, I will talk about production-based pay. This is a system where employees are paid based
on their performance or output, instead of the time they spend working. In other words, the more
you produce or the better you perform, the more you earn.
Many organizations use this method to make sure that employees’ pay reflects their effort and
contribution. For example, a salesperson might receive a percentage of the revenue they
generate. In some professional jobs, like medical or service fields, employees may earn around
21% to 25% of their total production.
There is also an important principle called the “Rule of 45”, which means that total salary
expenses should not exceed 45% of the company’s revenue. This helps businesses balance
between motivating employees and maintaining profitability.
The biggest advantage of this system is that it creates strong motivation, because better
performance leads to higher income. It also makes pay more fair, since employees are rewarded
based on their contribution.
However, there are some downsides. This system can create pressure on employees, and
sometimes they may focus more on quantity rather than quality. Also, income can be unstable
because it depends on performance.
In conclusion, production-based pay is very effective in increasing productivity and aligning
employees with company goals. However, it needs to be carefully designed to ensure fairness,
maintain quality, and support long-term business success.
Finally, I will compare time-based pay and production-based pay.
The main difference between these two systems is how employees are paid. Time-based pay
focuses on the number of hours worked. For example, a security guard or office staff receives a
fixed salary per month, no matter how busy or quiet the day is. This system provides stable
income and allows employees to focus on work quality. However, it may reduce motivation
because working harder does not increase income.
In contrast, production-based pay depends on performance or results. For example, a salesperson
earns commission for each product sold, so the more they sell, the more they earn. This creates
strong motivation and a clear link between effort and reward.
However, this system can create pressure and unstable income. If sales are low, income will also
decrease, and sometimes employees may focus more on quantity than quality.
👉 In reality, many companies combine both systems, such as a fixed salary plus commission, to
balance stability and motivation.
In conclusion, the best system depends on the type of job and organizational goals.
Next, I will explain what makes an effective compensation plan.
First of all, the compensation system must be aligned with the company’s goals. This means that
the way employees are paid should encourage them to work toward what the organization wants
to achieve. For example, if a company wants to increase sales, it may offer bonuses based on
sales targets or KPIs, so employees are motivated to sell more.
Secondly, the system must ensure fairness. Internal fairness means that employees who have
similar roles and responsibilities should receive similar pay. For example, if two employees do
the same job but are paid very differently, it can lead to dissatisfaction. External fairness is also
important, which means the company’s pay should be competitive compared to other companies.
If the salary is too low compared to the market, employees may leave for better opportunities.
In addition, the compensation system should be transparent. Employees need to clearly
understand how their pay is determined, what criteria are used to evaluate their performance, and
how rewards are given. For instance, if a company clearly states that achieving 100% of a KPI
will result in a specific bonus, employees will feel it is fair and will be more motivated to
achieve those targets.
Another important factor is the strong link to performance. Employees should see a clear
connection between their effort and their rewards. For example, a salesperson who sells more
products will earn higher commissions, which encourages better performance.
Moreover, rewards should be timely. If employees perform well but have to wait too long to
receive rewards, they may lose motivation. On the other hand, timely recognition and rewards
can help maintain high performance.
Besides financial rewards, companies should also include non-financial incentives such as
recognition, praise, or career development opportunities. For example, a high-performing
employee may not only receive a bonus but also be promoted, which increases their job
satisfaction and loyalty.
Finally, the compensation system should be flexible. Since business environments are constantly
changing, companies need to adjust their compensation strategies when necessary. For example,
during periods of high competition, companies may increase bonuses or adjust salaries to retain
employees.
👉 In conclusion, an effective compensation plan is not just about paying employees, but also
about being fair, transparent, motivating, and aligned with organizational goals.
Before going into details, I want to ask you a simple question: When choosing a job, do you
only care about salary, or are there other factors that matter to you?--> Components of
Compensation
Let’s imagine a situation. You receive two job offers with exactly the same salary. However, the
first company has a stressful working environment, long working hours, and very little support
from managers. The second company, on the other hand, has a friendly atmosphere, supportive
colleagues, flexible working conditions, and clear opportunities for promotion.
In this case, most people would probably choose the second company, even though the salary is
the same.
This example shows that compensation is not just about money. In reality, it includes many
different elements that work together to attract, motivate, and retain employees. If companies
only focus on salary, they may not be able to keep their employees in the long term.
A real-life example can be seen at Ho Chi Minh City University of Banking. Many lecturers
choose to stay with the university for a long time, even though they have opportunities to move
elsewhere. One reason is the flexible and comfortable working environment. For instance,
lecturers are not required to be on campus if they do not have teaching sessions. This shows
flexibility and respect for personal time, which is a clear example of intangible rewards.
👉 In general, compensation can be divided into tangible and intangible rewards.
Tangible rewards are elements that can be measured in monetary terms. These include base pay,
which is the basic income employees receive. Base pay is usually divided into wages and salary.
Wages are payments based on time worked, such as hourly pay, while salary is a fixed amount
paid regularly regardless of the number of hours worked.
In addition, there is variable pay, which is linked to performance, such as bonuses or
commissions. For example, sales employees earn more when they sell more products, which
creates a strong motivation to perform better.
Another component is benefits, which are indirect rewards such as health insurance, paid leave,
or retirement plans. Although these are not given as cash, they still provide significant value to
employees.
👉 On the other hand, intangible rewards include factors that are not easily measured, such as the
working environment, recognition, career development opportunities, and autonomy.
👉 From this, we can see that while tangible rewards help attract employees and create short-term
motivation, intangible rewards are what truly retain employees in the long term.
👉 Therefore, an effective compensation system must combine all these elements—base pay,
variable pay, benefits, and a positive work environment—to not only meet employees’ financial
needs but also create long-term engagement and commitment.
Next, I will explain how organizations build an effective compensation system in a simple
way. In fact, building this system is about answering three key questions: what should pay
be based on, how much is considered fair, and how to motivate employees to perform
better.
First, organizations need to decide on a compensation philosophy, which means choosing
between paying based on seniority or performance. For example, some organizations, especially
in the public sector, increase salaries based on years of service to provide stability. In contrast,
many private companies focus on performance, where employees who achieve better results
receive higher pay. However, relying on only one approach is often not enough, so many
organizations combine both to balance stability and motivation.
Next, companies need to clearly understand each job through job analysis and job evaluation.
This means identifying what skills are required, what responsibilities are involved, and how
important each role is. For instance, a managerial position usually carries more responsibility
than a regular employee, so it should be paid more. This helps ensure internal fairness and
prevents employees from feeling that their pay is unjust.
However, internal fairness alone is not sufficient. Organizations also need to consider the
external market to remain competitive. For example, if a company pays lower than the market
rate, talented employees may leave. On the other hand, if it pays too much, it increases costs.
Therefore, companies often build pay structures with different levels, such as junior, senior, and
manager, each with a salary range including a minimum, midpoint, and maximum.
In addition, modern organizations increasingly rely on technology, such as payroll systems and
time-tracking tools, to ensure accuracy and transparency. For example, these systems can
automatically calculate overtime pay, reducing errors and building trust among employees.
Another important aspect is how individual pay is determined, which is often based on
performance. For example, sales employees earn higher commissions when they sell more
products, creating a clear link between effort and reward. When employees see that their
performance directly affects their income, they are more motivated to work harder.
At the same time, organizations must ensure legal compliance, such as providing equal pay for
similar work and following labor regulations. This helps reduce legal risks and maintain fairness.
Finally, a compensation system should not be fixed but flexible and regularly updated. For
example, when the labor market becomes more competitive or living costs increase, companies
may adjust salaries or benefits to retain talented employees.
👉 In conclusion, building a compensation system is not just about paying employees, but about
balancing fairness, cost, and motivation to attract and retain employees in the long term.
Next, I will explain the compensation administration process based on the diagram, but
with deeper insight to better understand its meaning. In essence, this entire process answers one
key question: how can organizations pay employees in a way that is fair, competitive, and
motivating?
The process begins with job analysis, where organizations clearly define job responsibilities,
required skills, and qualifications through job descriptions and job specifications. For example,
at the Ho Chi Minh City University of Banking, a lecturer is responsible for teaching and
research, while a senior lecturer or department head has additional responsibilities such as
managing programs and producing academic publications. 👉 The key insight here is that if
organizations do not fully understand each job, all subsequent pay decisions may become
inaccurate and lead to perceptions of unfairness.
Next is valuing jobs, which includes job evaluation and market pricing. Job evaluation
determines the internal value of each position, ensuring fairness within the organization. For
instance, a department head is valued more highly than a regular lecturer due to greater
responsibility. At the same time, organizations use pay surveys to compare salaries with other
institutions in the market. 👉 The critical insight is that internal fairness alone is not enough; if
salaries are not competitive externally, talented employees may leave. Conversely, focusing only
on market rates without internal fairness can create dissatisfaction among employees.
Alongside this, organizations establish pay policies, which act as the rules guiding compensation
decisions. For example, salary increases may be based on qualifications, tenure, or research
performance. 👉 The insight here is that pay policies create transparency and consistency—
without clear rules, employees may feel that compensation decisions are subjective or unfair.
Based on these inputs, organizations develop a pay structure by grouping jobs into different
levels and setting salary ranges with minimum, midpoint, and maximum levels. For example,
positions may be categorized into lecturer, senior lecturer, and managerial roles. 👉 The key
insight is that a pay structure helps control costs while still allowing flexibility to reward high
performers, avoiding inconsistent or arbitrary pay decisions.
Following this, individual pay is determined, supported by performance appraisal. Employees
who perform better or contribute more receive higher compensation. For example, lecturers who
publish more research or teach additional courses may earn higher income. 👉 This is the most
critical stage for motivation, as it directly links effort to reward—when employees see that better
performance leads to higher pay, they are more likely to be engaged and productive.
Finally, the system is implemented, communicated, and continuously monitored. Organizations
must clearly explain how compensation works so employees understand how their pay is
determined. At the same time, regular monitoring allows adjustments based on market changes
and organizational needs. For example, at HUB, lecturers are not required to be on campus when
they have no teaching schedule, providing flexibility. 👉 This reflects an important intangible
reward, showing that compensation is not only about money but also about work environment
and autonomy.
👉 Overall, this process is not just a technical sequence of steps, but a strategic approach that
balances internal fairness, external competitiveness, and employee motivation. If any of these
elements is missing, the compensation system will not be effective in the long term.

 In reality, compensation is not just about paying employees, but

about designing a system that makes people want to stay, perform,
and grow with the organization.”
Question:
Does a pay-above-market strategy create long-term financial risks for
organizations? (Ngọc chị - Group 2)

A pay-above-market strategy can provide a strong competitive advantage in

attracting high-quality talent, especially in highly competitive industries. However, it also
creates significant long-term financial risks if not carefully managed. Higher salaries
increase labor costs, which may reduce profitability if business performance does not
grow at the same rate. In addition, organizations may face pressure to maintain these high
salary levels even during economic downturns, limiting their flexibility. It can also create
internal equity issues when existing employees demand salary adjustments. Therefore,
this strategy is most suitable for organizations with strong financial capacity or those
seeking highly specialized talent, rather than being applied broadly.