Chapter 7

Ph.D Phan Quốc Tấn

Salary concept and income structure

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Introduction

 Pay is a powerful tool for ……………….

……………………………………………...
 Pay has a large impact on the
organization such as:
a) Affects employee attitudes and
behaviors
b) Influences which kinds of employees
are attracted to and retained by the
organization
c) Can align employees’ interests with
organizational goals
d) Viewed as a sign of status and
success

Definition

According to Vietnam Labor Law 2019

(article 90, chapter 6),
 Wages are a monetary amount paid by an
employer to a worker under an agreement According to Vietnam Labor Law
to perform work, including remuneration 2019 (clause 1, article 91, chapter
that is based on the work or position as 6), The minimum wage is the
well as wage allowances and additional minimum amount of remuneration
payments. to be paid to a worker performing
 Remuneration based on the work or the simplest work in normal working
position shall not be lower than the conditions in order to ensure the
minimum wage. minimum living standard of the
worker and their family, in
 Employers must ensure equal pay for work accordance with the socio-
of equal value without discrimination economic development conditions.
based on sex.

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Decisions About Pay

Job Pay Level Pay

Structure Structure
• Relative pay • Average • Pay policy
for different amount the resulting from
jobs within the organization job structure
organization pays for a and pay-level
particular job. decisions.

Issues in Developing a Pay Structure

 Employers must not base

differences in pay on an
employee’s age, sex, race, or
other protected status.
 Any differences in pay must be
tied to such business-related
considerations as job
responsibilities or performance.
 The goal is for employers to
provide equal pay for equal work.

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  Two employees who do the
same job cannot be paid
different wages because of
gender, race, or age.
 It would be illegal to pay these
two employees differently
because one is male and the
other is female.
 Only if there are differences in
their experience, skills,
seniority, or job performance
are there legal reasons why
their pay might be different.

Structure of the C&B system in the organization

Salary by position

Allowance
MATERIAL
Bonuses

Benefits
C&B
Promotion opportunities

Interesting job
NON-MATERIAL

Workplace conditions

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Pay structure

A
Salary by position
Employee's
income from
B employment
Allowance

C
Bonuses

D
Benefits

Pay structure

1. Salary by position

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 Pay structure - Salary by position

 Fixed payment to employees for performing specific job

responsibilities.
 Salary by position is determined on the basis of job
complexity, working conditions, employee's capacity level
and market price; is the main income part of the total income
of employees, in order ……………………………. employees.

 Basic salary is calculated according to working time

(hour, day, month, year) or product unit price and
does not include additional payments such as
overtime salary, incentive salary, etc.
 Basic salary is stated in the labor contract.

Economic Influences on Pay

Product Markets Labor Markets

• Organization’s product • Organizations must
market includes compete to obtain human
organizations that offer resources in labor markets.
competing goods and • Competing for labor
services. establishes minimum an
• Organizations compete on organization must pay to
quality, service, and price. hire an employee for a
• Cost of labor is a significant particular job.
part of an organization’s
costs.

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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 Pay Level: Deciding What to Pay

 Although labor and product markets limit organizations’ choices about pay levels, there is a range
within which organizations can make decisions.
 When organizations have a broad range in which to make decisions about pay, they can choose to
pay at, above, or below the rate set by market forces. Economic theory holds that the most
profitable level, all things being equal, would be at the market rate.
 Pay policies are one of the most important human resource tools for encouraging desired
employee behaviors and discouraging undesired behaviors. Therefore, organizations must
evaluate pay as more than a cost, but also as an investment that can generate returns in attracting,
retaining, and motivating a high-quality workforce.

Benchmarking – a procedure in which an organization compares its own

Gathering Information practices against those of successful competitors
About Market Pay
• Pay surveys
• Trade and industry groups
• Professional groups

Job Structure: Relative Value of Jobs

Job Evaluation: Compensable Factors

Administrative procedure for measuring 5 characteristics of a job that the organization
relative internal worth of the organization’s jobs. values and chooses to pay for.
1. Experience 4. Working conditions
2. Education 5. Responsibility
3. Complexity

Job Evaluation of Three Jobs with three Compensable Factors

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 Pay Structure: Putting It All Together

Job Job Define Key Organizations typically apply the

information by establishing some
Evaluation Structure Jobs combination of:
• Pay rate: is the amount of
compensation an employee receives
for performing their job.
Pay Policy Pay • Pay grades—sets of jobs having
Pay Rates similar worth or content, grouped
Line Survey
together to establish rates of pay.
• Pay ranges. Within this structure, they
may state the pay in terms of a rate per
hour, commonly called an hourly wage;
Pay Pay Pay a rate of pay for each unit produced,
known as a piecework rate; or a rate of
Grades Ranges Structure pay per month or year, called a salary.
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Pay Rates - Pay policy line

 If the organization’s main concern is to match what
people are earning in comparable jobs, the
organizations can base pay directly on market
research into as many of its key jobs as possible.
To do this, the organization looks for survey data
for each job title.
 Pay policy line is a graphed line showing the
mathematical relationship between job evaluation
and pay rate. Pay Policy Lines, provides an
example of a pay policy line. By using this line, an
analyst can estimate the market pay level for a
given job evaluation.
 The pay policy line reflects the pay structure in the
market, which does not always match rates in the
organization. Survey data may show that people in
certain jobs are actually earning significantly more
or less than the amount shown on the pay policy  Pay policy line–graphed line showing the
line.
mathematical relationship between job evaluation
points and pay rate. (Figure 12.4)

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 Pay Grades - Pay Ranges
1. Pay grades: sets of jobs having similar worth or
content, grouped together to establish rates of pay.
• A drawback to pay grades is that grouping jobs will
result in rates of pay for individual jobs that do not
precisely match the levels specified by the market
and the organization’s job structure.
2. Pay ranges – a set of possible pay rates defined
by a minimum, maximum, and midpoint of pay for
employees holding a particular job or a job within a
particular pay grade.
• A typical approach is to use the market rate or the
pay policy line as the midpoint of a range for the
job or pay grade.
• Pay ranges are most common for white-collar jobs
and for jobs that are not covered by union
contracts. Figure 12.5, Sample Pay Grade Structure, shows an
• Usually pay ranges overlap somewhat, so that the example of pay ranges based on the pay policy line in
highest pay in one grade is somewhat higher than Figure 12.4.
the lowest pay in the next grade.

Pay Structure

 Pay structure represents Compa-Ratio (CR) – the ratio of average pay to midpoint
of pay range.
organization’s policy, but what the • If average equals midpoint, CR is 1.
organization actually does may be • If CR is greater than 1, average pay is above midpoint.
different. • IF CR is less than 1, average pay is below midpoint.

 HR should compare actual pay to

pay structure, making sure that
policies and practices match.
 Compa-ratio is the common way to
do this.

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 Pay structure

2. Allowance

Pay structure - Allowance

 Allowances meant to make up for working conditions, work

complications, living conditions, necessity of labor attraction
that are not taken into account or not adequately included in the
wage corresponding to the tasks or positions on the pay scale.
 Allowances have the meaning of stimulating employees to
…………………………………………………………………………
…………………………………………………………………………

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Pay structure - Allowance

CHARACTERISTICS NAME OF ALLOWANCES

• Arduous, harmful work allowance.
WORKING CONDITIONS • Dangerous work allowance (at height, pit,
Making up for working conditions, including arduous, humidity…)
harmful, dangerous works, or particularly arduous, • Working environment allowance (chemical,
harmful, dangerous works. noise, boiler room, washing room)
• Technical/skill allowance
WORK COMPLICATION • Professional skill/multi skill allowance
Making up for work complications such as works that • Difficult work allowance
require training, professional skills and knowledge, • Learning allowance
heavy responsibility, affecting other works, requiring • Position/title allowance
long experience, working skills, communications skills, • Responsibility allowance
and cooperation • Pluralism allowance
• Seniority allowance

Pay structure - Allowance

CHARACTERISTICS NAME OF ALLOWANCES

- Remote areas allowance
LIVING CONDITIONS
- Housing allowance.
Making up for living conditions such as works in remote
- Transportation/petrol allowance
areas, disadvantaged areas with extreme climate,
- Living allowance
expensive areas with housing difficulties; works that require
employees to frequently change the workplace, residence,
and other factor that make the employees’ life inconvenient.

- Labor attraction allowance

LABOR ATTRACTION - Productivity allowance
Labor attraction such as encouraging workers to new - Competence bonus/perfomance bonus/Emulation
economic areas, new markets; unattractive jobs that lack bonus
workers; encouraging workers with high productivity and - Working day encouragement allowance,
work quality or able to meet work schedules attendance allowance/subsidy
- Shift 2&3 encouragement bonus
- Emloyees/sewers maintenance bonus
- Subsidy for supporting finished goods (pakaging)

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Pay structure

3. Incentive Pay

Pay structure - Incentive pay

Incentive pay – forms of pay linked to an

employee’s performance as an individual,
group member, or organization member.
• Incentive pay is influential because the
amount paid is linked to certain predefined
behaviors or outcomes.
• For incentive pay to motivate employees to
contribute to the organization’s success, pay
plans must be well designed.

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 Effective Incentive Pay Requirements

1. Performance measures are linked to the

organization’s goals.
2. Employees believe they can meet
performance standards.
3. Organization gives employees the resources
they need to meet their goals.
4. Employees value the rewards given.
5. Employees believe the reward system is fair.

Pay for Individual Performance

1. Piecework rate 4. Performance Bonuses

This is a wage based on the amount the Performance bonuses reward individual
employee produces. This rate is often paid in performance, but bonuses are not rolled into
addition to the employees’ base pay. base pay. The employee must re-earn them
2. Standard Hour Plans during each performance period.
A standard hour plan is an incentive plan that 5. Sales Commission
pays workers extra for work done in less than a Commissions are pay calculated as a
preset “standard time.” percentage of sales.

3. Merit Pay
This is a system of linking pay increases to ratings on performance appraisals. It is most common for
white-collar employees.

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 Pay for Group Performance

 Employers may address the drawbacks of individual incentives by including group incentives in
the organization’s compensation plan.
 To win group incentives, employees must cooperate and share knowledge so that the entire group
can meet its performance targets.
1. Gainsharing
Gainsharing measures increases in productivity and distributes a portion of each gain to employees.

2. Group Bonuses
• Bonuses for group performance tend to be for smaller work groups.
• These bonuses reward the members of a group for attaining a specific goal, usually measured in
terms of physical output.
3. Team Awards
Similar to group bonuses, but more likely to use a broad range of performance measures:
• Cost savings
• Successful completion of a project
• Meeting deadlines

Pay for Organizational Performance

 Two ways organizations measure their performance are in terms of their profits and their stock price.
 Organization-level incentives can motivate employees to align their activities with the organization’s goals.
 Linking incentives to the organization’s profits or stock price exposes employees to a high degree of risk.
Therefore, these kinds of incentive pay are likely to be the most effective in organizations that emphasize
growth and innovation, which tends to need employees who thrive in a risk-taking environment.

Profit sharing
 incentive pay in which payments are a percentage of the organization’s profits and do not become
part of the employees’ base salary.
 Profit sharing may encourage employees to think like owners.

Stock Options
 Rights to buy a certain number of shares of stock at a specified price.
 Traditionally, stock options have been granted to executives.

Employee Stock Ownership Plan (ESOP)

 An arrangement in which the organization distributes shares of stock to all its employees by
placing it in a trust.
 Most common form of employee ownership.

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 4. Benefits

Pay structure – Benefits

 Benefits show the concern of the employers to the employees’ lives.

 Benefits contribute to ………………………………………… employees.
 Different employees look for different types of benefits.
 Employees have come to expect that benefits will help them maintain economic security.
 Even though many kinds of benefits are not required by law, they have become so common
that today’s employees expect them.
 Like other forms of compensation, benefits impose significant costs.

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 Benefit Policy

Types of mandatory benefits:

 Group Insurance Subject SOCIAL INSURANCE HEALTH UNEMPLOYMENT

 Medical Insurance INSURANCE INSURANCE
Retirement, Sickness Occupational
 Life Insurance death fund and accident and
 Disability maternity disease fund
Insurance fund
 Unemployment Employee 8% - - 1,5% 1%
Insurance
 Retirement Plans
 Paid Leave Employer 14% 3% 0,5% 3% 1%
 Holiday

These types of benefits are calculated according to the provisions of law and according
to the employee's salary.

Benefit Policy

Types of voluntary benefits:

 Lunch paid by the company
 Enterprise subsidies for employees with many children or difficult circumstances
 Gifts from businesses to employees on birthdays, weddings, and birthday celebrations of
employees' parents.
 …

The above types of benefits are often calculated equally or according to

rank and position.

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Benefit Policy

 Employees will be truly happy,

enthusiastic at work and commit to
the company thanks to the benefit
policy offered by the company.
 Recent statistics show that most
employees expect total reward
policies. Therefore, the company is
forced to develop a good benefit and
total rewards policy.
 Talented people will feel that their
contributions are rewarded, trying to
work to contribute to creating a
successful, sustainable, long-term
business.

Objectives of the salary system

The goal of
the salary system

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Factors affecting salary

1. External factors 2. Factors belonging to organizations and

Labor market: businesses
 Which industry or production and business
 Supply and demand of labor
sector does the organization or enterprise belong
 Institutions of education and training to?
 Changes in the structure of the workforce  Does the enterprise have a trade union or not?
 Unemployment rate in the market  Profits and ability to pay salaries
 Domestic and international economic  Size of the enterprise
conditions  Technical equipment level
 Viewpoint and philosophy of the enterprise:
Trade union organizations  Strategic objectives
 Pay differences by geographic region  Enterprises set salaries according to market
 Government regulations and laws salaries
 Mixed structure of salary and benefits
 Social expectations, customs, and  Existing working relationships
practices  Working team
 Payroll policies, practices, and procedures
 Employees work full or part time

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 Factors affecting salary
3- Factors related to work
 Responsibility for issues:
 Knowledge and skills: • Money, financial rewards
• Requires mental labor • Control
• The complexity of the job • Lead others
• Necessary personal qualities • Financial results
• Decision-making ability • Relations with the community, customers and other subjects
• Administration skills • Materials, tools, assets
• Enterprise policy
• Knowledge of education and training
• Full information
necessary for work
 Try:
• Social skills • Physical requirements
• Ability to get along with others • Mental requirements
• Ability to perform detailed work • Pay attention to the details
• Ability to perform monotonous work • Pressure of work
• Manual dexterity • Other requirements need attention
• Creativity  Working conditions:
• Innate ability • Work conditions
• Flexibility/resourcefulness • Risks that are difficult to avoid
• Previous experience

Factors affecting salary

4. Personal factors

 Work performance results, productivity,  Personal preference:

quality • Enjoy work
 Experience • Like social position, name, required conditions
 Seniority • Level of safety in salary payment
 Ability to advance • Working time
 Development potential • Level of monotony at work
• Likes to go to work and travel outside the city

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 Time-based salary requirements

Time-based salary requirements

 Employees are paid according to working time: hour, day, week, month, year.
 Time wages paid to employees are usually calculated on the basis of the number of working hours
and the salary unit price per unit of time.
 On the basis of the job valuation, jobs will be classified into certain ranks and salary levels.

 Ltg: Time salary

 Dtg: Unit time price
Ltg = Dtg x (T + kt) + b  k: overtime coefficient
 T: total working time in hours
 t: total overtime working time
 b: bonus (bonus for diligence, productivity, quality...)

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Overtime wages (Clause 1, Article 97 of the 2012 Labor Code)

Overtime = Actual hourly x 150% or x Number of

wages wages paid 200% or overtime hours
300%

 The 150% rate applies to overtime hours worked on weekdays;

 The 200% rate applies to overtime hours worked on weekly holidays;
 The 300% rate applies to overtime hours worked on holidays and paid days off (this 300%
rate includes wages paid for paid time off).
 Employees who work overtime at night, in addition to being paid 150% (or 200% or 300%)
and an additional 30% (at night), are also paid an additional 20% of the salary for work done
during the day.

Regulations on maximum overtime

1. During the day: Not more than 50% of normal working hours
in 01 day; In case of applying the regulation on normal
overtime by week, the total number of normal working hours
and overtime hours shall not exceed 12 hours in 01 day;
2. In the month: Not more than 40 hours in 01 month
3. During the year: No more than 200 hours in 01 year. In
some industries, occupations, jobs or in some cases, the
employer is allowed to use the employee for no more than
300 hours in 01 year.

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Wages for night work (Clause 2, Article 97 of the 2012 Labor Code)

Wages for = Actual hourly x 130% x Number of hours

night work wages paid worked at night

 Working hours at night are from 10pm to 6am the next morning (no 9PM
- 5AM) (Article 105 of the 2012 Labor Code)
 Time-based pay is often used for certain types of work performed by
unskilled workers or for jobs that are difficult to accurately rate.

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