Luận văn tiếng Anh EMPLOYEE COMPENSATION AT THE HO CHI MINH MUSEUM CONSTRUCTION JSC.doc

FOREIGN TRADE UNIVERSITY
FACULTY OF BUSINESS ADMINISTRATION
Major: International Business Management
-------***------

GRADUATION THESIS
Thesis title:
EMPLOYEE COMPENSATION AT THE HO CHI MINH
MUSEUM CONSTRUCTION JSC.

Student name : Vũ Khánh Linh
Class

: A1 – High Quality

Intake

: K46

Supervisor

: Dr. Đào Thị Thu Giang

Hanoi, May 2011



TABLE OF CONTENTS
ABSTRACT...................................................................................................6
CHAPTER I: INTRODUCTION...............................................................7
1.1. Statement of the Problem................................................................7

1.2. Objectives of the Study....................................................................7
1.3. Subject of the Study.........................................................................8
1.4. Scope of the Study............................................................................8
1.5. Structure of the Dissertation..........................................................8
CHAPTER II: LITERATURE REVIEW.................................................9
2.1. Overview of Salary and Wage......................................................10
2.1.1. Definition of Salary and Wage................................................ 10
2.1.2. Roles of Salary and Wage........................................................ 13
2.2. Payroll Account............................................................................ 13
2.2.1. Definition and Roles of Payroll............................................... 13
2.2.2. Public Payroll........................................................................... 14
2.2.3. Construction of a Public Payroll Account............................. 20
2.2.3.1 Legislature regulation....................................................... 20
2.2.3.2 Salary structures................................................................. 21
2.3. Salary and Wages In Construction Companies....................... 22
2.3.1. Time-based Pay......................................................................... 23
2.3.2. Product-based Pay.................................................................... 24
2.3.3. Package Contracts.....................................................................27
2.3.4. Standards to Pay Structures......................................................27
2.3.4.1 Educational backgrounds.................................................. 27
2.3.4.2 Craft levels of manual workers......................................... 28
2.3.4.3 Pay levels of white-collar staff.......................................... 29
2.4. Bonus Payment ..............................................................................29
2.4.1. Definition of Bonus.................................................................. 29
1


2.4.2. Types of Bonus..........................................................................30
2.4.3. Effects of Bonus........................................................................31
2.5. Bonus Payment In Construction Companies........................... 32

CHAPTER III: METHODOLOGY AND DATA.................................33
3.1. Research Approach........................................................................33
3.2. Data Collection Method................................................................34
3.2. Research Methodology - Case Study...........................................35
CHAPTER IV: EMPIRICAL FINDINGS..............................................37
4.1. Overview of the Ho Chi Minh Museum Construction JSC.....37
4.2. Current Payroll Systems At The HCMCJSC............................46
4.2.1. Regulations on Minimum Payment at the Company............. 46
4.2.2. Regulations on Pay Levels, Pay Scales at the Company........ 48
4.2.3. Construction of the Payroll Account....................................... 55
4.2.4. Salary/Wage Payment Systems at the Company..................... 58
4.2.4.1 Time-based pay................................................................. 58
4.2.4.2 Job-based wage................................................................. 61
4.2.4.3 Product-based pay............................................................ 65
4.2.5. Bonus Payment at the Company............................................. 67
4.2.5.1 Allowances and welfares................................................... 68
4.2.4.2 Salary increase procedure................................................ 68
4.2.4.3 Bonuses and awards.......................................................... 70
4.2.6. Assessments on the Payroll System..........................................72
4.2.6.1 Achievements.................................................................... 72
4.2.6.2 Limitations and Reasons................................................... 74
CHAPTER V: CONCLUSION.................................................................76
5.1. Recommendations for the Company...........................................76
5.1.1. Improve the Performance Assessment.....................................76
5.1.2. Improve the Time-based Pay System........................................77
5.1.3. Improve the Job-based Pay System..........................................80

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5.1.4. Improve the Unit Cost Standardization...................................82
5.1.5. Improve the Reward System......................................................83
5.2. Limitations of the Study................................................................86
LIST OF REFERENCES…..................................................................... 88

3


LIST OF FIGURES AND TABLES
Figure 4.1: Organizational Structure of Ho Chi Minh Museum Construction
JSC..................................................................................................................40
Figure 4.2 Salary increase procedure...........................................................69
Table 2.1: Diagnosis Criteria for Public and Private Companies - Problem
Contexts..........................................................................................................15
Table 2.2: Alternative Decision Rules for Public and Private Problems Bureaucratic and Contingent Action Models...............................................16
Table 4.1: Quantity and Quality of Technical and Management Staff.......41
Table 4.2: Quantity and Quality of Blue-Collar Workers39.......................42
Table 4.3: Financial Results of the Company from 2007 to 2009..............42
Table 4.4: Performance-indicated Ratios.....................................................44
Table 4.5: Pay Table for Members of the Board.........................................46
Table 4.6: Pay Table for Executive Director, Deputy Directors, and Chief
Accountant ....................................................................................................48
Table 4.7: Pay Table for Professional / Departmental Staff........................49
Table 4.8: Status allowances for Head of Department, Deputy Head of
Department.....................................................................................................50
Table 4.9: Pay table for directly in-charge construction workers...............53
Table 4.10: Report of salary in the years from 2007 to 2009......................56
Table 4.11: Reward – Bonus Funds from 2007 to 2009..............................57
Table 4.12: Job-based wage contract...........................................................61
4

Table 4.13: Contracted team payroll............................................................63
Table 4.14: Output quota and unit cost of 1m2 beam forms........................66
Table 4.15: Employees’ Incomes from 2007 – 2009...................................73

LIST OF ABBREVIATIONS
ATM
Contr.
CQC
Dep.
GPD
IT
JSC
KPI
MATL
MEP
Mgmt.

Automatic Telling Machine
Contract
Construction Quality Control
Department
Gross Domestic Product
Information Technology
Joint Stock Company
Key Performance Index
Material
Mechanical, Electrical and Plumbing
Management

Prj.
PRP
USD
VND

Project
Performance-related Pay
United States Dollar
Vietnam Dong

5


ABSTRACT
This study is on the regime of salary, wage and bonus payment at the Ho Chi
Minh Museum Construction JSC. It first aims to provide insights on salary,
wage and bonus, their theoretic definitions and roles as important components
of an employee compensation plan. Subsequently, it will review the
applications, achievements and limitations of the regime at Ho Chi Minh
Mausoleum Building JSC, as an illustration for the academic background.
Afterwards, suggestions and solutions will be given to improve the employee
payment regime at the company.
In general, the study can contribute to the systemization and improvement of
the salary, wage and bonus payment regime at public/State-owned
organizations. Hopefully, better systems at many other enterprises can be
made, with adjustments to the individual circumstance of each enterprise.

6

Chapter I: INTRODUCTION

1.1 Statement of the Problem

Payment to the employees – Salary, wage and bonus – always receives
great concern because of its social-economic significance. For the employees,
these payments are important because they could be their sole incomes, to
support their whole families’ lives. For every business, it accumulates in the
expense account that takes up a great proportion in total costs. It can be the
driving force behind the increase of labor productivity, if it is paid in
accordance with the employees’ contribution; or otherwise if it is not.
Therefore, how to construct a sound payroll account and how to select an
appropriate payment form – so that a payment could be both the mental and
physical reward for an employee, his or her real strong motivation to do a
better job, and also one of the reasonable expenses for business – are very
essential.
Payroll issue is not new; however many deficiencies still need to be
addressed now to perfect the work of paying salary, wage and bonus in
enterprises – especially in State-owned enterprises – to ensure that the
payments are equitable and reasonable for the employees, thus drive up
profits for the business.
1.2 Objectives

The dissertation has three objectives:

7


First, it is to contribute to the background theory of payroll, which is

done by clarifying the concept of salary, wage and bonus, their determinants,
their efficiencies in different payment systems.
Second, it is to illustrate how State companies in Vietnam make
payments to their employees, taking the scenario at Ho Chi Minh Museum
Construction JSC as a case for study, and reviewing its achievements and
limitations in payroll.
Third, it is to suggest possible solutions to improve the payment regime
at Ho Chi Mnh Museum Construction JSC, some of which could be applied
nationwide in other State companies.
1.3 Subjects

Subjects of the Study: Salary, wage, and bonus – their definitions,
impacts, constructions, and reflections in different payment systems.
1.4 Scope

The Study provides analysis and evaluation of the payrolling at Ho Chi
Minh Museum Construction JSC, a State construction company.
1.5 Structure of the Study

The Study will be divided into five parts: Introduction to the subject,
general theoretic background of payroll in State construction companies, data
methodology, founded results, and conclusion of the Study.
In the first part, brief introduction will be provided to explain the
importance of salary, wage, and bonus payment, the objectives of this Study,
and how its contents will be elaborated.

8


The second part: Literature review will present theories about salary,

wage and bonus, their payment models in State-owned enterprises and
particularly in the construction field. It will present both academic and
practical approaches: perspectives from socialist or traditional economist, also
from entrepreneurs and employees. Formulas to calculate payments will also
be provided, as they summarize and illustrate the logic behind the monetary
value itself.
Data methodology, how research is conducted and how its results are
looked into will be explained in part three. It will clarify the empirical
findings described in the fourth part of the Study.
Part four, empirical findings, will give the answers to the objective
questions in section 1.2 of this Study. It practically invests in the case study of
Ho Chi Minh Museum Construction Company, a long-standing State
company in Vietnam.
Finally, in the last chapter, recommendations will be given, together
with a conclusion for the Study.

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Chapter 2: LITERATURE REVIEW

2.1Overview of Salary and Wage
2.1.1 Definition of Salary and Wage
According to Marxism1, in order to be able to proceed to production,
there should be a combination of two basic factors which are labor and
capital. Labor is a measure of the work done by human beings. It is
conventionally contrasted with such other factors of production as land and
capital. There are theories which have developed a concept called human
capital (referring to the skills that workers possess, not necessarily their actual
work), although there are also counter posing macro-economic system

1

Karl Marx, 1995. The Capital vol. 1 [Online] s.l.: Marx/Engels Internet Archive
Available at: />Accessed 11 March 2011

10


theories (Johnson et al2, 2005) that think human capital is a contradiction in
terms.
Capitals is owned by a segment of the population in the society, while
other segments of the population, due to having no capital, have to offer their
own labor power to those with capital for an amount of money in return,
which is known as wage.
Since labor became commodity, the labor market and the concept of
wage appeared. Wage is the result of the exchange of labor power on the
labor market; the compensation for labor power per period of time is referred
to as the wage rate.
In the planned economy, wage is the price of neither labor power nor
goods, neither in the private nor public sector. In the market economy, wage
is understood as cash value of labor power, the price of labor power that
hirers must pay to the providers. That price, in compliance with the principles
of supply and demand, market price, the ability to negotiate, and the current
laws of the State, can be higher or lower than the value of labor power.
Normally, unless the government takes actions to prevent it, high
unemployment will lower wage, and full employment will ỉncrease wage, in
accordance with the laws of supply and demand. But wage can also be
reduced through high price inflation and consumer taxes. Therefore a
distinction must always be drawn between nominal gross wages' and real

wages adjusted for tax and price inflation, and indirect tax imposts must be
considered.
2

Dr. Paul M. Johnson et al,, 2005. A Glossary of Political Economy Terms [Internet] Alabama:
Paul.M.Johnson
Available at: />Accessed 11 March 2011

11


Nominal wage is the amount which the employers pay for workers.
This amount is more or less correlative to working capacity and work
efficiency of workers, and work experience of them.
Real wage is the value of consumer goods and other necessary services
that they can purchase from the nominal wage. The relationship between real
wage and nominal wage is expressed through the formula3:
Real wage =

Nominal wage
PI

Where:
PI = Price index
Thus we can see that if price increases, real wage declines, this can
happen even when the nominal wage increases. Real wage does not only
depend on the nominal amount of money but also depends on prices of
consumer goods and other necessary services that they want to buy. This is a
very complex relationship due to the change of nominal wage, the prices as
well as other factors. In society, real wage is the direct target of employees,

and also the direct subjects of management policies such as on income and
living conditions. To achieve business goals, the enterprise should have
appropriate policies to raise real wages of workers, only then are the workers
assured to be dedicated to the enterprise.
Salary/wage reflects different social and economic relations4. First, it is
the amount that employers pay for workers; therefore it reflects the economic
3

R. O'Donnell, 1987 "real and nominal quantities," The New Palgrave: A Dictionary of Economics, v. 4, pp.
97-98 Hamshire: Palgrave Macmillan
4
Nguyễn Văn Hảo et al. 2002, Giáo trình kinh tế chính trị [pdf], Hanoi: Ministry of Education and Training.

12


relations. Second, the special nature of the commodity of labor power that
wage represents also reflects social relations related to living standards,
conditions and social orders.
Third, for the whole society, salary/wage is reviewed and placed in
relations with income distribution, relations of production and consumption,
and relations of exchange. Therefore, every country should have reasonable
wage policies and income distribution regulations in consistent with the
development of the country.
However, in daily operations, definitions of salary and wage are much
more simplified: Salary is a fixed amount of money or compensation paid to
an employee by an employer in return for work performed 5; an employee who
is paid a salary is expected to complete a whole job in return for the salary.
Wage is payment for labor or services to a worker, especially remuneration on
an hourly, daily, or weekly basis or by the piece.

2.1.2 Roles of Salary and Wage
For employees, salary/wage is the compensation for labor power and
motivation to do a better job. The employees can only put their best on works
if they are given fair, sufficient compensation packages. Essentially,
remuneration is also considered a key gauge of the level of skills and
professional seniority; thus, employees will be proud of their high salary and
want a raise, even though the salary may only account for a fraction of their
total income.
For enterprises, wage/salary is a considerable part of production costs,
as well as a key lever to improve business efficiency. If paid fairly, it will
5

D. Usher, 1987, "real income," The New Palgrave: A Dictionary of Economics, v. 4, pp. 104-05. Hamshire:
Palgrave Macmillan.

13


contribute to the maintenance, consolidation and development the business’
work force.
For policy-makers, wage/salary is one of the most important tools for
economic management; it is a tool to assess the quality, quantity and
distribution of labor benefits in enterprises. Reasonable payment regime has
great impact in promoting economic and social development.
The salary/wage must meet the economic and social goals. And there
should be no conflict of interests between: the State, enterprises and the
legitimate interests of workers.
2.2 Payroll Account
2.2.1 Definition and Roles of Payroll Account
In any organization or company, payroll is the total sum of all

compensations that a business has to pay its employees for a set period of
time or on a given date6. It’s the sum of all financial records of salaries,
wages, bonuses and deductions; for examples it includes salary payments to
employees, tax withholdings, and deductions from a paycheck.
In accounting, payroll refers to the amount paid to employees for
services they provided during a certain period of time (Bragg, 2004). Payroll
is usually managed by the accounting department of a business. Smallbusiness payrolls may be handled directly by the owner or an associate.
Payroll can differ from one pay period to another due to overtime, sick
pay and other variables. It is a major expense for most businesses and is
almost always deductible as such.

6

Steven M. Bragg, 2004. Essentials of Payroll: Management and Accounting. New York: J. Wiley and Sons.

14


Payroll plays a major role in a company for several reasons. From an
accounting point of view, payroll is crucial because payroll and payroll taxes
considerably affect the net income of most companies and they are subject to
laws and regulations. From ethics in business viewpoint payroll is a critical
department as employees are responsive to payroll errors and irregularities:
good employee morale requires payroll to be paid timely and accurately. The
primary mission of the payroll department is to ensure that all employees are
paid accurately and timely with the correct withholdings and deductions, and
to ensure the withholdings and deductions are remitted in a precise manner.
2.2.2 Public Payroll
Gilbert B. Siegel, 1992, has demonstrated environmental differences in
public and private companies in the following tables7:

Table 2.1 Diagnosis Criteria for Public and Private Companies Problem Contexts
Policy and Administrative

Problem and Context Attributes

Features
1.EXTERNAL

Public

Private

STABLE

TURBULENT

A. Number of relevant actors

Low

High

B. Change of actors/ground rules

Minimal

Maximal

C. Independence of actors

Low

High

(e.g., What is the character of the
environment in which the
particular
problem is set?)

7

Gilbert B. Siegel, 1992. Public Employee Compensation and Its Role in Public Sector Strategic Management.
New York: Quorum Books.

15


2. EXTERNAL/

CERTAIN

UNCERTAIN

Clear

Unclear

B. Criteria of goodness

Unambiguous

Ambiguous

C. Comparability of actor's

Congruent

Noncongruent

3.INTERNAL

MORE

LESS

(e.g., What is the character of the

PROGRAMMAB PROGRAMMAB

technology being employed in

LE

LE

A. Expected variability

Low

High

B. Work Specifiability

High

Low

C. Decision rules

Known

Not Known

INTERNAL TRANSACTIONS
(e.g., What is the character of the
relationship between the relevant
organization and its environment
in
regards to negotiations around
goals
and objectives?)
A. Preference /goals of relevant
actors

agenda

doing
work within the organization on
this
problem?)

16


Table 2.2 Alternative Decision Rules for Public and Private Problems -Bureaucratic and Contingent Action Models

Modes of Decision

Public
Bureaucratic

Private
Contingent

Rules
PLANNING
1. Scale of

Comprehensive

Incremental

General
Long-range
Goals → act → evaluate

Specific
Short-range
Evaluate → act → goals

Maintenance /continuity

Adaptation/change

strength
6. Nature of

Permanent

Temporary

organization
7. Assumption
8. Key value

Organizations persist
Responsibility

Persons persist
Responsiveness

amplified
9. Unit of

Abstract (role)

Concrete (person)

role → person

Person → role

relationship
11. Redundancy of

Minimize

Maximize

information
12. Problem

Slow/expensive

Quick/cheap

preferences
2. Scope
3. Time horizons
4. Preferred timing
STRUCTURE
5. Orientation and

organizational
construction
10. Presumed role/
person

recognition
and response

17


13. Make

Hard to achieve

Hard to avoid

termination
MANAGEMENT PROCESS
14. Preferred
Exception

Situational specificity

managerial
strategy
15. Operational

Functional

Project

processes
16. Major

Inefficiency

Catastrophic error

presumed risk
17. Major

Benefit-cost

Disaster control

Consistency/equity

Issue specific/efficacy

Fixed budgets

Licensed budgets

Problem to be "solved"

Resources to be "elicited"

rationality
assumption
18. Key intraorganization
question
19. Key resource
control
strategy
20. Meaning of
conflict

Whether public sector and not-for-profit organizations should manage
performance

and

reward

differently

than

private

sector,

for-profit

organizations has always been the subject of considerable controversy.
Should public and non-profit organizations emulate the strategies and
programs used by the private sector or are their contextual differences that
make it prudent for them to do things differently? It will be argued here that
common principles apply across sectors, but that custom strategies may need

18


to be employed, owing to differences in the context within which both public
sector and not-for-profit organizations must function.
In the public sector, long-term careers is a positive value. This value is

supported by structures and policies that promote seniority-based direct
(salary and wages) and indirect (benefits) compensation, and relatively
permanent formal role relationships as the basis for reward compensation
equity (longer stay, higher pay). In the contingent model, however, the
individual acts more independently; there is a high incidence of role mobility,
creation, and modification. This situation might be described as one of
organizational risk sharing by employees (Siegel, 1992), as individual and
group rewards also become contingent on the fortunes of the organization for
assumption of risk. In the private sector, so-called bottom-line profit sharing
may be a basis for rewards.
However, as the environment has become much more dynamic,
competitive and globalized, an increased need to ensure ongoing viability and
flexibility has emerged for the public sector.
Another difference that exists between the public and private sector is
the legal and regulatory scrutiny to which public sector organizations are
subjected8. This scrutiny makes it more difficult for managers to differentiate
significantly between employees when measuring performance; it's hard to
punish poor performance by discharging employees. It is also more difficult
to adequately reward outstanding performance, owing to the absence of merit
pay programs and incentive plans that provide significant rewards on a
differentiated basis. The amounts available for rewarding top performers are
limited by the reality that legislatures regulate funding, based on what is
8

Ran Lachman, 1985.Public And Private Sector Differences: CEOs’ Perceptions Of Their Role
Environments. JSTOR: The Academy Of Management Journal, 28 (3), pp.671 – 680.

19

available, rather than what are needed or warranted (structured pay, opposed
to performance-based pay or negotiable pay). The control of salary budgets
by legislatures and councils also has a major impact on compensation
packages.
2.2.3 Constructing the Payroll Account
2.2.3.1

Legislature regulation

Principles to determine wage rate depend on the socio-economic
system. In public sector, the Government decides salary for civil servants and
State employees. In the private sector, the salary and wage is determined by
agreement between employers and the workers on the State labor laws basis.
In Vietnam, there are a number of factors that go into determining this
item. They include:
•

The needs and living standards of employees, also the changes in costs
of living

•

The financial situation of the organization, or cumulative capacity of
the State’s budget

•

Industry and geographic disparities

•

Job categories and levels of employees
An important statutory instrument on payroll in Vietnam is the Decree

No. 204/2004/NĐ-CP dated December 14th, 2004, providing the grading
systems and salary tables for senior experts, Governmental officers, public
regular staffs in State-owned companies and organizations, as well as military
personnel. It also has provisions on allowances, bonus, subsidies and other
welfares for the mentioned subjects.
20


Another document is the Decree numbered 108/2010/NĐ-CP, dated
October 29th, 2010 regulating the minimum salary payment to each
employee, in any Vietnamese organizations and enterprises, with regional
adjustments. In addition, the Circular No. 02/2007/TT-BNV of Ministry of
Home Affairs instructing the salary increases for employees who are
promoted to the next higher grades.
Also, a very recent instrument is the Decree No. 22/2011/NĐ-CP on
April 4th, 2011, valid from May 1st, 2011 raising the minimum salary in
public enterprises and organizations to 980,000 VND.
2.2.3.2

Salary structures: Pay grades, pay levels/steps

In Vietnam the payroll system is promulgated by the State. It
categorizes national employees according to their jobs and job sectors; these
are

from

elected

officials,

Governmental

staffs,

public

servants,

administrators, military personnel, to manual workers.
Among the categories, the payrolls will be different due to special
arrangements of certain priorities; for example, the category of military
officers and trained soldiers is ranked higher than several others, resulting in
higher salaries.
The content of salary payment including: salary pay tables, pay grades,
and pay steps.
Pay grades: Are the hierarchical pay level within a job category.
Pay table: Is a table describing the absolute amount of salary, salary
coefficients and grades of the same rank.

21


Pay steps: Within each grade level, there are smaller pay steps or pay
levels.
Salary coefficient: Is the difference ratio between the current level’s

amounts with the minimum salary amount legalized. The salary coefficient
must be gradually increased in the pay scale.
The n-th coefficient of a salary level (Kn) is determined by the
following formula9:
Kn =

(1 + M)

Of which:
Kn-1 is the (n-1)th coefficient
M% is the % of difference among two consecutive salaries in the pay
scale, M can be unchanged or steadily increased.
The State regulated the minimum salary payment amount; other salary
amounts will be determined based on the pay hierarchy10.
n = Statutory minimum salary amount ×Pay coefficient
Of which:
n is a determined salary payment amount
This is the determination for basic salary. In addition to the basic pay,
workers can also receive different types of allowances, for example mobility
allowances or telephone allowances.
2.3

9

Salary and Wage in Construction Companies

Bùi Nữ Thanh Hà , 2008. Kế toán xây dựng cơ bản Hanoi: University of National Economics pp. 34.
Bùi Nữ Thanh Hà , 2008. Kế toán xây dựng cơ bản Hanoi: University of National Economics pp. 35-36.

10

22


As stated by Bui Nu Thanh Ha, there are three main forms of payment in
a construction company: Time-based pay, product-based pay, and package
contract.
2.3.1

Time-based pay

In this model, payment depends on length of service. The longer the
employee works for the company, the higher pay level he/she would have.
Advantages of this payment system include its recognition for length of
service and experience of employees, as well as professional qualifications
that employees have. It also allows an organization to predict costs with more
certainty than does merit pay, and avoids the difficulties associated with
performance evaluation. Due to budgetary limitations and pressures by
outside parties, most public organizations must be able to predict and control
costs. The predictability of time-based pay seems to fit it to the public/nonprofit environment. Also arguing in favor of this approach is that it avoids
disagreements over evaluations of individual performance (Robert J. Greene,
1998).
The most significant disadvantage of this system is that it doesn’t
reflect the relationship between the salary paid and job done. It raises costs
over time without making these cost increases contingent on the benefits
derived from high levels of performance/productivity that the organization
should receive. It also sends a strong signal to employees that performance
does not matter, which will create a mentality to the employee that he/she
must only survive on the job for a sufficiently long period of time and will be
paid substantially more for the job. So it does not encourage them to raise

productivity or save materials. It also typically sends better performers
elsewhere (where they will be paid for their contribution fair and square).
23