Chu Quoc Cong_A13_K50_International Business Administration

FOREIGN TRADE UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION

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GRADUATION THESIS

Major: International Business Administration

ESTABLISHING A PAY STRUCTURE TO IMPROVE EMPLOYEE ENGAGEMENT AT KIM QUY LIMITED

LIABILITY COMPANY

Student name: Chu Quốc Công Student code: 1112250015 Class: A13-CLC QTKD Intake: K50 Supervisor: Dr. Nguyễn Thế Anh

Hanoi, May 2015

Table of Contents

ACKNOWLEDGEMENT ................................................................................................ i

ABSTRACT .....................................................................................................................ii

LIST OF ABBREVIATION .......................................................................................... iii

LIST OF TABLE AND FIGURE ................................................................................... iv

CHAPTER 1: INTRODUCTION .................................................................................... 1

1.1. Research background: ............................................................................................ 1

1.2. Research objectives ............................................................................................... 2

1.3. Research questions ................................................................................................. 3

1.4. Scope of research ................................................................................................... 3

1.5. Structure of the thesis: ........................................................................................... 4

CHAPTER 2: LITERATURE REVIEW ......................................................................... 5

2.1. Overview ................................................................................................................ 5

2.2. Definitions of a pay structure ................................................................................ 5

2.3. The role of pay structure ........................................................................................ 7

2.3.1. Improving employee engagement and attracting talents ................................. 7

2.3.2. Motivating and boosting individual and group performance .......................... 7

2.4. Factors affecting pay structure ............................................................................... 8

2.4.1. Legal requirements .......................................................................................... 9

2.4.2. Market forces ................................................................................................. 10

2.4.3. Organizational goal ....................................................................................... 10

2.5. Types of pay......................................................................................................... 12

2.5.1. Pay for individual performance ..................................................................... 12

2.5.2. Pay for group performance ............................................................................ 15

2.5.3. Pay for organizational performance .............................................................. 16

2.6. Establishing a pay structure ................................................................................. 20

2.6.1. Building up a Job structure ............................................................................ 21

2.6.2. Determining Pay-level ................................................................................... 25

2.7. Requirements of a good pay structure ................................................................. 29

CHAPTER 3: METHODOLOGY ................................................................................. 31

3.1. Research methodology ......................................................................................... 31

3.2. Selecting sample .................................................................................................. 32

3.3. Instrumentation .................................................................................................... 32

3.3.1. Survey and questionnaire .............................................................................. 32

3.3.2. Observation ................................................................................................... 33

3.3.3. Unstructured interviewing ............................................................................. 34

3.4. Data collection ..................................................................................................... 35

3.5. Method of analysis ............................................................................................... 36

CHAPTER 4: DATA ANALYSIS ................................................................................ 37

4.1. Overview of Kim Quy Limited Liability Company ............................................ 37

4.1.1. General information ...................................................................................... 37

4.1.2. The organizational structure .......................................................................... 37

4.1.3. Business characteristics ................................................................................. 39

4.1.4. Financial statement of Kim Quy in 2013 and 2014 ...................................... 40

4.1.5. Human resource at Kim Quy Limited Liability Company ............................ 40

4.2. Designing a pay structure at Kim Quy Limited Liability Company ................... 42

4.2.1. Establishing a job structure ........................................................................... 42

4.2.2. Determining pay-level ................................................................................... 43

4.3. Assessments ......................................................................................................... 48

4.4. Analyzing data ..................................................................................................... 49

4.4.1. The impact pay structure on employees’ satisfaction ................................... 49

4.4.2. Impact of pay structure on employees’ thoughts and actions ....................... 51

CHAPTER 5: RECOMMENDATION AND CONCLUSION ..................................... 53

5.1. Recommendation ................................................................................................. 53

5.1.1 Recommendations to motivate employees ..................................................... 53

5.1.2. Recommendation to improve the quality of pay structure ............................ 54

5.2. Conclusion ........................................................................................................... 58

5.3. Limitation of the thesis ........................................................................................ 59

REFERENCE ................................................................................................................. 60

Appendix 1: The first part of the survey. ....................................................................... 62

Appendix 2: The second part of the survey ................................................................... 63

Appendix 3: Kim Quy’s financial statement in 2013 and 2014 ..................................... 64

Appendix 4: Kim Quy’s classifying standards for recruiting employees. ..................... 65

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ACKNOWLEDGEMENT

This graduation thesis is the result of thirteen weeks of research and writing during the

spring of 2015. It has been an interesting and learning experience. In fulfilling this

thesis, I would like to give my special thanks to many people for their significant help,

contribution, and recommendations during my writing process.

First and foremost, special mentions and grateful thanks must go to Dr. Nguyen The

Anh, my supervisor at Hanoi Foreign Trade University. With his master knowledge

and experience in writing thesis, he has wholeheartedly helped me in writing

this thesis. I could not have been able to complete this thesis without his

positive suggestions and guidance.

Secondly, I want to thank all the managers and staffs of Kim Quy Company, for their

cooperation that helped and inspired me in writing.

Thirdly, I would also like to give my heartfelt thanks to the authors who

provided me with valuable books for my thesis.

My appreciation is to my family and my friends for their supports and

encouragements.

Gratefulness is to the readers also, whose feedback will help much in improving

the thesis.

Hanoi, April 2013

Chu Quoc Cong

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ABSTRACT

The purpose of the thesis is to evaluate the pay structure and discuss the impact of this

system to the thoughts and actions of employees at Kim Quy Limited Liability

Company. After clarifying the insights of the problem, the thesis will aim at generating

solutions for the current issues at Kim Quy Limited Liability Company which are

seasonal labors and employee engagement.

The method of research in the thesis is examining survey and questionnaire to find out

the causes of the problems. From that point of view, the researcher can give out

suggestions and recommendations for the firm to adjust their pay structure.

The graduation project represents the research on pay structure of Kim Quy Limited

Liability Company from 2013 to 2014. The result of this work may help boosting the

quality of the employees as well as company’s profit, it also broadens researcher’s

mind about human resource management and the impact of human resource

management to small and medium entrepreneurs.

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LIST OF ABBREVIATION

ESOP: Employee stock ownership plan

Kim Quy Co., Ltd: Kim Quy Limited Liability Company

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LIST OF TABLE AND FIGURE

TABLE

Table Content Page

2.1 Evaluating three jobs with four compensable factors 22

4.1 Kim Quy company’s workforce 41

4.2 Salary for director, head and vice head of a department 44

4.3 Salary for Manufacturing department 44

4.4 Salary for Office departments 45

4.5 Fringe benefits, bonuses and commissions 46

4.6 Subsidies 47

FIGURE

Figure Content Page

2.1 The forming factors of a pay structure 9

2.2 How organizational goal affects pay structure 11

2.3 Steps in establishing a pay structure 20

2.4 Steps in building up a job structure 21

2.5 Determinants of pay-level decision 25

2.6 A pay policy line 26

3.1 Process of collecting data 35

4.1 The Organizational structure at Kim Quy Co., Ltd 38

4.2 Products manufactured at Kim Quy 39

4.3 Age and gender of employees at Kim Quy 41

4.4 Causes of worker dissatisfaction 49

4.5 Impact of pay structure on employees’ thought and actions 51

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CHAPTER 1: INTRODUCTION

1.1. Research background:

Nowadays, “pay structure” is probably not a brand new term to indicate the

compensation each entrepreneur giving to their employees. Although this term seems

familiar to corporate and the function it provides is obviously clear, pay structures may

be established in different ways, for example, salaries and wages may be represented in

several forms such as cash, bonus, coupon payment, etc. Whichever including in, the

insight of the term and the final purpose it heading to obviously relate to paying worker

fairly and appropriately at the right time and right place in a right way.

Simple as it may seem to be, some entrepreneurs have failed to compensate employees

exactly what they deserve. The consequences of this non-compliance action lead to a

fact that seasonal labor and low employee commitment are real struggles for many

entrepreneurs in Vietnam. One organization basically cannot survive without a human

resource management department, human resource is regarded as the blood streaming

through a healthy body to feed organs. With small and medium entrepreneurs like Kim

Quy, this issue has never been underestimated, because with them, labor is a priceless

resource at a time when automatic machine is far beyond their financial situation.

When the demands of employees are not satisfied or they cannot make their ends meet,

there is a high probability of turnover. In human resources context, turnover is the act

of replacing an employee with a new employee. Partings between organizations and

employees consist of retirements, deaths, interagency transfers, and resignations. High

turnover often means that employees are dissatisfied with their jobs, especially when it

is relatively easy to find a new one. It can also indicate unsafe or unhealthy conditions,

or that too few employees give satisfactory performance due to unrealistic

expectations, inappropriate processes or tools, or poor candidate screening. The lack of

career opportunities and challenges, dissatisfaction with the job-scope or conflict with

the management has been cited as predictors of high turnover. In contrast, low turnover

indicates that none of the above is true: employees are satisfied, healthy and safe, and

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their performance is satisfactory to the employer. However, the predictors of low

turnover may sometimes differ than those of high turnover. Aside from the fore-

mentioned career opportunities, salary, corporate culture, management's recognition,

and a comfortable workplace seem to impact employees' decision to stay with their

employer.

When accounting for the costs of turnover, there are both direct and indirect costs that

the company has to suffer. Direct costs relate to the leaving costs, replacement costs

and transitions costs, and indirect costs relate to the loss of production, reduced

performance levels, unnecessary overtime and low morale. The true cost of turnover is

going to depend on a number of variables including ease or difficulty in filling the

position and the nature of the job itself.

The problem of turnover rate and seasonal labors implicate that its consequences are

beyond imagination and the resource of human will never be recovered once lost so

that every firm must take good cares of employees’ life to avoid brain-drain and retain

their talented workers. In order to fulfill this mission, pay structure should be a great

concern by both leaders and managers of Kim Quy Company. Therefore, I chose the

topic “Establishing a new pay structure to improve employee engagement at Kim Quy

Limited Liability company” as graduation thesis topic in the hope that some findings

and recommendations from the study could be a reference to help further

developing a successful pay structure for this entrepreneur.

1.2. Research objectives

At the moment of manufacturing industry, thousands of firms are established and

flourished the economy in which Kim Quy is not an exception. Started up in the field

of manufacturing garment, the company has grown to become a potential entrepreneur

who is capable of supplying various distributors in neighborhood regions. However,

opportunities always come with challenges and a lot of problems which arose during

the organizational process of the firm caused serious damages to the human resource

and financial capability of Kim Quy.

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The main and most important issue appeared at Kim Quy is the employee engagement

which is regarded as seasonal labors. Because this poses a deadly threat in forming a

capable and trustworthy line-up of employees, there must be changes in the company’s

policy to erase damages. After a long and struggling period of searching for solutions,

the board of director found that there had to be something wrong with their

compensation system and they should have established a new pay structure for the

company.

The research aims to generate solutions for Kim Quy case in term of pay structure. In

detail, the research’s process includes following steps:

(1) Literature review

(2) Analyzing Kim Quy Case

(3) Generating solutions for the case.

1.3. Research questions

The key question of the study is: “How to use pay structure as a tool to increase

performance at Kim Quy Limited Liability Company?” To answer this research

question, it is necessary to answer the following sub questions:

i. What is a pay structure?

ii. How does the pay structure work at Kim Quy Company?

1.4. Scope of research

This study focus on how to establish a pay structure at Kim Quy Limited Liability

Company by analyzing the term “pay structure” in order to improve the employee

engagement here. The period of time the research is conducted is from 2014-2015.

Data is taken from the source of data published in 2013 and 2014 at Kim Quy Limited

Liability Company.

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The procedure of the research is qualitative method, in which the data is taken and

analyzed to give the final conclusion on whether the pay structure in the organization is

good or not.

1.5. Structure of the thesis:

There are 5 chapters in the thesis:

Chapter 1: Introduction.

It identifies the statement of aims and objectives with clear indication of the issues,

problems and hypothesis being considered.

Chapter 2: Literature review.

Definitions, forming factors and impacts of pay structure can be found in this

chapter. A description of the layers of pay structure is also provided to help the readers

get a sound understanding of pay structure.

Chapter 3: Methodology.

This chapter presents the research methods. The manifestations are seen from different

perspectives, ranging from visible to invisible manifestations.

Chapter 4: Data analysis

This chapter describes how the data is collected, processed and analyzed to give out the

final result.

Chapter 5: Recommendation and Conclusion

The conclusion should be a brief resume of the investigation design and results and an

overall, personal evaluation of the whole study. It also includes some implications,

assessments and recommendations about the pay structure of the company.

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CHAPTER 2: LITERATURE REVIEW

2.1. Overview

This chapter covers background knowledge about the study. There are six main parts in

this chapter: the concepts of pay structure, the role of pay structure, factors affecting

pay structure, types of pay, the way an entrepreneur establish a pay structure and

requirements of a good pay structure.

2.2. Definitions of a pay structure

If someone was asked: “Why do you work for a certain company instead of one

another?” the possible answer might at first be the reasonable salary, welfare or the

high position this organization offers. All these elements relate to the same issue which

is compensation, the benefits employees want to get after they contribute to achieve the

common goal for the firm. As far as you know, every organization represents their

compensation system throughout a pay structure. So what is a pay structure? And why

does it remain a decisive role in recent business?

According to Raymond Noe, in the book The fundamentals of human resource

management, 4th edition, “A pay structure is the pay policy resulting from job structure

and pay-level decisions”. This definition means pay structure is a system in which an

organization uses to decide the compensation employees get through their contribution

and the essence of the work. In this clause, it is a common knowledge that a job

structure is a layout that defines what a particular career entails; the structure has well

defined job descriptions of a particular job, responsibilities, qualifications, and salary

structure and performance matrix. Obviously, different companies have different job

structures for different positions. If job structure is the base for deciding the

compensation, pay-level decision is the final gate in which the head of a company

arranges and agrees on payment for their employees. Without one of these two factors,

a pay structure cannot be established.

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From the other point of view, Hollenbeck stated another detailed definition “A pay

structure is a collection of pay grades, levels or bands, linking related jobs within a

hierarchy or series that provides a framework for the implementation of reward

strategies and policies within an organization”. A company needs pay grades, levels of

band or linking related jobs for all its positions so that people know where they fall

within the organization. A pay structure also helps answer questions about who's who,

what each person's role is, and why people are compensated differently. It also helps

human resources personnel to fairly administer any given pay philosophy. Specifically,

the definition by Hollenbeck listed out a lot of minor ones including pay grades, levels

or bands, linking related jobs within a hierarchy or series. As things change every day,

the lists of these things may endure so that the definition of Hollenbeck is detailed but

never be complete. On the other hand, pay structure and pay-level decision are 2

basically determinants in which we can develop sub-determinants of pay structure, for

instance, pay-level decisions include pay rates, pay ranges, pay policy line, etc.

With a different approach, the third definition about pay structure which belongs to

Erisa Ojimba, Director of Human Resources at Autodesk described a pay structure

from a spectacular aspect. She stated that “A company's pay structure is the method of

administering its pay philosophy”. This is a short but detailed and easy to understand

definition. The clause stated that pay structure is the tool for a company to build up

compensation system. In addition to that, pay philosophy is regarded as the method or

exactly the strategy that the company wants to apply to their compensation system. For

example, a company allows payment to worker for a limited number of days and it is a

philosophy in which the company applies to support their labors with days off. To be

honest, her clause seems to be rather too general as it only describes what a pay

structure is but neglect to informing how it is constructed. At that point, the definition

by Raymond Noe completely overwhelmed het statement because Raymond’s

definition not only expresses what a pay structure consists of but also the process to

establish a pay structure with 2 main steps which are building up job structure and

determining pay-level decision.

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In comparing these three definitions, the first definition seems to be more trustworthy,

formal and widely used. Obviously, the definition of Raymond Noe is more reliable

than the others as it was taken from the Human Resource Management manual. Due to

these reasons, the thesis will choose the definition of Raymond Noe as the standard

definition: “A pay structure is the pay policy resulting from job structure and pay-level

decisions”.

2.3. The role of pay structure

2.3.1. Improving employee engagement and attracting talents

An organization needs talented and skilled individuals to build a successful business.

Because these talented people are highly sought after, an attractive pay structure is

often the key to bring in the best candidates on board. It is a common knowledge that a

fair compensation system is among one of the most effective ways in retaining and

motivating employees.

When an organization is made up of people who is skilled and motivated, business

thrives. Furthermore, salary structures provide a framework for fair and consistent pay

policies, they help monitor and control the implemented pay practices and demonstrate

possible pay opportunities to the employees. Implementing good salary structures is

critical for any company. Another issue relating to pay structure is that a compensation

system proves itself appropriate with a firm will help reduce the retention rate as a

matter of fact.

2.3.2. Motivating and boosting individual and group performance

There are two main theories of how to reward employees by Nancy Katz, N.R which is

presented at the “Do Rewards Make a Difference?” session at the Academy of

Management Conference. She promoted a healthy balance between individual

achievement and team success: the impact of hybrid reward systems, characterized the

theories as two opposing camps. The first camp advocates rewarding individual

performance, through plans such as commissions-sales schemes and merit-based-pay.

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The claim is that this will increase employees’ energy, drive, risk taking, and task

identification. The disadvantages of rewarding individual performance are that

employees will cooperate less, that high performers may be resented by others in the

corporation, and that low performers may try to undermine top performers.

The second camp believes that organizations should reward team performance, without

regard for individual accomplishment. This reward system is thought to bring the

advantages of increased helping and cooperation, sharing of information and resources,

and mutual-respect among employees. The disadvantages of team-based reward

schemes are that they create a lack of drive that low performers are “free riders,” and

that high performers may withdraw or become tough cops.

Katz sought to identify reward schemes that achieve the best of both worlds. These

hybrid pay systems would reward individual and team performance, promoting

excellence at both levels. Katz suggested two possible hybrid reward systems. The first

system features a base rate of pay for individual performance that increases when the

group reaches a target level of performance. In this reward system, individuals have a

clear pay-for-performance incentive and their rate of pay increases when the group as a

whole does well. In the second hybrid, the pay for performance rate also increases

when a target is reached. Under this reward system, however, every team member must

reach a target level of performance before the higher pay rate kicks in. In contrast with

the first hybrid, this reward system clearly incentivizes the better performers to aid

poorer performers. Only when the poorest performer reaches the target does the higher

pay rate kick in.

2.4. Factors affecting pay structure

According to the book the fundamental of Human resource management by Raymond

Noe, on forming a pay structure, there are several factors in which affect the way it

functions. Whether it is internal or external forces, managers should consider it

seriously before establishing a complete compensation system. Based on the common

knowledge, there are 3 main factors in which a firm’s pay structure is reliant on:

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Figure 2.1. The forming factors of a pay structure

Source: A. Noe, 2011

2.4.1. Legal requirements

In Vietnam or any other country all over the world, legal business is regarded as the

first and most essential target as without legal actions, business is nothing but

untrustworthiness and frauds.

2.4.1.1. Equal employment opportunity

Under the laws governing Equal Employment Opportunity, employers may not base

differences in pay on an employee’s age, sex, race, or other protected status. Any

differences in pay must instead be tied to such business-related considerations as job

responsibilities or performance. The goal is for employers to provide equal pay for

equal work. Job descriptions, job structures, and pay structures can help organizations

demonstrate that they are upholding these laws.

2.4.1.2. Overtime pay

Under the Vietnamese Civil Code 2005, employees should be paid for overtime work

at higher rate than the normal rate. It may create a huge change on how a person

receives his/her salary as the amount of overtime hour may be flexible depending on

his/her decision.

Pay structures

Legal requiremens

Market forces

Organizational goal

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2.4.2. Market forces

Market forces are an important factor to decide how a firm pays their employees. A

firm can only pay their employees under the condition that the cost of labor does not

exceed an appropriate number with them. Organizations must keep costs low enough

that they can sell their products profitably, yet they must be able to attract workers in a

competitive labor market. Decisions about how to respond to the economic forces of

product markets and labor markets limit an organization’s choices about pay structure.

2.4.2.1. Product market

To succeed in their product markets, organizations must be able to sell their goods and

services at a quantity and price that will bring them a sufficient profit. They may try to

win customers by being superior in a number of areas, including quality, customer

service, and price. An important influence on price is the cost to produce the goods and

services for sale. And of course the cost of labor, which is reliant on company’s pay

structure, is a significant part of an organization’s costs.

2.4.2.2 Labor market

Workers prefer higher-paying jobs and avoid employers that offer less money for the

same type of job. In this way, competition for labor establishes the minimum an

organization must pay to hire an employee for a particular job. If an organization pays

less than the minimum, employees will look for jobs with other organizations.

Therefore, the labor market has huge impact on how an organization compensates their

employees.

2.4.3. Organizational goal

Organizational goal affects pay structure through the company policy on deciding the

quality of the workforce, the current financial position and the fairness between

employees.

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Figure 2.2: How organizational goal affects a pay structure

Source: A. Noe, 2011

Organizational goal affects a pay structure through the quality of company’s workforce

because if a firm chooses to employs high quality workforce, they are meant to pay

higher. Therefore, the quality of the workforce is absolutely a factor affecting pay

structure.

In addition to that a firm decides their pay structure based on their financial situation,

they will not pay what they cannot afford. In addition to that, a company should base

on the cost-control policy of themselves in order to decide their pay policy.

Finally, a good pay structure which has highest percentage of achieving the

organizational goal is probably a structure that remains the fairness of benefit between

employees and. It makes sense that the more one contributes, the more he gets.

Organizational goal

Quality of the workforce

Financial situation

Fairness between employees

Pay structure

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2.5. Types of pay

2.5.1. Pay for individual performance

2.5.1.1 Based on the essence of work and employees ‘ability

2.5.1.1.1. Job-based pay

According to the book the fundamental of human resource management “Job-based

pay is a pay structure in which employees are paid based on their contribution to the

work”. This is the traditional and most widely used paying type in nowadays business...

This type is pretty common due to the fairness it creates, no one can disapprove a pay

structure that remains equality at all.

This emphasis on jobs has some limitations. First of all, the precise definition of a job’s

responsibilities can contribute to an attitude that some activities “are not in my job

description”, at the expense of flexibility innovation, quality, and customer service.

Also, the job structure’s focus on higher pay for higher status can work against an

effort at empowerment. Organizations may avoid change because it requires repeating

the time-consuming process of creating job descriptions and related paperwork.

Another change-related problem is that when the organization needs a new set of

knowledge, skills, and abilities, the existing pay structure may be rewarding the wrong

behaviors. Finally, a pay structure that rewards employees for winning promotions may

discourage them from gaining valuable experience through lateral career moves.

2.5.1.1.2. Skill-based pay

In the book The Fundamentals of Human resource management, 4th edition, the author

stated that “Skill-based pay systems are pay structures that set pay according to the

employees’ level of skill or knowledge and what they are capable of doing”. Skill-

based pay is important for those firms with special tasks requiring high-skill worker in

which not others can performance as well as at organizations where changing

technology requires employees to continually widen and deepen their knowledge.

Skill-based pay also supports efforts to empower employees and enrich jobs because it

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encourages employees to enrich their knowledge so they can make decisions in many

areas. In this way, skill-based pay helps organizations become more flexible and

innovative. More generally, skill-based pay can encourage a climate of learning and

adaptability and give employees a broader view of how the organization functions.

These changes should help employees use their knowledge and ideas more

productively.

2.5.1.1.3. Performance-based pay (Merit pay)

Merit pay is a term that describes pay structure which is established based on the

performance of employees, most frequently in the context of educational reform or

government civil service reform. It provides bonuses for workers who perform their

jobs effectively. One example of Merit pay is teaching area in which the quality of the

work can easily be measured. The pros can be gained are that it leads to better

educational outcomes, helps low-performing schools attract teachers and increases the

teacher retention rates. However, it may affect the teacher morale, increase the

competition between teachers, waste time and money for merit pay plans and

sometimes do harm to student achievements.

2.5.1.1.4. Experience-based pay

The term experience-based pay is used to describe a pay structure in which employees

receive the salary reliant on the period of time they worked in an organization. This

kind of pay is rare and only appears in special area, Vietnam is one of those countries

in which people sometimes regard the experience employees tend to perform better

than those who with less experience. Therefore, the one with better work experience

will get higher salary. Basically, this is only correct in some circumstances, in order to

evaluate people in common, we should base on different criteria to get a deeper

understanding about one’s ability.

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2.5.1.2. Based on the reward form

2.5.1.2.1. Salaries and Wages

Many sales employees receive a fixed amount of hourly compensation called a wage or

a fixed amount of monthly compensation, known as a salary. Salaried workers are paid

a fixed amount of money per month based on an annual salary regardless of how many

hours they actually work.

2.5.1.2.2. Fringe Benefits

Fringe benefits describe non-cash form of compensation, such as health insurance

benefits, access to a company vehicle and health club memberships. Sales employees

often receive certain fringe benefits as compensation along with normal cash pay.

2.5.1.2.3. Commissions

While most workers receive wages or salaries, sales employees also commonly receive

pay in the form of commissions. Commissions are payments that sales workers receive

based on the amount of product that they sold.

2.5.1.2.4. Bonuses

Bonuses are special awards of cash that employers sometimes give to workers for

exemplary performance. If sales employees perform especially well during a certain

moth or year, they may receive bonus pay at the end of that month or year.

2.5.1.2.5. Considerations

Sales employees can receive a mixture of different types of compensation. For

instance, a single sales person might get a salary, fringe benefits, commissions and

bonuses. Some sales workers do not receive commissions, while others do not receive

salaries and rely entirely upon making sales commissions for cash income.

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2.5.1.3. Based on the payment method

2.5.1.3.1. Direct payment

This is the most simple and widely used method throughout the history in which the

employers pay the employees by cash, coins, etc in-hand, usually at the beginning or

the end of paying period in which may be weekly, monthly, quarterly or annually. The

advantages of this method include the openness of the pay structure, delay avoiding

and availability for everyone.

2.5.1.3.2. Paying through credit card or bank transfer

Employees will receive salaries through the credit card, debit card, etc. This method

seems to be convenient for those who own a bank account. However, it sometimes

causes trouble for employees due to the limitation post number at the paying day or the

holiday. Despite that fact, paying through credit card proves itself a safety and modern

method by far.

2.5.2. 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. Common group incentives include gain sharing, bonuses, and

team awards.

2.5.2.1. Gain sharing

Organizations that want employees to focus on efficiency may adopt a gain sharing

program, which measures increases in productivity and effectiveness and distributes a

portion of each gain to employees. Gain sharing addresses the challenge of identifying

appropriate performance measures for complex jobs. Even for simpler jobs, setting

acceptable standards and measuring performance can be complicated. Gain sharing

frees employees to determine how to improve their own and their group’s performance.

It also broadens employees’ focus beyond their individual interests. But in contrast to

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profit sharing, discussed later, it keeps the performance measures within a range of

activity that most employees believe they can influence.

2.5.2.2. Group Bonuses and Team Awards

In contrast to gain sharing plans, which typically reward the performance of all

employees at a facility, bonuses for group performance tend to be for smaller work

groups. Bonuses reward the members of a group for attaining a specific goal, usually

measured in terms of physical output. Team awards are similar to group bonuses, but

they are more likely to use a broad range of performance measures, such as cost

savings, successful completion of a project, or even meeting deadlines. Both types of

incentives have the advantage that they encourage group or team members to

cooperates so that they can achieve their goal. However, depending on the reward

system, competition among individuals may be replaced by competition among groups.

Competition may be healthy in some situations, as when groups try to outdo one

another in satisfying customers. On the downside, competition may also prevent

necessary cooperation among groups. To avoid this, the organization should carefully

set the performance goals for these incentives so that concern for costs or sales does

not obscure other objectives, such as quality, customer service, and ethical behavior.

2.5.3. Pay for organizational performance

Two important ways organizations measure their performance are in terms of their

profits and their stock price. In a competitive marketplace, profits result when an

organization is efficiently providing products that customers want at a price they are

willing to pay. Stock is the owners’ investment in a corporation; when the stock price

is rising, the value of that investment is growing. Rather than trying to figure out what

performance measures will motivate employees to do the things that generate high

profits and a rising stock price, many organizations offer incentive pay tied to those

organizational performance measures.

The expectation is that employees will focus on what is best for the organization.

These organization-level incentives can motivate employees to align their activities

17

with the organization’s goals. At the same time, linking incentives to the organization’s

profits or stock price exposes employees to a high degree of risk. Profits and stock

price can soar very high very fast, but they can also fall. The result is a great deal of

uncertainty about the amount of incentive pay each employee will receive in each

period. Therefore, these kinds of incentive pay are likely to be most effective in

organizations that emphasize growth and innovation, which tend to need employees

who thrive in a risk-taking environment.

2.5.3.1. Profit sharing

Under profit sharing, payments are a percentage of the organization’s profits and do

not become part of the employees’ base salary. The formula for computing and

dividing the profit-sharing bonus is included in the union contract. Organizations use

profit sharing for a number of reasons. It may encourage employees to think more like

owners, taking a broad view of what they need to do in order to make the organization

more effective. They are more likely to cooperate and less likely to focus on narrow

self-interests. Also, profit sharing has the practical advantage of costing less when the

organization is experiencing financial difficulties. If the organization has little or no

profit, this incentive pay is small or nonexistent, so employers may not need to rely as

much on layoffs to reduce costs.

Employees also may feel that small profit-sharing checks are unfair because they have

little control over profits. If profit sharing is offered to all employees but most

employees think only management decisions about products, price, and marketing have

much impact on profits, they will conclude that there is little connection between their

actions and their rewards. In that case, profit-sharing plans will have little impact on

employee behavior. This problem is even greater when employees have to wait months

before profits are distributed. The time lag between high-performance behavior and

financial rewards is simply too long to be motivating.

An organization setting up a profit-sharing plan should consider what to do if profits

fall. If the economy slows and profit-sharing payments disappear along with profits,

18

employees may become discouraged or angry. Management communicated with

employees frankly about the company’s appreciation of their efforts and the difficulty

of the economic environment, in which construction has been hit especially hard. The

hope is that employees’ recognition of the role the economy plays in cyclical industries

such as construction will enable them to see the compensation as fair, even if they are

disappointed in the year’s results.

Given the limitations of profit-sharing plans, one strategy is to use them as a

component of a pay system that includes other kinds of pay more directly linked to

individual behavior. This increases employees’ commitment to organizational goals

while addressing concerns about fairness.

2.5.3.2. Stock ownership

While profit-sharing plans are intended to encourage employees to “think like owners,”

a stock ownership plan actually makes employees part owners of the organization. Like

profit sharing, employee ownership is intended as a way to encourage employees to

focus on the success of the organization as a whole. The drawbacks of stock ownership

as a form of incentive pay are similar to those of profit sharing. Specifically, it may not

have a strong effect on individuals’ motivation. Employees may not see a strong link

between their actions and the company’s stock price, especially in larger organizations.

The link between pay and performance is even harder to appreciate because the

financial benefits mostly come when the stock is sold, typically when the employee

leaves the organization. Ownership programs usually take the form of stock options or

employee stock ownership plans.

2.5.3.2.1. Stock option

One way to distribute stock to employees is to grant them stock options or the right to

buy a certain number of shares of stock at a specified price. Some studies suggest that

organizations perform better when a large percentage of top and middle managers are

eligible for long-term incentives such as stock options. This evidence is consistent with

the idea of encouraging employees to think like owners. It is not clear whether these

19

findings would hold up for lower-level employees. They may see much less

opportunity to influence the company’s performance in the stock market.

Recent scandals have drawn attention to another challenge of using stock options as

incentive pay. As with other performance measures, employees may focus so much on

stock price that they lose sight of other goals, including ethical behavior. Ideally,

managers would bring about an increase in stock price by adding value in terms of

efficiency, innovation, and customer satisfaction. But there are other, unethical ways to

increase stock price by tricking investors into thinking the organization is more

valuable and more profitable than it actually is. Hiding losses and inflating the

recorded value of revenues are just two of the ways some companies have boosted

stock prices, enriching managers until these misdeeds come to light. Also, officials at

some companies have been charged with “backdating” options granted to executives.

This practice involves changing the date and/or price in the original option agreement

so that the option holder can buy stock at a bargain price for making the backdated

option profitable or more profitable. At the same time, backdating eliminates or

reduces the incentive to improve the stock’s performance. If backdating of options is

kept secret, those who do it may be guilty of falsifying financial statements, which is

unethical and may be illegal.

2.5.3.2.2. Employee Stock Ownership Plans

While stock options are most often used with top management, a broader arrangement

is the employee stock ownership plan. In an employee stock owner ship plan, the

organization distributes shares of stock to its employees by placing the stock into a

trust managed on the employees’ behalf. Employees receive regular reports on the

value of their stock, and when they leave the organization, they may sell the stock to

the organization or on the open market.

ESOPs raise a number of issues. On the negative side, they carry a significant risk for

employees. Problems with the company’s performance therefore can take away

significant value from the employee stock owner ship plan. Many companies set up

20

Employee Stock Ownership Plans to hold retirement funds, so these risks directly

affect employees’ retirement income. Adding to the risk, funds in an employee stock

owner ship plan are not guaranteed by the Pension Benefit Guarantee Corporation.

Sometimes employees use an employee stock owner ship plan to buy their company

when it is experiencing financial problems; this is a highly risky investment.

However, Employee Stock Ownership Plans can be attractive to employers. Along with

tax and financing advantages, Employee Stock Ownership Plans give employers a way

to build pride in and commitment to the organization. Employees have a right to

participate in votes by shareholders. This means employees participate somewhat in

corporate-level decision making. Still, the overall level of participation in decisions

appears to vary significantly among organizations with Employee Stock Ownership

Plans. Some research suggests that the benefits of Employee Stock Ownership Plans

are greatest when employee participation is greatest.

2.6. Establishing a pay structure

Establishing a pay structure is not a simple task with each firm, in order to complete a

pay structure in use, there must be 2 steps to take:

Figure 2.3. Steps in establishing a pay structure

Source: A. Noe, 2011

Building up a job structure and determining pay-level bear a close relationship in

which only after defining the jobs that you will be able to set the pay level for the job.

This is because compensation is calculated based on contribution and contribution is

reliant on the nature of the work. Obviously, different job evaluations lead to various

levels of pay. For instance, the first job requires an accountant with 2 years past

experience at the same position, good at dealing with financial statement, able to utilize

Building up a job structure

Determining pay-level

21

special software in accounting… will receive a different pay level with a second job for

a sewing workers with the requirements of being hard working and obedient. In the

case, the job descriptions of these two jobs are a necessary criterion to assess how a

firm can set up the pay level for them.

2.6.1. Building up a Job structure

There are two steps in which a job structure is set up: job evaluation and determining

key jobs. While job evaluation is the primary step to define a job, the secondary step is

to classify jobs into key jobs and non-key jobs which are two groups with different

characteristics to form a pay level.

Figure 2.4. Steps in building up a job structure

Source: A. Noe, 2011

2.6.1.1. Job evaluation

According to the book The Fundamentals of Human Resource Management, 4th edition,

“Job evaluation is an administrative procedure for measuring the relative internal worth

of the organization’s jobs”. This statement expresses that the job evaluation takes

responsibility for defining all the jobs inside the firm. It may answer questions like:

What is the goal of this job? How the job is arranged? What it takes to finish this job?

Who is suitable for this kind of job? , etc.

In order to evaluate jobs, employer should identify compensable factors or criteria of

the jobs which are the elements defining characteristics of the job, for example:

Building up a job structure

Job evaluation

Determining key jobs

22

experience requirement, skill requirement, education requirement, complexity, total

time the job consumes, etc. Those criteria have the quantitative relationship with how a

firm set up the compensation for a job, the more the job demands like skill, profession,

experience,…the higher the salary.

Table 2.1. Evaluating three jobs with four compensable factors

Compensable factors

Total Experience Skill Education Complexity

Sewing 30 40 20 40 130

Packaging 10 10 20 10 50

Operating

machine

50

50

60

70

230

Source: Collected by the writers

The table 2.1 represents the evaluation of three jobs with four compensable factors in a

sewing firm. Experience, skill and education are three major requirements while the

last factor measures the complexity level of three jobs. The higher the total point, the

more the firm has to pay their employees with that job.

There are primarily three methods of job evaluation: ranking, classification, factor

comparison method or point method. While many variations of these methods exist in

practice, the three basic approaches are described here.

Ranking method is perhaps the simplest method of job evaluation. According to this

method, jobs are arranged from highest to lowest, in order of their value or merit to the

organization. Jobs can also be arranged according to the relative difficulty in

performing them. The jobs are examined as a whole rather than on the basis of

important factors in the job; the job at the top of the list has the highest value and

obviously the job at the bottom of the list will have the lowest value. Jobs are usually

ranked in each department and then the department rankings are combined to develop

an organizational ranking. The variation in payment of salaries depends on the

23

variation of the nature of the job performed by the employees. The ranking method is

simple to understand and practice and it is best suited for a small organization. Its

simplicity however works to its disadvantage in big organizations because rankings are

difficult to develop in a large, complex organization. Moreover, this kind of ranking is

highly subjective in nature and may offend many employees. Therefore, a more

scientific and fruitful way of job evaluation is called for.

The second method which may be used is classification method. According to

classification method, a predetermined number of job groups or job classes are

established and jobs are assigned to these classifications. This method places groups of

jobs into job classes or job grades. Separate classes may include office, clerical,

managerial, personnel, etc.

The job grading method is less subjective when compared to the earlier ranking

method. The system is very easy to understand and acceptable to almost all employees

without hesitation. One strong point in favor of the method is that it takes into account

all the factors that a job comprises. This system can be effectively used for a variety of

jobs. The weaknesses of the Grading method are that even when the requirements of

different jobs differ, they may be combined into a single category, depending on the

status a job carries. Moreover, it is difficult to write all-inclusive descriptions of a

grade. Additionally, the method oversimplifies sharp differences between different

jobs and different grades. Finally, when individual job descriptions and grade

descriptions do not match well, the evaluators have the tendency to classify the job

using their subjective judgments.

Factor comparison method or Point method is widely used and is considered to be one

of the reliable and systematic approaches for job evaluation in mid and large size

organizations. Hence, jobs are expressed in terms of key factors. Points are assigned to

each factor after prioritizing each factor in order of importance. The points are summed

up to determine the wage rate for the job. Jobs with similar point totals are placed in

similar pay grades.

24

2.6.1.2. Defining key jobs

After evaluating all the possible jobs within an organization, the firm will own detailed

information to create a job structure about the relative value each jobs provide. The

organization may limit its pay survey to jobs evaluated as key jobs. According to

Raymond Noe in the Fundamental of Human resource management “Key jobs are jobs

that have relatively stable content and are common among many organizations”. Stable

content and common among organizations are two special criteria on deciding a key

job. As far as it is concerned, stable content means that the workload and job

description often remain unchanged throughout the working career while the last

criterion means that the job must be essential for many companies especially for

companies in the same area.

For example, accountant is a key job because almost all companies own this common

job so that the company can rely on other company’s pay level on the accountant or

through survey data about what people earn in these jobs to determine the salary for the

job. In contrast, Foreman is not a key job because this job only appears at the factories

which follow shift-work system.

Organizations can make the process of creating a pay structure more practical by

defining key jobs. Research for creating the pay structure is limited to the key jobs that

play a significant role in the organization. Pay for the key jobs can be based on survey

data, and pay for the organization’s other jobs can be based on the organization’s job

structure. A job with a higher evaluation score than a particular key job would receive

higher pay than that key job.

25

2.6.2. Determining Pay-level

At the beginning of this chapter, the researcher mentioned about the definition of pay

structure which states that pay structure reflects decisions about how much to pay and

the relative value of each job. After building up the job structure, organization can

determine their pay level based on a combination of pay rates, pay ranges, pay grades

pay differentials and compa-ratio. A firm’s pay structure should express what it

comprehends about market forces, as well as its goals and the relative contribution of

each job to achieving the goals. By balancing this external and internal information, the

organization’s goal is to set levels of pay that employees will consider equitable and

motivating. Organizations typically apply the information by establishing some

combination of pay rates, pay grades, and pay ranges…

Figure 2.5. Determinants of pay-level decision

Source: A. Noe, 2011

2.6.2.1. Pay Rates

According to the book the Fundamental of Human Resource Management by Raymond

Noe, pay rates are defined as “The pay in terms of a rate per hour, commonly called an

hourly wage; a rate of pay for each unit produced, known as a piecework rate; or a rate

of pay per month or year”.

Pay rates are an important measure to draw a pay policy line. According to the book

The Fundamentals of Human Resource Management, 4th edition, “A pay policy line is a

graphed line showing the mathematical relationship between job evaluation points and

Pay-level Decision

Pay Rates Pay Grades Pay RangesPay

DifferentialsCompa-ratio

26

pay rate”. The vertical axis shows a range of possible pay rates, and the horizontal axis

measures the points from the job evaluation. The analyst plots points according to the

job evaluation and pay rate for each key job. Finally, the analyst fits a line, called a pay

policy line, to the points plotted.

Figure 2.6. A pay policy line

Source: Collected by the writer

Figure 2.4 shows a pay policy line which indicates how a company can predict salary

of a random employee. After using regression model to get a linear line, the company

can predict salaries of any employees within their job evaluation point. For example, an

employee with 100 evaluation point will get a salary level of about 3 million VND a

month and an employee with 400 evaluation point surely gets 6 million VND each

month.

2.6.2.2. Pay Grades

A large company may have various jobs at a time to set up pay level in which would be

extremely complex. Therefore, many organizations group jobs into pay grades.

According to the book The Fundamentals of Human Resource Management, 4th

0

1

2

3

4

5

6

7

100 200 300 400

Mo

nth

ly s

alar

y(m

illio

n V

ND

)

Job evaluation point

A pay policy line

27

edition, “Pay grades are sets of jobs having similar worth or content, grouped together

to establish rates of pay”. For instance, a company may group sewing workers with 102

evaluation point and an employee responsible for odd jobs with 140 evaluation point in

the same grades because they are at the same level of pay. A drawback of 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. For

example, an accountant and a sewing worker with the same evaluation point may be

grouped together. Although market rate of pay for an accountant are always higher

than sewing worker and the accountant gets more evaluation point. But for the

simplicity’s sake, the company group 2 employees together. This leads to the fact that

the organization may pay less for the accountant and pay more for the sewing worker

which is not an equal circumstance.

2.6.2.3. Pay Ranges

In some cases, a firm might want the flexibility in determining compensation for

individual jobs. They want to be able to pay the most valuable employees the highest

amounts and to give rewards for performance. Flexibility also helps the organization

balance conflicting information from market surveys and job evaluations. Therefore,

pay structure usually includes a pay range for each job or pay grade. According to the

book The Fundamentals of Human Resource Management, 4th edition, “A pay range is

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”. In other

words, the organization establishes a minimum, maximum, and midpoint of pay for

employees holding a particular job or a job within a particular pay grade. Employees

holding the same job may receive somewhat different pay, depending on where their

pay falls within the range.

28

2.6.2.4. Pay Differential

In some situations organizations adjust pay to reflect differences in working conditions

or labor markets. For example, an organization may pay extra to employees who work

the night shift, because night hours are less desirable for most workers. Similarly,

organizations may pay extra to employees in locations where living expenses are

higher. These adjustments are called pay differentials.

2.6.2.5. Compa-ratio

Most of the time the human resource department is responsible for establishing the

organization’s pay structure but building a structure is not the end of the organization’s

decisions about pay structure, the structure represents the organization’s policy, but

what the organization actually does may be different. As part of its management

responsibility, the HR department therefore should compare actual pay to the pay

structure, making sure that policies and practices match.

A common way to do this is to measure a compa-ratio, the ratio of average pay to the

midpoint of the pay range. Assuming that the pay structure is well planned to support

the organization’s goals, the compa-ratios should be close to 1. A compa-ratio greater

than 1 suggests that the organization is paying more than planned for human resources

and may have difficulty keeping costs under control. A compa-ratio less than 1

suggests that the organization is underpaying for human resources relative to its target

and may have difficulty attracting and keeping qualified employees. When compa-

ratios are more or less than 1, the numbers signal a need for the HR department to work

with managers to identify whether to adjust the pay structure or the organization’s pay

practices. The compa-ratios may indicate that the pay structure no longer reflects

market rates of pay.

Compa-ratio =����������������������������������

������������������

For example, a range of 5 employees with similar task receive salaries as follow:

Employee 1: 2.4 million VND

29

Employee 2: 2.3 million VND

Employee 3: 3 million VND

Employee 4: 2.9 million VND

Employee 5: 2.8 million VND

The midpoint of the range is 2.7 million VND

The compa-ratio should be:

(2.4 + 2.3 + 3 + 2.9 + 2.8) ÷ 5

2.7= 0.993

2.7. Requirements of a good pay structure

An ideal compensation system will have positive impact on the efficiency and results

produced by employees. In addition to that, it will encourage the employees to perform

better and achieve the standards fixed and enhance the process of job evaluation as

well as help setting up an ideal job evaluation. Holding a realistic pay structure, the set

standards would be more achievable.

Such a system should be well defined, it must additionally be applied to all the levels

of the organization as a general system so that the whole firm can work harmoniously.

In order to be well-maintained in the long term, the system should be arranged simply

and flexibly so that every employee would be able to compute his own compensation

receivable. On the other hand, a good pay structure should be easy to implement and

remain its function as avoiding exploitation of workers.

A well-managed pay structure might raise the morale, efficiency and cooperation

among the workers because justice and fairness would provide satisfaction to the

workers. Such system would help management in complying with the various labor

acts and solve disputes between the employee union and management. Rather than that,

the compensation system can motivate and encouragement those who perform better

30

and provide opportunities for those who wish to excel. A sound pay structure brings

peace in the relationship of employer and employees. It aims at creating a healthy

competition among them and encourages employees to work hard and efficiently. By

far, the system should provide growth and advancement opportunities to the deserving

employees. With sounding success from compensating talents, the company policy can

make an effort to attract high-quality employees.

The perfect pay structure provides platform for happy and satisfied workforce. Thanks

to that, the labor turnover will be minimized and the organization enjoys the stability.

Recently, the organization is able to retain the best talent by providing them adequate

compensation thereby stopping them from switching over to another job. In the future

orientation, the business organization can think of expansion and growth if it has the

support of skillful, talented and happy workforce. In conclusion, the sound pay

structure is a hallmark of organization’s success and prosperity. A demanding

compensation system surviving all these criteria stands a good chance to dominate the

labor market with high-quality employees.

31

CHAPTER 3: METHODOLOGY

3.1. Research methodology

The methodology uses in this research that is qualitative research. Qualitative research

is a type of scientific research. In general terms, scientific research consists of an

investigation that seeks answers to a question or systematically uses a predefined set of

procedures to answer the question by collecting evidence, producing findings that were

not determined in advance or producing findings that are applicable beyond the

immediate boundaries of the study. During the 1970s and 1980s, qualitative research

began to be used in other disciplines, and became a significant type of research in

the field of education studies, social work studies, and many other fields. The goal of

qualitative research is to gather a deep understanding of human behavior and the

reasons that govern behavior. Qualitative methods also are investigating why and

how of decision making. So the smaller samples are more focused than large samples.

The advantage of qualitative research is its ability to provide complex textual

descriptions of how people experience a given research issue. It provides information

about the “human” side of an issue – that is, the often contradictory behaviors,

beliefs, opinions, emotions, and relationships of individuals. When used along with

quantitative methods, qualitative research can help us to interpret and better

understand the complex reality of a given situation and the implications of

quantitative data. Qualitative methods are also effective in identifying intangible

factors, such as social norms, socioeconomic status, gender roles, ethnicity, and

religion, whose role in the research issue may not be readily apparent.

Qualitative research can help us to interpret and better understand the complex reality

of a given situation.

Qualitative research is a major field of academic research study, and the basis for

awarding theses and dissertations worldwide. The aim of a qualitative research may

vary with disciplinary background, such as a psychologist seeking to gather an in-depth

understanding of human behavior and the reasons that govern such behavior. The

32

qualitative method investigates the why and how of decision making, not just what,

where, when or who, and has a strong basis in the field of sociology to understand

government and social programs, and is popular among political science, social work,

and special education and education majors.

3.2. Selecting sample

The researcher selected 100 out of more than 120 workers to carry out the research and

the sorting process is totally random. 100 workers were given a questionnaire about

their jobs and income in order to find out their thoughts over company’s policy. The

small size of the sampling brings in some advantages in designing and completing the

questionnaire.

3.3. Instrumentation

The research used observation, survey and interview as 3 possible approaches to gain

information. While interview is an optimal option as it takes a lot of time, the other

approaches seem to be more appropriate with the size of data sample.

3.3.1. Survey and questionnaire

The survey in the thesis was conducted with the aims to find out the reason hiding

under the serious problem at Kim Quy which is low employee engagement. In addition

to that, the researcher also wants to measure the impact of pay structure at Kim Quy to

employee’s thoughts and actions. The questionnaire was designed to meet those

demands so that the questions focused mainly on the purposes arisen such as:

subsidies, pay rise, bonuses, payment method… and the attitude toward different

situations such as strike, loss, etc.

In order to find out how a pay structure can affect workers at Kim Quy, the researcher

carried out a survey including several question relating to their jobs. The survey are

divided into 2 parts, the content of the survey is referred in the Appendix A1 and

Appendix A2 of the thesis.

33

In the first part of the questionnaire, the frequency of the actions is graded into the

scale as following: Never - 1 point; Rarely - 2 point; Often - 3 point; Usually - 4 point;

Always - 5 point.

Then the index to measure the frequency of the actions is calculated. In the first step of

calculation, the researcher takes the total sum of all the multiply between the point of

frequency and the correspondent ratio collected from the survey. This index is in a

direct ratio with the satisfaction of employees on the pay structure of the company or

their positive thoughts and actions over company paying policy.

In the second part of the questionnaire, the researcher presented a list of yes/no

questions to collect ideas of employees over Kim Quy’s compensation systems. For the

answer of the questions, the higher the ratio of the answer “yes” is, the higher level of

worker satisfaction on pay structure or the more positive the thoughts and actions of

workers is but there is an exception for the last question “If a nearby factory goes on

strike for a pay rise, will you do the same?”, the answer “yes” presents a negative

attitude over the pay structure. On calculating the index, the scale for 2 answers is set

up as follow: No -1 point; Yes- 2 point

The index in this section is calculated by taking the total sum of the multiply between

the point of 2 possible answers and the correspondent ratio collected from the survey.

3.3.2. Observation

One of the most common methods for qualitative data collection, participant

observation is also one of the most demanding. It requires that the researcher become a

participant in the culture or context being observed. The literature on participant

observation discusses how to enter the context, the role of the researcher as a

participant, the collection and storage of field notes, and the analysis of field data.

Participant observation often requires months or years of intensive work because the

researcher needs to become accepted as a natural part of the culture in order to assure

that the observations are of the natural phenomenon.

34

Direct observation is distinguished from participant observation in a number of ways.

First, a direct observer does not typically try to become a participant in the context.

However, the direct observer does strive to be as unobtrusive as possible so as not to

bias the observations. Second, direct observation suggests a more detached perspective.

The researcher is watching rather than taking part. Consequently, technology can be a

useful part of direct observation. For instance, one can videotape the phenomenon or

observe from behind one-way mirrors. Third, direct observation tends to be more

focused than participant observation. The researcher is observing certain sampled

situations or people rather than trying to become immersed in the entire context.

Finally, direct observation tends not to take as long as participant observation. For

instance, one might observe child-mother interactions under specific circumstances in a

laboratory setting from behind a one-way mirror, looking especially for the nonverbal

cues being used.

3.3.3. Unstructured interviewing

Unstructured interviewing involves direct interaction between the researcher and a

respondent or group. It differs from traditional structured interviewing in several

important ways. First, although the researcher may have some initial guiding questions

or core concepts to ask about, there is no formal structured instrument or protocol.

Second, the interviewer is free to move the conversation in any direction of interest that

may come up. Consequently, unstructured interviewing is particularly useful for

exploring a topic broadly. However, there is a price for this lack of structure. Because

each interview tends to be unique with no predetermined set of questions asked of all

respondents, it is usually more difficult to analyze unstructured interview data,

especially when synthesizing across respondents. Within the method, the thesis

obtained enough information to build up the process of establishing the pay structure at

Kim Quy.

35

3.4. Data collection

The study is carried out based on 2 kinds of data: the primary data and secondary data.

Most of the theories, definitions… are taken from relevant articles, book, magazines or

even from internet source which will clearly be recommended in the reference. By

referring to different materials, the researcher has basic knowledge and orientation to

write the thesis.

Figure 3.1. Process of collecting data

Source: Collected by the writer

The survey was conducted during 2 months of internship at Kim Quy Limited Liability

Company. On the first month, questionnaires are designed and handed over 100

workers to collect ideas of workers about different issue relating to pay structure of the

company. After that, the result of questionnaire is careful analyzed and assessed in

order to evaluate the value of compensation system as well as its strengths and

weaknesses. At the end of the internship period, the researcher asked for some related

documents such as the financial statements of Kim Quy in 2013 and 2014, classifying

standards for recruiting employees at Kim Quy… Feedbacks and assessments of

instructors of Kim Quy are precious resource for the researchers to complete the thesis.

Suggestion and recommendations for Kim Quy are also taken into consideration based

on the company orientation in the future.

Questionnaire design

Handing out Questionnaire

Collecting results

Feedbacks

36

3.5. Method of analysis

The data analysis steps are conducted by examining the survey and assessing the

characteristics of labor force including genders and ages. From the result of the

questionnaire, the indexes in correspondent with different criteria are calculated and

analyzed. The data is also expressed through different graphs. From the researcher’s

point of view, those criteria is ranked on the basis of importance in order to find out

whether a factor results in negative force or positive force and its consequences in the

long term. Within the result of analyzing data, suggestions and recommendations are

presented to erase negative force over the system.

37

CHAPTER 4: DATA ANALYSIS

4.1. Overview of Kim Quy Limited Liability Company

4.1.1. General information

Kim Quy is one of the biggest garment companies located in Lai Son industrial zone,

Vinh Phuc province. Dinh Thi Quy is the present director who established the firm in

2009. The number of labors at the time of establishment which was 60 has now

reached 120 in a short period of time. Kim Quy had been established under the

business permission number 2500329597 with the charter capital of 10 billion VND.

At that time, the firm owned 230 machines and produced from 150,000 to 170,000

products in 6 lines for a month. Up to now, within 6 years of operation, Kim Quy is the

source of supply for hundreds distributors to meet the demand of both domestic and

international customers.

The director of the firm chooses Vinh Phuc province to operate the business for some

special reasons. Vinh Phuc province located in the neighborhood area of Hanoi, the

capital of the country. This geographical characteristic brings in an advantage of

owning a potential market and labor force while the cost of expanding area is

minimized.

4.1.2. The organizational structure

The organizational structure of Kim Quy Limited Liability Company forwards

Bureaucratic organizational structure (Max Weber, 1948). This is a well-defined

formal hierarchy and chain of command distinguishes the level of authority within an

organization. Individuals who hold higher positions will supervise and direct lower

positions within the hierarchy. In another word, the source of power in the hierarchy

flows upside down. The company exercises its management by rules and regulations to

provide a set of standard operating procedures that facilitate consistency in both

organizational and management practices.

Figure 4.1. The

Source: Office department of Kim Quy (2015)

Production department

Foreman

Sewing workers

Cutting and finishing workers

GuardianOdd job

employees

38

4.1. The Organizational structure at Kim Quy Co., Ltd.

Source: Office department of Kim Quy (2015)

Director

Production department

Foreman

Medical Workers

TechnicianPattern makers

Warehouse keeper

Clerk

Office department

Head of the office

department

Accountant Treasurer

39

4.1.3. Business characteristics

The products of Kim Quy vary from garment products like shirts, dresses…to

industrial materials. The specific components of products at Kim Quy are expressed in

the figure below:

Figure 4.2. Products manufactured at Kim Quy (Unit: percentage)

Source: Office department at Kim Quy (2015)

The main source of income for the firm is clothing because the demand for clothing of

distributors in the located area as well as neighborhood areas is always high as they

receive many offers from distributors especially those are in Ha Noi, a potential market

for clothing products. The other products like curtain, carpet, blanket, industrial

materials as well as other products accumulated a small fraction because those products

are seasonal and supporting goods at Kim Quy.

This company is the supplier for many foreign companies in the clothing and garment

areas in Korea, Japan or located distributors. The market for the firm is both domestic

and international regions in which they can satisfy demand for different range of

products.

68%

10%

15%

4% 1% 2%

Clothing Curtain Carpet Blanket Industrial materials Other

40

4.1.4. Financial statement of Kim Quy in 2013 and 2014

The financial statement of Kim Quy in 2013 and 2014 is expressed in the Appendix B

of the thesis. Looking up into the financial statement of Kim Quy, the firm shows a flat

rise on the basis of sales and service revenue from approximate 10 billion to 16 billion

VND in a year. This information proves that there is a recent upward trend of

development at Kim Quy. However, all the costs including cost of goods sold, financial

costs are also on a steady rise which should be a real concern for the board of director.

This may indicates 2 cases that the company invested a lot in this period or the

inflation exercised its affect on the cost of material, labors, etc. In conclusion, Kim

Quy is a young and potential firm which is on the trend of development. On the road of

growing and expanding, this company may need a huge source of investment for future

orientation. However, the inflation causes a rise in the operational cost and poses a

threat to the business.

4.1.5. Human resource at Kim Quy Limited Liability Company

With a medium firm like Kim Quy which creates a thousand of jobs for people in the

located area, human resource management system plays a key role in running the

business. There are 8 main departments in the hierarchy of Kim Quy, each departments

place a huge contribution in manufacturing garment products. The distribution of

labors into each department is based mainly on the difficulty and importance of the

tasks. Therefore, it is somehow similar to job evaluation stage in the pay structure

establishing process.

41

Table 4.1. Kim Quy Company’s workforce

Department Number of labors Department Number of labors

Production Manager 2 Sewing 70

Officer 4 Quality

management 8

Pattern Maker 2 Mechanic 3

Warehouse 2 Others 9

Cutting and Finishing 22

Total 122

Source: Office department of Kim Quy (2014)

Established in 2009 in the garment manufacturing area, the main parts of the workforce

are actually female as the requirements for most of the jobs are skillfulness,

carefulness…Therefore, there are several differences between this workforce and the

workforce in the heavy industry or scientific industry. Moreover, in comparing with the

labor force all over the world, the quality of the labor force of Viet Nam is at the lower

level and the turnover rate is always high due to psychological thoughts of local

residents in rural areas. Because of those reasons, the workforce in Kim Quy faces

several challenges that pose a threat to its quality in the long term.

Figure 4.3. Age and Gender of Employees at Kim Quy Company (Unit: people)

Source: Office department of Kim Quy (2015)

17

105

Gender of employees

Male

Female

109

9 4

Age of employees

18-40

40-60

Over 60

42

The age of workers at the Kim Quy company mostly ranges from 18 to 40 in which is

also the age of child-bearing female so that this company usually faces the situation of

absent workers for months. Furthermore, during pregnant or after giving birth to their

children, worker cannot handle the workload like a normal people. Therefore, Kim Quy

should have a right policy for those who are in the child-bearing period.

4.2. Designing a pay structure at Kim Quy Limited Liability Company

4.2.1. Establishing a job structure

4.2.1.1. Job evaluation

Job evaluation is the most important factor to form job structure; it is also the key point

that makes the difference in the recruiting policies between various companies. The

first step in forming the salary system in Kim Quy is classifying employees into groups

with different incomes. The classifying standards for employees taking part in the

business are described in the appendix B.

To be specific, Kim Quy utilized classification method to divide their job structure into

4 main classes.

Class I - Executives: Further classification under this category may be Directors, vice

directors, etc.

Class II - Officers: Under this category may be the Purchasing assistant, Cashier,

Clerk, Treasurer.

Class III - Group leaders and Foremen

Class IV - Workers: This category may comprise of sewing workers, guardians, cooks,

etc.

4.2.1.2. Determining key jobs

According to the characteristics of key jobs discussed in the chapter 2, “key jobs are

the jobs with stable content and are common among many organizations” the key jobs

of Kim Quy may include: Director, Accountant, Clerk, Treasurer, Worker, Guardian,

43

Cook, Warehouse keeper. Those jobs are classified into the key job group because the

job descriptions of these positions rarely varies at times and many companies own the

same position in which are important. The utilization of defining key jobs are that the

company can easily set up salaries for those position based on labor market price or

other company’s pay policy.

4.2.2. Determining pay-level

4.2.2.1. Salaries and wages

At Kim Quy, paying employees fairly, encouraging hardworking people with

bonuses…are several targets that they always hope to achieve. Although those things

seem to be very easy to complete, how to manage company’s human resource legally is

something beyond the point. Therefore, in November 8th 2012, Kim Quy drafted a labor

collective agreement in order to help the worker receive full and detailed perspectives

of working here. To be specific, the agreement stipulates that:

“Article 1: The salary of workers is set on the labor contract based on the classifying

standards and Civil Code. The employees should hereby agree on the salary after

signing the contract.

Relying on a salary table with level from I to X, Kim Quy pays employee on an

experience-based pay method. Every 12 months working without 5 days absent each

month is equivalent to a level in the salary table. The one with 120 months experience

working in Kim Quy can get the salary at level X. Workers with additional shifts will

receive 115-120% salary in comparing with normal shifts.

Employees can receive their salaries from the 10th to 15th day of the next month. The

paying method can be direct payment or through bank transfer. In case of bank

transfer, Kim Quy will bear full responsibility for the fees of creating and maintaining

accounts”.

44

Table 4.2. Salary for director, head and vice head of a department

Head and vice head of a

department

Level I II III IV V VI VII VIII IX X

Salary 3,100 3,256 3,420 3,592 3,772 3,962 4,161 4,370 4,590 4,820

Director

Level I II III IV V VI VII VIII IX X

Salary 3,300 3,466 3,640 3,823 4,015 4,217 4,429 4,652 4,885 5,130

Source: Office department of Kim Quy (2015)

Table 4.3. Salary for manufacturing department

Guardian Level I II III IV V VI VII VIII IX X

Salary 2,750 2,889 3,034 3,187 3,347 3,515 3,692 3,878 4,073 4,277

Odd job employees, Cooks Level I II III IV V VI VII VIII IX X

Salary 2,888 3,033 3,186 3,346 3,514 3,691 3,876 4,071 4,276 4,490

Sewing workers,

Warehouse-keeper,

Treasurer

Level I II III IV V VI VII VIII IX X

Salary 3,090 3,473 3,902 4,385 4,928 5,538 6,223 6,992 7,857 8,828

Group leaders, Vice group

leaders, Technician

Level I II III IV V VI VII VIII IX X

Salary 3,473 3,647 3,831 4,023 4,225 4,438 4,660 4,894 5,140 5,398

Foreman Level I II III IV V VI VII VIII IX X

Salary 3,647 3,831 4,023 4,225 4,438 4,660 4,894 5,140 5,398 5,669

Source: Office department of Kim Quy (2015)

45

Table 4.4. Salary for Office departments

General education officers Level I II III IV V VI VII VIII IX X

Salary 3,033 3,186 3,346 3,514 3,691 3,876 4,071 4,276 4,491 4,716

Officers with College

degree

Level I II III IV V VI VII VIII IX X

Salary 3,086 3,241 3,404 3,576 3,755 3,944 4,142 4,350 4,569 4,798

Officers with Bachelor

degree

Level I II III IV V VI VII VIII IX X

Salary 3,146 3,304 3,471 3,645 3,828 4,021 4,223 4,435 4,658 4,892

Source: Office department of Kim Quy (2015)

*Note: Measurement: thousand VND.

Minimum salary for an employee is 2,750,000 VND per month.

Salary level (α+1) = Salary level α×1.05.

(1.05 is the rate to raise salary in a year according to Vietnamese labor code 2014).

Employees at the same level are paid at the same rate.

Employees can reach the next level only after finishing working for 12 months in the previous level.

Employees who are responsible for various positions will receive all salaries of those positions.

46

4.2.2.2. Fringe benefits, bonuses and commissions:

On the holiday or some special cases, company supports workers as following:

Table 4.5. Fringe benefits, bonuses and commissions

Cases Employees Requirements Reward form

New year, Lunar new year,

Independent day, Liberate

day, Ancestor’s death

anniversary

All

employees

From 50,000 to

300,000 VND

Mid-autumn day All

employees

Mid-autumn gift

for each child.

Vietnamese Women’s day,

International Women’s day

All

employees Female 100,000 VND

Bonuses All

employees

No absent day

Support other

workers

300,000 VND

Funeral support for people

in the family

All

employees 400,000 VND

Funeral support for

employees

All

employees 500,000 VND

Wedding support All

employees 400,000 VND

Source: Office department of Kim Quy (2014)

47

In addition to salaries and wages, according to Labor law 2012, the company set up

some supporting policies in several special cases:

“Article 2: Employees working in toxic, dangerous environments will receive 8%

salary as a subsidy”.

New employees are given 2 months as trial period to learn necessary skills and they

still get 85% salary in this position”.

4.2.2.3. Subsidies:

Kim Quy Company support employees with different kind of subsidies according to

the law. Specifically, those subsidies are:

Table 4.6. Subsidies

Type of subsidies Employees Subsidy amount

1 Lunch All employees 15,000 VND per day

2 Traffic subsidy,

Contact subsidy

Technicians 500,000 VND per month

Organizational planning

officers, Accountants, human

resource management officers 500,000 VND per month

Head and vice head of a

department 500,000 VND per month

Foremen 500,000 VND per month

3 Responsibility

Head and vice head of a

department 500.000 - 2,000,000

VND per month

Foremen

Source: Office department of Kim Quy (2014)

48

4.3. Assessments

According to the data collected at Kim Quy Limited Liability Company, the firm

seems to choose a right way to design their pay structure with 2 basic steps which are

building up a job structure and determining pay-level. However, within a table of

classifying standards, evaluating jobs seem to be rather too impulsive, it lacks of

professional evaluation system with compensable factors which is more trustworthy

and precise to measure employees’ work. Therefore, the pay level which is shown in

the tables above may be at fault in which can create an imbalanced pay structure.

Furthermore, the firm chooses not to use compa-ratio to measure the precision of their

pay structure, this leads to a fact that its compensation system is practical to satisfy

employees’ demands.

On the other hand, more than 120 workers were not given a social insurance and

medical insurance. Although this is a huge problem and may cause non-compliance

fault in the labor law, it is understandable for this firm because hardly all of the

workforce tend to contribute to the job for a long term. Beside that point, a fraction of

workforce do not regard the work as their main, they took part in to learn the garment

work. Moreover, the special characteristic of garment industry is that the business

cannot obtain regular order, only when there is order can they continue the line of

manufacturing. This affects the requirement for number of workers a lot and also the

reason why seasonal labors occurred.

In spite of this deficiency, the supporting policies and subsidies for special cases of

Kim Quy proves to be an advantage to attract employees. Moreover, using bank

transfer may bring in a lot of benefits and conveniences to the workers. In conclusion,

pay structure at Kim Quy can be retained in short-term but proved to be unrealistic in

the long period because employees might realize that the way employers measure their

contribution is unobvious. Under those effects, seasonal labors and high turnover rate

are real concern which poses a threat to the precious resource of human at Kim Quy.

49

4.4. Analyzing data

4.4.1. The impact pay structure on employees’ satisfaction

The compensation system at Kim Quy in general has not been completely well-taken

by the workers according to the questionnaire. In almost every answer proving an

employee wants to commit themselves to his/her job, the numbers is not high enough

to give a positive results of evaluation.

Figure 4.4. Causes of worker dissatisfaction (Unit: percentage)

Source: Office department of Kim Quy (2015)

From the results of questionnaire, we can figure out that not receiving a regular pay

rise is the most important issue explaining why workers at Kim Quy are not satisfied.

100

0

Does the company pay salary on time

Yes No

67

33

Are companies subsidies

demanding?

Yes No

5545

Do you often get a pay rise?

Yes No

71

1042

13

Can you afford your family's expense?

Always Usually Often

Rarely Never

0 1283

77

Have you ever tried to get a bonus?

Always Usually Often

Rarely Never

94

6

Bank transfer is better than direct

payment?

Yes No

50

Additionally, the period of rising payroll of the company is one year with which the

pay amount is 5% of the salary. Most of the workers did not agree themselves with this

number because when they compare the amount of pay rise with the rate of cost rising

at the time of inflation, the cost of living overwhelms the pay rise.

Furthermore, can the average salary of more than 3 million VND survive the needs of

a family at the time of rising costs in almost every aspects of life? The question can be

answered by the employees of the company, 14% of them say rarely may refer to

nothing but a worry in worker’s mind and the index of satisfaction is only 0.852 which

gives out an alert for the system.

Similar to this issue, with a little lower index of 0.825, subsidies and supporting

policies rank the 3rd above different factors. These subsidies may not meet the needs for

gasoline or phone bills of officers. It somehow creates an invisible pressure for the

managers because if a worker shows dissatisfaction, it can spread out to become a

phenomenon.

The last factor to influence job satisfaction is bonuses. Employees at Kim Quy are not

supposed to improve their income by working overtime to achieve bonus. Without

rewarding employees fairly and at the right time, those talented employees will not be

motivated. As a result, brain-drain and high turnover rate are presented to threat the

quality of workforce.

In order to understand the insight of the problems, we should dig deep into the pay

structure of Kim Quy. Although the entrepreneur tried to classify the labors into group,

the way they pay employees make no sense at all, the worker cannot know how the

system varied the salary on the different positions. For example, they are not capable of

figuring out how the salary of director is ten times more than their salary or what the

director does to get that high income.

51

4.4.2. Impact of pay structure on employees’ thoughts and actions

Examining employees’ attitude toward the job is an important tool to measure the

efficiency of the systems. However, this task seems to be hard and not very precise

because of the complicated psychological thoughts.

Figure 4.5. Impact of pay structure on employees’ thought and actions

(Unit: percentage)

Source: Office department of Kim Quy (2015)

According to the survey, the pay structure at Kim Quy resulted in only 54% workers

always presented for work. It indicates that not all of employees regard the job as their

main source of income and wants to commit closely to the tasks they were offered.

68

32

Do you love the job?

Yes No

20

54

12

14 0

Do you often presented for work?

Always Usually Often

Rarely Never

5347

If a nearby factory goes on strike, will you

do the same?

No Yes

74

26

If the company suffers loss. will you stay?

Yes No

52

When we placed workers in a tough situation, their reactions seem to be rather

trustworthy to evaluate the employee engagement. Therefore, it is essential that Kim

Quy should pay serious attention to how their employees react in the case of labor

strike or company’s loss. Specifically, in the cases of company’s loss, only 74% of

employees agree to stay to help paying the debt. Worse than that, 47% of employees

insisted to tell the researcher that they will strike as well.

In conclusion, a pay structure can influence a huge impact on employees’ thoughts and

actions in different situations. In order to retain the positive force and reduce the

negative one, an entrepreneur should pay serious attention to search for the insights of

the problems and rapidly generates possible solutions.

53

CHAPTER 5: RECOMMENDATION AND CONCLUSION

5.1. Recommendation

In the near future, Kim Quy hopes to bring in a manufacturing line of high quality

products to broaden the range of customers. As a result, this entrepreneur needs a

stable and high-skilled workforce. After analyzing all the data collected at Kim Quy

Limited Liability Company, it is indicated that this target can be achieved by

motivating employees to engage to the company in long-term and amending the pay

structure.

5.1.1 Recommendations to motivate employees

5.1.1.1. Adjusting the pay-level

The pay rise in Kim Quy has been 5% each year in which is not a demanding number

according some employees in the firm. This result is taken from the survey and is the

most important factor to result in job dissatisfaction. In order to solve the problem,

Kim Quy may shorten the period between pay rises or increase the amount of pay rise.

More than that, the company can support employees working in night-shift or in toxic

environment by raising their pay rates.

On the other hand, worker at Kim Quy did not demand to get regular bonus due to the

fact that their contribution is not repaid appropriately. Kim Quy can also vary the form

of bonus from cash to gifts in order to motivate employees.

As a result, employees who see that their hard work is, in fact, being rewarded are

naturally more apt to stay with that company, allowing employers to retain top talent.

This grants both employee and employer a certain form of security. The employee feels

secure and enthusiastic about his job, and the employer feels secure in the knowledge

that it has created and cultivated an environment for a strong, highly productive

workforce.

54

5.1.1.2. Replacing the experience-based pay system

The system which is suggested by the researcher is merit pay system or performance-

based pay system, a system in which the workers feel encouraged with the appropriate

compensation for their contribution. Merit-based wage structures are more complicated

than traditional compensation plans. Under such a wage plan, performance is measured

against standards and the results are used to increase pay grades and determine

promotions rather than a more traditional annual review that focuses on equitable pay

among colleagues. Instead, the performance-generated salary is added to or

incorporated into what's known as a base salary in the form of bonuses or increases in

base pay. Merit-based pay is especially ideal for those employed in sales-driven

capacities.

Smart employers understand that if they intend to succeed they must have employees

motivated to guarantee that success, and merit pay is a good way to achieve that aim. A

merit-based pay structure paints a very clear picture of how individual effort and

ambition are linked directly to reward. Because merit pay rewards the individual for

performance rather than the performance of a group, individual workers understand

that they are being treated and compensated fairly, according to their individual

contributions to the company, and therefore tend to put forth more effort.

5.1.2. Recommendation to improve the quality of pay structure

5.1.2.1. Evaluating jobs carefully

In order to get an appropriate pay structure, the employers should define and evaluate

the job carefully. This evaluation process focuses on valuing the content of each

position in terms of a series of well defined compensable factors. The human resource

management officers may observe these factors in order to decide what is necessary for

their system.

The factors for clerical, service, technical, and administrative support positions include:

55

Knowledge: Minimum required level of specialized training, education, and

previous related work experience.

Skill: The manual and physical skills required to perform the duties of the

position.

Work Complexity: The degree and amount of judgment, initiative and ingenuity

involved in accomplishing work.

Contact with Others: The extent to which the work entails dealing with others in

the course of one's regular duties, including the frequency and nature of contacts

and the likely results of such contacts.

Property Protection and Use: The extent to which the position has responsibility

for university property, including funds, vehicles and confidential information.

Work Leadership: The responsibility for directing, instructing and training

personnel; and for planning controlling and assigning work.

Working Environment: The physical conditions encountered during a typical

work day. Conditions such as heat, cold, dirt, fumes, hazards, etc. are

considered.

Worker Relations: The responsibility for dealing with workers, including the

nature and frequency of contacts.

The factors for professional, administrative, and managerial positions include

responsibility for:

Programs, Projects or Operations: The level in the organization, scope of

activities performed, parameters of authority, complexity or nature of

responsibilities, and the minimum credentials required to perform the job upon

hire.

Supervision: The number and variety of employees supervised.

Employee Relations: Promoting and maintaining satisfactory human relations,

morale and effectiveness or subordinates.

56

External Contacts: Personally dealing with individuals or organizations outside

the university.

Internal Contacts: Personally dealing with individuals within the university, but

outside the direct line of authority of the position, to coordinate activities and

task accomplishment.

Investigation or Fact Finding: Activities undertaken to identify facts, and

develop ideas, designs or processes.

Scheduling, Planning and Forecasting: The complexity, variety and nature of the

activities involved in determining and carrying out plans and reports.

Establishing Objectives, Policies, Standards, Procedures, and Practices: The

degree of authority to establish standards, and the scope, nature and complexity

or these standards.

Effects of Decisions: Making decisions and commitments which impact the

university's resources.

5.1.2.2. Using a payroll system

A payroll system is software which organizes all the tasks of employee payment and

the filing of employee taxes. These tasks can include keeping tracking of hours,

calculating wages, withholding taxes and deductions, printing and delivering checks

and paying employment taxes to the government.

Payroll software often requires very little input from the employer. The employer needs

to input employee wage information and hours then the software calculates the

information including withholdings automatically. Most payroll software is

automatically updated every time a tax law changes and will remind employers when

to file various tax forms.

Choosing a payroll system that best fits your business is essential. It may be difficult to

decide which system to choose, but there are some factors to keep in mind when

deciding. First, analyze the size of your business and how much of your budget you are

willing to spend on payroll processing.

57

While it is possible for smaller businesses to handle payroll duties in-house through a

manual process, a lot of time can be wasted attempting to calculate everything

correctly. One miscalculation and the business owner could find themselves in legal or

financial trouble. Mid-sized companies with up to 100 employees benefit greatly by

investing in a payroll system. For small businesses, payroll system software can

eliminate errors in the payroll process and eliminate excessive effort involved in put

calculating employee hours, wages and tax withholdings. Payroll software is easy to

use often times very affordable for small businesses. Small business owners can

purchase an affordable system accessible on their local computer or via a cloud service.

Purchasing software eliminates the expense of hiring an in-house accountant for

payroll processing. Lastly, small business owners can maintain more control of the

payroll process by using software. Using payroll software allows the business to

compile reports at whatever pace they desire.

When choosing a payroll system, you will want to look for security. Is the software

password protected? Having a password protected software ensures there is no

tampering of information. It is important to have payroll software that functions well

with your other business systems and will grow with your business. Another factor to

consider is systems credibility, it is essential that the software is made by a well-known

brand. Finally, you will want a payroll system which will allow the employer to still

have control and the option of viewing reports and historical information. Once you

choose your payroll system it is up to you how much control you want over it.

58

5.2. Conclusion

In general, when we compare the income of employees at Kim Quy with other firms in

the area, it is a proven fact that the director Quy takes much care for the life standard of

workers as she drafted a lot of policies which supported mental and physical strength

of employees. For example, the subsidy policies and supporting policies are well-taken

by most of the employees are the advantages of compensation system here. Being a

very young firm, Kim Quy get a lot more opportunities than other firm in the same

area… Thank to that, the pay policy here can retain the human resource successfully,

imagine that you are an employees, it is not easy for you to get to the salary level IV or

V. Therefore, if you quit the job, 4 to 5 years working here turns to nothing.

Experience-based pay is helpful in equalize the pay level between employees; there is

nothing to debate or strike on how the company decide their pay structure to remain

stability.

Another superior thing about pay structure at Kim Quy is that the way they organized

and classified labors into groups with different income is similar to the task job

evaluation so that the process of establishing a pay structure is shortened so far.

Furthermore, the company has fulfill its obligations to workers by complying their

system to the labor law as they offer subsidies for employees working in toxic and

dangerous environments or offer trial worker with 85% salary. They also bring out a

paying policy which can encourage worker to contribute more and more in the long

term.

Despite of limited organizational process, the firm managed to raise their sales and

maintain the stability of the human resource. Regarded as a potential supplier, Kim

Quy stands a good chance to develop into a powerful firm in the near future.

Despite that obvious fact, the way the company applying system may cause confusions

and worries to workers. The questionnaire and survey from the study has proved that

the number of workers satisfy with the pay structure never reaches 80%. Like an old

saying: “if you cannot persuade just 10% of the whole, you failed”, the problems may

59

lie in between the number of pay rises given by the factory, the payroll in compare with

rising life costs or the method of payment offered by the firm, etc. In order to solve

those problems, the study has suggested some possible options that the firm can take

advantage of to create a brand new pay structure. Whether it is realistic or helpful or

not, there need to be changes from the inside of the whole systems.

Finally, the researcher wants to give a warm-hearted thank to Kim Quy Limited

Liability for their dedications in which assisted a lot in completing the thesis. Although

the skills and abilities of Vietnamese labors are not at high level of assessment, the

company managed to create jobs and incomes for a huge number of workers. The

researcher hope that it is time when changing in the pay structure may help providing a

lot more jobs for a firm located in a developing country like Vietnam.

5.3. Limitation of the thesis

The research scale on this study was limited to 100 workers so that the result may be

varied if a large scale was conduct.

The general answers and analysis based on the majority of the information collected,

but the knowledge of the participants about pay structure may differ.

However, errors on this research were the assumption of low rates. Researchers might

encounter financial problems during research phase.

60

REFERENCE

Books

David Barcelona; Joe Martocchio., 2005. Building Strategic Compensation Systems. 4th

edition. New York. Prentice Hall Incorporation

George Milkovich; Jerry Newman.,2013. Compensation. 11th edition. Richard.D.Irwin

Incorporation

Laura Dias.,2011. Human Resource Management. Shoreline Community College

Office of human resource, Compensation.,2004. Handbook for compensation planning.

Ohio State. Ohio State University

Raymond A.Noe; John R.Hollenbeck; Barry Gerhart; Patrick M.Wright.,2011. The

Fundamentals of Human Resource Management. 4th edition. New York. McGraw-Hill

Companies.

Richard L. Henderson; Barbara B. Thomas; Sandra VasSideris.,2002. Marketplace

Sellers for Compensation Management. 9th edition. New York. Prentice Hall

Incorporation

Scott A.Snell.,2015. Managing Human Resource. 17th edition. Cengage learning

61

Websites

Definition of Merit pay, advantages and disadvantages

http://humanresources.about.com/od/salaryandbenefits/g/merit-pay.htm

Accessed in 20/3/2015

Job design

http://www.whatishumanresource.com/job-design

Accessed in 20/3/2015

Pay structures and its attributes

http://www.salary.com/pay-structures/

Accessed in 14/2/2015

Pay structure and its objectives

http://www.cipd.co.uk/hr-resources/factsheets/pay-structures.aspx

Accessed in 20/3/2015

Types of pay structure

http://apps.opm.gov/strat/strsetbackground.cfm

Accessed in 15/4/2015

62

Appendix 1: The first part of the survey.

Source: Office department of Kim Quy (2015)

Questionnaire

Never

Rarely

Often Usually

Always

Index

Are you often

presented for work? 0% 14% 12% 54% 20% 0.76

Can your monthly

income afford your

family’s expenses?

15% 2% 4% 10% 71% 0.852

Do you often stay late

to work for a bonus? 77% 3% 8% 12% 0% 0.31

63

Appendix 2: The second part of the survey

Source: Office department at Kim Quy (2015)

Questionnaire No Yes Index

Have you ever denied a

substitute job with

similar salary?

19% 81% 0.905

Are company’s

subsidies demanding? 33% 67% 0.825

Do you often get a pay

rise? 55% 45% 0.725

Do you want to work

here for a long period

of time?

24% 76% 0.88

If the company suffers

losses, will you stay? 26% 74% 0.87

Do you love the job? 32% 68% 0.84

Does the company pay

salary on time? 0% 100% 1

Do you like bank

transfer more than

direct payment?

6% 94%

0.97

If a nearby factory goes

on strike for a pay rise,

will you do the same?

53% 47% 0.735

64

Appendix 3: Kim Quy’s financial statement in 2013 and 2014

(unit: VND).

Account Code 2013 2014

1. Sales and Service Revenue 1 10,163,809,772 16,789,981,000

2. Revenue deductions 2

3. Net Sales Revenue and Service

revenue(10 = 2 - 1 )

10 10,163,809,772 16,789,981,000

4.Cost of goods sold 11 8,550,786,550 15,104,827,226

5. Gross profit (20 = 10 - 11) 20 1,613,023,222 1,685,153,774

6. Financial revenue 21

7. Financial cost 22 186,804,000 413,675,620

Interest expenses 23 186,804,000 413,675,620

8. Sales expenses 24

9.Organizing expenses 25 1,180,458,677 1,203,692,834

10. Net sales profit (30 = 20 + (21

- 22) - (24 + 25))

30 245,760,545 67,785,320

11. Other revenue 31 5,678,000 7,553,040

12. Other expenses 32

13. Other profit (40 = 31 - 32) 40 5,678,000 7,553,040

14. Total profit before taxes (50 =

30 + 40)

50 251,438,545 75,338,360

15. Current business income tax

charge

51 50,287,709 18,834,590

16. Property tax deferred 52

17. Profit after taxes (60 = 50 - 51

- 52)

60 201,150,836 56,503,770

Source: Office department of Kim Quy (2015)

65

Appendix 4: Kim Quy’s classifying standards for recruiting

employees.

Position Requirements Job description

1 Guardians

Hardworking, careful,

dedicated.

Good physical condition.

Able to work overnight.

Protecting company’s

properties.

Observing people getting

in or out of company.

Checking workers’

appearances.

2

Employees

responsible for

odd jobs

Hardworking, dedicated,

careful.

Able to work in toxic

environments

Cleaning the office and

factory.

3 The Cooks

Hardworking, dedicated,

careful.

Good physical condition.

Responsible for lunch of

all employees.

4

Warehouse-

keepers and

treasurers

Hardworking, dedicated,

careful.

One year experience at the

same position.

Managing warehouse

input and output

Responsible to deliver

and store uniforms, tools,

machines.

5 Sewing

workers

Hardworking, dedicated,

careful.

Able to work with sewing

Interacting with machines

Sewing, cutting,

finishing, packaging

66

machines

Educated by the company or

having past experience at the

same position

Working in toxic, dangerous

environments

products

6 Technicians

Hardworking, dedicated,

careful.

One year past experience at

the same position

Understanding machines and

the way products are made

Graduated from college

Working in toxic, dangerous

environments

Sewing sampling

products

Instructing workers

7

Group leaders,

vice group

leaders

Hardworking, trustworthy,

dedicated, careful.

One year past experience

working for company

Working in toxic, dangerous

environments

Managing workers in the

group

Responsible for the

quantity and quality of

products manufactured by

the group

Instructing, assigning

tasks to workers

67

8 Foremen/

Forewomen

Hardworking, trustworthy,

dedicated, careful.

One year past experience

working for company

Working in toxic, dangerous

environments

Good management skill

One year past experience as

group leaders

Managing all groups in a

shift

Responsible for the

quantity and quality

9

Human

resource

management

officers

Hardworking, trustworthy,

dedicated, careful.

Graduated from college at the

related major

Able to use related software

program

Fluent at Microsoft office

Recruiting, establishing

pay structure

Human resource planning

10

Organizational

planning

officers

Hardworking, trustworthy,

dedicated, careful.

Graduated from college at the

related major

Able to use related software

program

Fluent at Microsoft office

Responsible for

organizational planning

11 Accountants Hardworking, trustworthy,

dedicated, careful.

Responsible for

company’s accounting

68

Source: Office department of Kim Quy (2015)

Graduated from college at the

related major

Able to use related software

program

Fluent at Microsoft office

program

books

Recording transactions

Reporting to auditor

12 Medical

workers

Graduated from medical major

at a college

Responsible for workers;

health care

12

Head and vice

head of a

department

Three years past experience as

the officer.

Good management skill

Able to use related software

program

Responsible for

managing his/her

department

Report to director every

month

13 Director Establishing the company Administering the

company’s activities