Compensation for improving employee performance of ACB Bank

In pursuit of deeper understanding about some situation of human resource management in general, the author would like to investigate further into compensation system in Asia Commercial

TABLE OF CONTENTS

TABLE OF CONTENTS i

LIST OF ABBREVIATIONS iii

LIST OF TABLES AND FIGURES iv

INTRODUCTION 1

CHAPTER 1 LITERATURE REVIEW 3

1.1 Overview of Human Resource Management 3

1.1.1 Definition of Human Resource Management 3

1.1.2 Roles of human resources management 4

1.2 Definition of performance management 6

1.3 Overview of Compensation 7

1.3.1 Definition of compensation 7

1.3.2 The role of compensation on employee performance 8

1.3.3 Structure of Compensation 9

1.4 Link between compensation, performance and business outcome 20

CHAPTER 2 THE SITUATION OF COMPENSATION AT ACB BANK 25

2.1 Introduction of the company 25

2.1.1 Establishement and Development of ACB bank 25

2.1.2 Business scope of ACB bank 26

2.1.3 Business results of ACB bank in recent years 27

2.1.4 Organizational structure of ACB bank 30

2.2 Assessment of compensation policies in ACB Bank 36

2.2.1 Financial Compensation 37

2.2.2 Non financial compensation 42

2.3 The impact of compensation at ACB bank 43

2.3.1 Strengths and weaknesses 43

2.3.2 Opportunities and challenges 45

2.3.3 Analyzing the impact of compensation policies on employee’s performance 48

CHAPTER 3 DISCUSSION AND RECOMMENDATION FOR ACB Bank Vietnam 51

3.1 Development plan of ACB bank 51

3.1.1 Business plan 51

3.1.2 Human resource plan 53

3.2 Recommendations 54

3.2.1 Improving employee satisfaction with Pay 54

3.2.2 Diversifying forms of compensation 55

3.2.3 Improving employee satisfaction with Opportunities for promotion and training 56

3.2.4 Completing job description 57

3.3 Lesson learned from the development countries 58

3.3.1 Lessons from the US 58

3.3.2 Lessons from Japan: 61

CONCLUSION 63

REFERENCES 64

APPENDIX 1 69

APPENDIX 2 70

APPENDIX 3 71

LIST OF ABBREVIATIONS

ACB Vietnam Vietnam Asia Commercial Joint Stock Bank

ACB Phan Chu

Trinh

Vietnam Asia Commercial Joint Stock Bank – Phan Chu Trinh branch

BVPS Book value of equity per share

P/E Price to Earnings ratio

LIST OF TABLES AND FIGURES

Table 1.1:Basic approaches to performance measurement 7

Table 1.2: Financial and non-financial compensation 10

Table 2.1Business results of ACB bank in recent years 28

Figure 1.1: Human resource management pratices 5

Figure 1.2:Maslow's hierarchy of needs 16

Figure 1.3 : 3 components of Vroom‘s Expentancy theory 18

Figure 2.1: Organizational Chart 30

Figure 2.2:Labor structure by gender 34

Figure 2.3: Labor structure by qualifications 34

Figure 2.4:Labor structure by age 35

INTRODUCTION

This report is submitted as mandatory requirements for the graduate course In pursuit of deeper understanding about some situation of human resource management in general, the author would like to investigate further into compensation system in Asia Commercial Joint Stock Bank

Human resource is one of the most important things which contribute to the success of an organisation An organisation cannot build a good team of working professionals without good human resources People are always the key to success

in any organization It can only function effectively when its employees perform their job well, constantly develop their ability to work and try their best for overall development of the company To have a high quality workforce, the organization must ensure the implementation of good human resource management, organizatinal strategy from reasonable recruitment, work assignment, performance evaluation and remuneration policies

The key functions of the Human Resources Management (HRM) department include recruiting people, training them, performance appraisals, motivating employees as well as workplace communication, workplace safety,etc Besides this, compensation plays an important role How to evaluate the performance of the staff depends on compensation policies and the way an enterprise motivates its employees An effective compensation is critical to company‘s business success

Although businesses are conscious of the importance of corporate governance and human resource development but not yet successfully conducted by improper methods, no form, a lack of system and synchronism with related activities within the organization

In fact, many firms, especially state-owned companies, have not been fully aware of the important role of human resource as well as compensation, which lead

to lack of effectiveness and efficiency in human resource management and lost of talents They do not go in the right direction or they are reluctant to change the policies which is no longer appropriate This issue inspires the author to choose the

topic: ―Compensation for improving employee performance of ACB Bank ‖

This paper is broken down into three chapters, except the Introduction and Conclusion, which are listed below:

CHAPTER 1 is the literature review about compensation, CHAPTER 2 focus

on the situation of compensation at ACB bank and CHAPTER 3 is the discussion

and recommendation for ACB bank In this report, the writer want to tackle two big problems Firstly, the author will review general knowledge about some basic definitions and theories of compensation to provide an overview for readers Secondly, this paper will focus on the case of ACB bank to describe and analyse the policies of improving employee performance in this bank After that, the author hope to make a small contribution to find out some solutions for future development

of ACB bank

Due some limitation of time and knowledge, mistakes and faults are inevitable

in my report Consequently, the author is looking forward to any feedbacks to develop the topic as well as pratical experience human resource management in the future

The author would like thank to my supervisor, Ms Duong Thi Hoai Nhung, MBA for her supervision for my dissertation Without her valuable guidance and advices, the writer would never have been able to complete this report The author would like to express the appreciation for the staff of ACB Bank - Phan Chu Trinh, Hanoi branch, who gave me the opportunity to work with and offer me helpful support during the last 10 weeks of my internship

CHAPTER 1 LITERATURE REVIEW

1.1 Overview of Human Resource Management

1.1.1 Definition of Human Resource Management

Until now, there are numerous perspectives of Human Resource Management

However, people usually use four main definitions:

Human Resource Management as ―the policies, practices, and systems that

influence employees’ behavior, attitudes, performance The material also denotes that the concept of “Human Resource Management” implies that employees are resources of the employers” (Raymond A.Noe, et al., 2010)

Human Resource Management is also described as ―designing management

system to ensure that human talent is used effectively and efficiently to accomplish organizational goals‖ (Mathis and Jackson, 2008)

Besides that, Edwin Flippo, a famous personnel management author, defined

that Human Resource Management is ―planning, organizing, directing, controlling

of procurement, development, compensation, integration, maintenance and separation of human resources to the end that individual, organizational and social objectives are achieved‖.(Edwin B Flippo, 1979)

According to Michael Amstrong, Human Resource Management is ―the

strategic and coherent approach to the management of an organization’s most value asset – the people working there who individually and collectively contribute

to the achievement of the objective of the business” (Armstrong, 2012)

In conclusion, the similarity between the four perspectives about Human Resource Management is that how to use human resources most effectively in order

to reach organizational targets

1.1.2 Roles of human resources management

For years, HRM was not linked to corporate profit because organization only focused on current performance and HR managers did not have a strategic perspective Executives categorized HRM in traditional manner, which focused on short-term results, emphasized on controlling the rules, policies, and position power

Recognizing the importance of people has made HRM as a major player in developing strategic plans HRM strategies must reflect the organization‘s strategy regarding people, profit and effectiveness

HRM influences business effectiveness It helps the organization reach goals through providing trained, motivated employees, employing workforce skills/abilities efficiently, increasing satisfaction, self-actualization, quality of work life, communicating HRM policies to all employees, maintaining ethical policies, socially responsible behavior, and managing change to the mutual advantage of individuals, groups, the enterprise, and the public

Many companies refer to HRM as involving ―people practices.‖ (Raymond A.Noe et al., 2011) There are eight important HRM practices that are considered the foundation for company performance: analyzing work and designing jobs, human resource planning (determining how many employees with specific knowledge and skills are needed), recruiting (attracting potential employees), selection (choosing employees), training and development (teaching employee how

to performs their jobs and preparing them for the future), performance management (evaluating their performance), compensation (rewarding employees), and employee relations (creating a positive work environment)

To get things done through the subordinates, a manager must plan ahead Planning is necessary to determine the goals of the organisation and lay down policies and procedures to reach the goals For a human resource manager, planning means the determination of personnel programs that will contribute to the goals of the enterprise, i.e., anticipating vacancies, planning job requirements, job descriptions and determination of the sources of recruitment Once the human

resource manager has established objectives and developed plans and programs to reach them, he must design and develop organisation structure to carry out the operations In other words, the manager has to put the plan into reality To encourage people to work effectively, the manager should guide and motivate as well as help them to solve conflicts To make sure that subordinates go into right way and comply with plans, the manager must keep his eyes on employees‘ performance to evaluate their results, give feedback and decide on performance appraisal

These practices which give support to organisation‘s stategy are given below:

Figure 1.1: Human resource management pratices

(Source: Raymond A.Noe, et al., 2011, p.2)

As depicted in the Figure 1.1, HRM should begin with analysing and designing specific work to decide how many vacancies should be filled and which specific skills and knowledge are needed (HR planning) After that, HR manager thinks of the way to attract potential candidates (Recruiting) and build up criteria to select right people (Selection) Then, employees are taught how to perform their jobs well to reach organisation‘s goals HR manager also consider the way to mativate employees and manage their performance as well as create a good relationship among employees, between employee and manager

1.2 Definition of performance management

Performance management is the systematic process by which an agency involves its employees, as individuals and members of a group, in improving organizational effectiveness in the accomplishment of agency mission and goals The Performance Management includes 3 stages which are Defining performance, Measuring performance, and Feeding back performance information

In the first stage, based on the job analysis, organizations specifies which aspects of performance are relevant to the organization Then in the next stage, they conduct performance appraisals to measure relevant aspects of performance Finally, through performance feedback sessions, managers give employees information about their performance so as they can adjust their behavior to meet the organization‘s goal

The Performance Management meets 3 broad purposes: Strategic purpose, Administrative purpose, and Developmental purpose Firstly, It is said that effective performance management helps the organization achieve its business objective Beside that, effective performance management enables organization to take corrective action to employees such as training, incentives or discipline Secondly, performance management provides information and support organization in making decision related to salary, benefits, recognition programs, employee retention, termination for poor behavior, and hiring or layoffs Thirdly, performance management helps organization to set up basis for developing employees‘ knowledge and skills

To manage employees‘ performance effectively, organization should assess 5 following main criteria:

 Fit with strategy which means that organization ensure employee behavior and attitudes in working support the organization‘s strategy, goals and culture

 Validity: this criterion refer to whether the appraisal measures all the relevant aspect of performance and omits irrelevant aspects of performance

 Reliability: the organization should ensure the consistency of the results when more than 1 person measures performance

 Acceptability: a measure must meet the practical standard of being acceptable to people who use it

 Specific feedback: organization should give specific performance assesment information to employees to help individuals to develop best

People use 5 main methods to manage employees‘ performance The table below present assessment of each method based on criteria:

Table 1.1:Basic approaches to performance measurement

(Source: R.A Noe, et al., 2011, p.275)

1.3 Overview of Compensation

1.3.1 Definition of compensation

Beside the important role of recruitment and selection process, compensation is another factor that should not be ignored if a company really want to attract and retain their talented workforce According to R Wayne Mondy (2010),

―compensation is the total of all rewards provided to employees in return for their

services‖ Compensation can be defined as the total amount of the monetary and

non-monetary pay provided to an employee by an organization in return for their performance as required Compensation scheme can be adjusted based on employees contributions and accomplishments; the availability of employees with required skills in the marketplace to decide whether they are scarcie or not; the expectation of the organization to attract and retain a particular employee for the value they receive from employee‘s contribution to reinforce the employment relationship, and the profitability of the company or the funds available in a non-profit or public sector setting, and thus, the ability of an employer to pay market-rate compensation The market research may be also reference for making decision

on what and how to compensate

1.3.2 The role of compensation on employee performance

The purpose of compensation is primarily attract and keep skilled labor It also encourages staff to act in accordance with all stakeholders‘s desire and thus, reduce conflicts of interests within organizations The compensation packages a business offers to employees affects the company‘s recruitment rate, retention rate and employee satisfaction Several federal laws affect the compensation that businesses offer A business owner should understand the importance of compensation and the prevailing laws to remain competitive in the market

The compensation packages that businesses offer to employees play an important role in the company‘s ability to attract top talent as job candidates Top-performing employees greatly impact the competitiveness and productivity of a small business The specific components of an attractive compensation package vary per employee A high base salary may attract a top job candidate that is 20-something and single, while a job candidate with a family may consider a flexible work schedule extremely important Recruiters should research a job candidate's current or prior salary and benefits to get an idea of what is important to the candidate

Compensation often impacts an employee‘s motivation and job satisfaction, although it is not the only factor According to an article written by Mae Lon Ding

of Personnel Systems Associates, compensation systems positively impact a large percentage of workers' performances Many employees feel motivated to help their companies succeed if the employer shares its profits with employees, such as with bonuses or profit-sharing plans The greatest impact of money on productivity and performance is in jobs where performance is directly related to compensation For example, the knowledge of receiving a bonus after achieving a certain sales quota will likely motivate a salesperson to increase productivity

Retaining productive employees is critical to running a successful business Retaining employees saves companies money in training costs and helps maintain

an efficient and knowledgeable workforce Health insurance and retirement packages are benefits that many employees desire from their employers Companies that offer these benefits have a much better chance of retaining workers than businesses that fail to offer benefit packages Other ways to retain employees is through regular promotions, which not only provide an employee with a higher base salary, but also the ability to take on more responsibility in the workplace

Certain laws regulate the compensation and wages small businesses must offer employees The Fair Labor Standards Act regulates the federal minimum wage, child labor, overtime wages and equal pay The Equal Pay Act prohibits employers from basing compensation on an employee‘s gender Under the Equal Pay Act, a company may still base compensation on seniority or merit Managers of small businesses must keep their companies in compliance with all laws Failing to comply with compensation laws can result in a company facing penalties

1.3.3 Structure of Compensation

In this section, the author will specify some categories that directly relate to the term ―compensation‖: financial compensation, non-financial compensation and work motivation In financial compensation, the author will cover two smaller categories: direct financial compensation and indirect financial compensation The

following table will show out some kinds of compensation included in financial compensation and non-financial compensation:

Table 1.2: Financial and non-financial compensation

POSITION

WORK ENVIRONMENT Equitable wages

Social Security Benefits:

Retirement plans, Employment insurance, Worker Compensation, Educational services, Employee services…

Paid Absences:

Vacations, Holidays, Sick Leave, Educational Leave, Jury Duty, Compassionate Leave

Interesting Duties and Responsibilities

Challenges

Authority

Autonomy

Opportunity for Recognition

Feeling of Achievement

Advancement Opportunity

Fair and Consistent Practices and Policies

Competent Supervision

Fun and Effective Co-workers

Comfortable and Safe Working Environment

Flexible Scheduling

Alternative Working Arrangements

Modified Retirement

Source: HR Council, 2015

1.3.3.1 Financial compensation

 Direct financial compensation

The most well-recognized form of compensation, and probably the first type of compensation that most workers look forward to, is direct compensation Direct compensation is the money directly paid to employees in exchange for their labor Direct compensation includes wages, salaries, bonuses, tips and commissions provided at regular and consistent intervals (Shawn Grimsley, 2014)

For many people who want to support their family or satisfy their needs of accomodation, vehicles or some necessities of life, the first reason why they work is salary Salary is a fixed amount of money or compensation paid to an employee by

an employer in exchange for their work performance The salary system is included

in pay structure which can have several grades or levels, career bands, or job families with each having a minimum or maximum salary associated In Viet Nam, there are some methods for calculating the salary For example, if the salary is based on working days, the general formula is:

Salary = (Base pay + allowances)/total workdays of a month x number of real working days

One of the most common ways to motivate employees is changing the base pay Base pay is a fixed regular payment made to an employee in exchange for performance of the duties and responsibilities of their role (Shawn Grimsley, 2014) When an employee receives an increase to their base pay, it is considered a pay increase There are various reasons and methods for determining an increase, but the common factor is that the increase changes the level of ongoing base pay When the cost of living increases, the company intends to increase the base pay by a set of percentage which accounts for this increase as a motivator for its employees Moreover, the change in pay structure can derive from a market adjustment following a compensation review against pre-established criteria Market adjustments are typically made following the receipt of market survey data This data is usually received and evaluated towards the end of either your fiscal or calendar year Organizations will evaluate their salaries against market data and, if required, adjust base salaries for roles that are below the market Or when a

company decides on advancement of an employee to a higher position, then it is called a promotional increase Promotion is usually based on availability of opportunities and preparedness of employees to advance The increase in base pay can result from a merit increase which are awarded to recognize employees‘ contribution and to compensate them for their high level of performance

A direct financial compensation can take the form of bonus pay which is compensation over and above the amount of pay specified as wages or salary and it

is only distributed as the organization is able to pay or as outlined in an employment contract Bonus pay is used by many organizations to improve employee morale, motivation, and productivity or as a thank you to employees who achieve a

significant goal (HR Council for the Nonprofit Sector)

When compensation is based on volume or some form of performance, this is known as commission based remuneration Other terms used include piecework or piecemeal Many industries used this type of remuneration to get a minimum standard of production in exchange for compensation It is used to shift risk from the employer to the employee There are two methods to calculate commission One is based on volume of services and the other is based on sales

 Indirect Financial Compensation

Another tool available to a company is indirect financial compensation Indirect compensation is a benefit given to an employee that has financial value, but is not a direct monetary payment (R Wayne Mondy, 2010) It is often referred to as a noncash benefit In certain circumstances, these noncash benefits may be more valuable to an employee than a high salary or wage Indirect financial compensation including all financial rewards that are not included in direct compensation and can

be understood to form part of the social contract between the employer and employee such as benefits, leaves, retirement plans, education, and employee services Such benefits may include Insurance plans, which may in turn include Life, Supplementary Health, Vision, Dental, etc., Indirect financial compensation can also include Social Security benefits, Retirement Plans, Employee Insurance Workers compensations, and can also include paid absence like vacations, sick leaves, holiday leaves, educational leave

Medical insurance coverage is often a coveted benefit Employer-sponsored medical insurance may be the only way an employee with a sick spouse can afford health insurance and offers quite an inducement to come aboard and stay with the company (ibid)

Retirement plans can also offer an attractive incentive If a company offers a defined benefit plan, it's promising to pay a certain amount of retirement benefits to

an employee upon the employee's retirement You can think of it like a sector social security payment - a set amount each month for life (Shawn Grimsley, 2014)

private-Stock options and profit sharing programs are not only an incentive for employees to stay but also provide an incentive for employees to be more productive because employees share in the gains An employee stock option is the right to buy company stock at a certain price during a certain period of time (ibid)

1.3.3.2 Non-financial compensation

The compensation scheme of a company not only cover monetary rewards In fact, to gain employees‘ satisfaction and inspire them to greater efforts, an organization need to use some intangible motivators rather than pay base According to the McKinsey Journal, for individuals who are relatively satisfied with their salary, it is the non-financial rewards that tend to be more effective in contributing to long-term employee engagement Non-financial rewards refer to career development and advancement opportunities, opportunities for recognition,

as well as work environment and conditions When the competition for talents becomes tougher, the emphasis on non-financial rewards should be reinforced An organization should find new ways to encourage its employees and retain them at work Effective non-financial incentives for employees reach out and touch the emotions to make the employee feel welcomed, appreciated, and valued Winning a praise from boss helps an employee to realize his important role in organization which results in better performance and loyalty

Non-financial rewards can have an even more substantial impact on employee satisfaction and motivation than traditional financial rewards An employee can

choose a company for high salary but he can leave it for other reasons such as work climate, career development, recognition and other non-financial issues Even well-compensated employees may leave a company if dissatisfied with these aspects Companies with excellent non-financial incentives can attract, motivate and retain talented people (Joanne Sammer, 2011)

When a company find it difficult to increase base pay to mativate its employees,

it will consider non-financial rewards effective tools to retain its employees The importance of these issues to employees suggests that non-financial rewards should

be a part of any company's plan regardless of the economic situation

Gareth, work mativation is the psychological forces within a person that determine

the direction of a person‘s behavior in an organization, a person‘s level of effort,

and a person‘s level of persistence in the face of obstacles In this section, the author

would like to review some typical theories directly related to work motivation, including intrinsic versus extrinsic motivators, Maslow‘s Hierarchy of Needs and Equity theory

 Intrinsic versus extrinsic motivators:

For any business, motivating employees is an important factor, because it derives the inner force that creates the difference between failure and success That means, what motivates one person in business won‘t necessarily work for the other.(Schacter et al., 2011) Motivation is the methodology that leads to a win-win situation between the organization and the employees

Motivation can derive from external or internal factors, which results in intrinsic and extrinsic motivators (Joseph J Martocchio, 2013)

Intrinsic motivation is something that you have to offer yourself and is driven

by personal interest or enjoyment in the work itself

Because intrinsic motivation exists within the individual, achieving it does not depend on others Some people believe that the most powerful rewards come from inside a person In fact, Frederick Herzberg, who is one of the leading theorists

of workplace motivation, found intrinsic rewards to be much stronger than financial rewards in increasing employee motivation It does not mean that employees think little of monetary rewards, it just means they need something rather than money to push themselves Intrinsic rewards include things such as: personal achievement, professional growth, sense of pleasure and accomplishment To support employees with intrinsic motivators, an organization should provide employees with meaningful works, allow them to make choices through a high level of autonomy, provide opportunities for employees to show their competence in areas of expertise, offer them more opportunities to reward themselves or help them to feel like their contribution matter

Unlike intrinsic motivation that is self-administered, extrinsic motivation external to individual and is typically offered by a manager who has power and authority to give rewards Extrinsic motivation which comes from outside an individual is based on tangible rewards Extrinsic rewards are usually financial in nature such as a raise in salary, a bonus for good performance or a verbal praise These material rewards can be motivating to employees because pay, time off, advancement and recognition are important to most workers Providing employees with extrinsic rewards is relatively straightforward and usually built into performance review or individual projects They are particularly useful in short-term for motivating employees to work toward one specific goal (Kenneth Thomas, 2009)

 Maslow’s Hierarchy of Needs:

Abraham Maslow, organized five major type of human needs into a hierarchy The need hierarchy illustrates Maslow‘s conception of people satisfying their needs

in a specific order from bottom to top The needs, in ascendingorder are elaborated

in the table below:

Figure 1.2:Maslow's hierarchy of needs

Source: Maslow, 1943-1954

The lowest levels of the pyramid are made up of the most basic needs, while the more complex needs are located at the top of the pyramid Needs at the bottom of the pyramid are basic physical requirements including the need for food, water, sleep, and warmth Once these lower-level needs have been met, people can move

on to the next level of needs

Douglas McGregor (1960) indicates that ―Man is a wanting animal-as soon as one of his need is satisfied, another appears in its place This process is unending continue from birth to death‖ Human needs are organized in a series of levels – a hierarchy of importance A satisfied is not a motivator of behavior When man‘s physiological needs are satisfied and he is no longer fearful about his physical welfare, his social needs become important motivator of behavior

According to Herzberg (1959), satisfaction was caused by what he called

"motivators" These factors included achievement, recognition, work itself,

responsibility, advancement, and growth On the contrary, dissatisfaction was caused by problems with factors that Herzberg called "hygiene factors" These factors included company policy and administration, supervision, relationship with supervisor, work conditions, salary, relationships with peers, personal life, relationships with subordinates, status, and security Herzberg also reported that the absence of motivators will not lead to dissatisfaction On the other hand, job satisfaction can't be improved by improving any of the hygiene factors, but by improving motivators

Generally, a person beginning his career will be very concerned with physiological needs such as adequate wages and stable income and security needs such as benefits and a safe working environment When these basic needs have already been satisfied, the organization should motivate its employees with higher levels like self-esteem and self-actualization which are tied to an employee‘s image

of himself and his desire for the respect and recognition of others as well as opportunities for individual growth and development Employee needs change with time This means that managers must continually adapt to employees‘ changing needs if they want to keep their workforce motivated

 Expectancy theory:

"Expectancy theory proposes that work motivation is dependent upon the perceived association between performance and outcomes and individuals modify their behavior based on their calculation of anticipated outcomes" (Chen & Fang, 2008) This has a practical and positive benefit of improving motivation because it can, and has, helped leaders create motivational programs in the workplace Expectancy theory is classified as a process theory of motivation because it emphasizes individual perceptions of the environment and subsequent interactions arising as a consequence of personal expectations

The Expectancy Theory of Motivation was suggested by Victor H Vroom, an international expert on leadership and decision making He was named to the original board of officers of the Yale School of Management when it was founded

in 1976 Vroom has focused much of his research on dealing with motivation and leadership within an organization

Vroom theorized that the source of motivation in Expectancy Theory is a

"multiplicative function of valence, instrumentality and expectancy." (Stecher & Rosse, 2007) He suggested that "people consciously chose a particular course of action, based upon perceptions, attitudes, and beliefs as a consequence of their desires to enhance pleasure and avoid pain" (Vroom, 1964)

Expectancy Theory is based on an employee‘s beliefs:

- Valence - refers to emotional orientations which people hold with respect to outcomes (rewards) – the value the person attaches to first and second order outcomes

- Expectancy – refers to employees‘ different expectations and levels of confidence about what they are capable of doing – the belief that effort will lead to first order outcomes

- Instrumentality – refers to the perception of employees whether they will actually receive what they desire, even if it has been promised by a manager – the perceived link between first order and second order outcomes"

Vroom concludes that the force of motivation in an employee can be calculated

using the formula: Motivation = Valence*Expectancy*Instrumentality

Figure 1.3 : Three components of Vroom’s Expentancy theory

Source: Sousa., n.d

 Equity theory:

First developed in the early 1960s by behavioural psychologist John S Adams, equity theory is concerned with defining and measuring the relational satisfaction of employees Adams suggested that employees try to maintain a balance between

what they give to an organisation against what they receive, and base satisfaction with their own balance on perceptions of the same balance in colleagues Equity theory is based on a principle that peoples' actions and motivations are guided by fairness and that discrepancies in this fairness in the workplace will spur them to try and redress it According to Carrell and Dittrich (1978), p202-210, ―employees who perceive inequity will seek to reduce it, either by distorting inputs and/or outcomes in their own minds ("cognitive distortion"), directly altering inputs and/or outcomes, or leaving the organization.‖

Equity Theory proposes that a person's motivation is based on what he or she considers to be fair when compared to others (Redmond, 2010) When applied to the workplace, Equity Theory focuses on an employee's work-compensation relationship or "exchange relationship" as well as that employee's attempt to minimize any sense of unfairness that might result The equity theory goes on to evaluate the outcome-to-input ratio comparison process and the cognitive and behavioral mechanisms to restore perceptions of equity (Stecher & Rosse, 2007) There is evidence that supports the theory's prediction that people respond to inequity by reducing work effort or increase effort to match the outcome (Stecher & Rosse, 2007) Over time, employees will be fed up with their job and they will quit

evaluate the compensation scheme of ACB bank and suggest some practical solutions for future development of this branch

1.3.3.4 Corporate culture

In today‘s economy, creating and maintaining a great company culture is necessary (Laurie Holsman, 2015) Having a good image on people‘s mind will not only help you to keep current employees, but it will also bring new employees to your organization A job seeker not only expect a good position with high salary, but he also look for a company with good brand as well as distinguished culture Company culture includes everything from the mission and values, to goals and expectations, to the work environment itself It may also incorporate fun things, such as social events and free food Ultimately, the core of the culture should shine through and reflect the true meaning of what the company stands for Characteristics of businesses with strong company cultures include open communication, mutual respect, integrity, positive energy, work/life balance, strong leadership, customer-focused attitude and a strong sense of trust These are things that will retain employees and draw new ones to your workforce ( David Crisp & Joanne Reid, 2007)

Today, the value of a company‘s products or services is derived mainly from knowledge-based activities such as good design, good workmanship, technological development, customer service, and logistics Thus, it is imperative to do everything possible to preserve and enhance the source and key to knowledge: the individuals who possess it Recruiting and retention are interconnected When a company is trying to ―retain‖ talent, it is in fact ―attracting‖ talent as well

Organisations with higher revenues relative to their human capital investment (i.e people productivity) and experiencing higher rates of revenue growth versus their competitors are better at talent attraction – they invest more in recruiting, and display better performance In terms of talent management, organisations with lower rates of employee absenteeism and turnover, together with a greater performance-related component in their reward display stronger revenue

productivity relative to human capital investment and grow their revenues more quickly over time than competitors

To get the most out of employees-paid-well, firms need to link firm-level performance goals with job descriptions Increasingly, job descriptions emphasize competencies or skills rather than tasks, duties and responsibilities That is old hat

to accounting, which views the CPA certification as fundamental The meaning of skills has widened, though Accounting educators increasingly emphasize competencies such as interpersonal skills (G L Sundem, 1998.)

Once jobs are linked to performance goals through job analysis, the problem becomes employee selection and motivation Selection techniques include ability tests, work samples and job tryouts along with more frequently used unstructured interview methods Motivation techniques include goal setting, incentives, job design and organizational culture Compensation in the form of promotions and merit pay is widely used and other kinds of incentives also might prove useful Most firms think in terms of senior employee pay based on incentive formulas that integrate billable hours, business developed and clients serviced, but Rosenberg points out that the trend has been toward judgmental, merit-based approaches This

is understandable if formulas fail to capture important dimensions that require compensation But equity or fairness benefits from objective measures that

are content valid, that is, that express an irrefutable link between performance and

results

Precisely a century ago, Frederick Winslow Taylor developed his scientific management system, which included factors like employee selection, training and incentives in the form of his differential piece-rate plan

Taylor (1911) emphasized the importance of a "mental revolution" that aligns employees' and managements' goals Taylor applied his scientific management system to manufacturing firms Yet in modified form, it has been foundational to the management of all kinds of work (F.W Taylor, 1911)

Taylor omitted three dimensions of analysis:

In motivating performance, accounting firms traditionally rely on what Edward Lazear and Sherwin Rosen call the tournament theory (Edward Lazear and Sherwin Rosen, 1981.) That is, the best performers are promoted to partner Since, the compensation is rich and associates have a small probability of winning a partnership, promotions serve an important motivational function As well, firms utilize merit pay and other incentives

Although employers may say that they emphasize a balanced scorecard approach to measuring results, most emphasize metrics involving financial outcomes and fewer than ten percent reward employees for employee development (S.E Jackson, et al., 2009) and argue that there are four kinds of incentives:

Four Incentive Modes

1 Recognition rewards are non-cash, public recognition of employee

achievement

2 Merit pay permanently increases base pay and typically is based on

performance appraisal

3 Incentive plans involve bonuses over base pay but no permanent adjustment

is made

4 Earnings-at-risk plans are comparable to commissions

In earnings-at-risk, employees are paid a percentage of billable hours and might receive lower than average base pay

Performance Appraisal

Performance appraisal linked to merit pay has been criticized for lacking validity, i.e., it can be subjective and not significantly related to objective performance measures W.E Deming, the noted quality expert, argues that merit pay based on performance appraisal is one of "seven deadly diseases" because managers lack both information about performance and objectivity with respect to their employees

Organizational psychologists have noted numerous threats to the validity of performance appraisal such as the halo effect, under which one employee characteristic dominates all appraisal dimensions and recency error under which behaviors displayed later in the appraisal period dominate those displayed earlier If firms are eager to link employee performance with results, careful attention needs to

be paid to the performance appraisal system It needs to link to objective output measures Supervisors need to be thoroughly trained

One technique that has a good track record is management by objectives, under which managers and their employees jointly set performance targets and employees are rewarded for achieving those targets Other approaches are essays based on the critical incidents method (CIM) CIM involves recording exceptionally good and bad examples of employee performance during the year and basing appraisals on those performance dimensions Dimensions for performance appraisal can be based

on the critical incidents method and applied to behaviorally anchored rating scales

Group vs Individual Incentives

In part because of Taylor's influence, most firms have emphasized individual incentives through promotion tournaments and merit pay Deming, though, forcefully argues for group-based incentives These can involve bonuses paid to audit teams or firm-wide productivity bonuses through variations on the Scanlon, Rucker and Improshare plans that have been implemented in manufacturing environments Profit sharing also is an important candidate for compensation

CHAPTER 2 THE SITUATION OF COMPENSATION AT

ACB BANK

2.1 Introduction of the company

2.1.1 Establishement and Development of ACB bank

ACB is one of the leading joint stock commercial bank s in Vietnam, with the branch network system nationally with 9095 employees and many various products and services ACB had 346 branches and sub-branches in 47 provinces and cities nationwide According to the number of branches/subbranches and contribution of each area to the total profit, Ho Chi Minh City, Southeast and Red River Delta are regarded as major markets of the Bank

In 1993, Asia Commercial Joint Stock bank was established, dated 19 May The founder of ACB, possessing financial strength, business knowledge, entrepreneurial experience and sharing a common business principle for ―managing the development of the enterprise in a safe and effective way‖, cemented unity in the organization

From 1996 to 2000 period, ACB became the first Vietnamese joint-stock commercial bank to issue the international credit cards of MasterCard and Visa thanks to the sponsor of IFC In 1997, ACB began working towards modern banking practices through a two-year training program on banking operations conducted by foreign bank ers and banking specialists From this comprehensive program, ACB learned to apply principles of managing a modern bank and the best practices in risk management, particularly in retail banking In 1999, ACB launched its IT modernization program; and at the end of 2001, the core banking platform named In 2000, ACB re-engineered its organizational structure in Headquarters which was trended towards business activities and support activities When Vietnam‘s stock market opened in June 2000, ACB established ACB Securities Company (ACBS), setting out the strategies to diversify its operations

In 2003, ACB applied a quality management system in accordance with ISO 9001:2000 In 2004, ACB Asset Management Company (ACBA) was established ACB stocks were listed on Hanoi Securities Trading Center in October 2006 In

2007, ACB continued its strategies to diversify operations by setting up ACB Leasing Company (ACBL) ACB also strengthened its cooperation with various partners such as Open Solutions (OSI), Microsoft and Standard Chartered Bank ; and in 2008, ACB entered cooperation with American Express and JCB In 2009, ACB completed the basic restructuring of human resources

The Strategic Directions for the period 2011 – 2015 and Vision to 2020 that ACB focus is the transformation of the bank ‘s corporate governance practice in the direction of compliance with Vietnamese rules and regulations and application of international best practices At year-end, ACB established an enterprise module data center in HCMC During the year, ACB inaugurated 45 additional branches and sub-branches

2.1.2 Business scope of ACB bank

 Main products and services:

The main activities of ACB bank are raising capital (deposits received from customers) in VND, foreign currencies and gold; using capital (providing credit, investment, venture capital partners) in Vietnam dong, foreign currencies and gold; intermediary services (making payments in local and foreign, performing treasury services, remittance and money transfer, life insurance through bank s); currency and gold trading; release and pay credit and debit cards

ACB and its subsidiaries, as a commercial banking group, offer a comprehensive array of financial services which include commercial banking , retail banking , investmentbanking , and card services

ACB‘s motto is: ―ACB, the bank for every household‖, and it is one of a few bank s that has had a clear vision to focus on retail banking since its early days and has emerged as one of the clear leaders in this segment

 Scope:

The main business activities of ACB and subsidiaries is to mobilize short, medium and long-term capital in the form of time deposits, demand deposits and certificates of deposits; receive investment funds; receive capital from domestic and overseas financial institutions; grant short, medium, and longterm loans; discount commercial paper, bonds and valuable documents; invest in securities and companies; provide settlement services to customers; deal in foreign exchange and gold; provide international settlement services, factoring, gold jewelry and fine arts trading; to act as an agent and provide consultancy services for securities investment; provide securities deposit services, corporate finance consultancy services, underwriting services, asset management services, leasing and other banking services

 Mission and vision

Commercial Banking :

- To build up the relationship with customers of target markets

- To cement the relationship with the sold customer base

- To develop the diversified products, bundled products

2.1.3 Business results of ACB bank in recent years

 Balance sheet declined sharply in 2012 but have slowly recovered

From its establishment to 2011, ACB has enjoyed steady and impressive growth From 2008 to 2011, it total assets grew at a CAGR of 38.7% By 2011, ACB ranked second interms of assets among its JSCB peers However, in 2012, total assets plunged by VND 104,711 billion (USD 4,929million), a drop of 37% The main reasons for the drop of over VND 100,000 billion (USD 4,707 million) came from

its gold business activities and mass deposit withdrawals from other credit institution By the end of 2012, deposits for domestic partners, to ensure the implementation of gold term contract trading, was reduced by VND 23,295 billion (USD 1,096 million) In addition, receivables from foreign partners regarding spot gold trading was reduced by VND 11,732 billion (USD552 million) IN 2014, the total assets, loans and deposits increased by 8%, 9% and 12% respectively

By the end of 1H2015, ACB‘s total assets reached more than 187 trillion, have risen

by approximately 4.3%, compared to the end of 2014

Table 2.1Business results of ACB bank in recent years

176,307.607 bil

166,598.989 bil

179,609.771 bil

187,311.237 bil

Source: ACB annual report (Collected by author)

 Income and profitability: on the road to recovery

ACB‘s operating income experienced a high CAGR of 21.7% during the period of 2008-2011, and then plunged in 2012 and 2013 The year of 2012 was a tough year for ACB with a net loss of VND 1,864 billion (USD88 million) in foreign currency and gold trading, leading to a drop in total operating income While operating

income declined 23.7%, operating expenses increased 35.7%, due to network expansion, leading to an even larger drop in net income of 75.6% in 2012

In 2013, net income showed signs of recovery as it increased slightly 5.4%, mainly due to its operating cost cut of 12% However, 2014 is likely another tough year for ACB, the bank has realized profit before tax of VND730.5 billion (USD34.4 million), down by 27% vis-à-vis 1H2013

However, by the end of Quarter 1/2015, profit from foreign exchange and securities trading were lower than the previous year, while profit fell 59% from foreign exchange and securities trading fell 65%

Earnings from operations reached 168 service 1Q billion, up slightly by 6.3% Profit from other operations contributed another 19 billion, up 46% compared to the same period last year

Net interest income last quarter reached 1.390 billion, up 26.7% from the same period of last year The profit of the bank increased by 12% over the same period last year.Total profit before risk provisions reached 607 billion Q1, up 24.4% yoy Provision of bank also increased 45.3% to 247 billion Profit before tax Q1 so even after tax 359 billion and 281 billion Compared to quarter 1/2014, the profit has increased by nearly 13%

Bad debt was kept under control at 2.09%, down slightly from the 2.18% thanks to the application of drastic measures in collecting debt, handling credit risks and selling debts to Vietnam Asset Management Company (VAMC) CIR was cut down

to 66%, decreasing 7% compared with that in 2012

2.1.4 Organizational structure of ACB bank

ACB Group includes the bank and its subsidiaries The bank comprises eight divisions and twelve departments at the Headquarters and 346 branches and sub-branches nationwide as of December 31, 2014 In addition, there are a number

of specialized units including Bank card Center, ACB Western Union, Telesales Center and Call Center 247

Figure 2.1: Organizational Chart

Source: Human resource department – ACB bank

Managerial structure of the bank consists of the General Meeting of Shareholders, the Board of Directors, the Supervisory Board, and the Chief Executive Officer The General Meeting of Shareholders is the decision making

GM of shareholders Shareholders

Board of Directors

External Relations DP

Planning department

Customer

EM debt

Collaterial Appraisal DP

Project

management

office

Commercial Banking Division

Financial Market Division

Risk management Division

Operations Division

Human Resource Division

Property Management Division

Branches and Sub-branches/ Subsidiaries

body of the highest authority of the Bank The Board Committees comprises Personnel Committee, Risk Committee, Credit Committee, Investment Committee and Strategy Committee.

Job description of each department

+ Manage information of development plan, plan implementation;

+ Responsible for risk management in caplital;

+ Other tasks assigned by General manager

 Accounting department:

+ Prepares and updates the accounting plan, the balance sheet and the statements of the Bank ; draws up the Bank ‘s annual budget and follows its implementation; + Keeps the books as prescribed by law, follows the smooth functioning of the accounting system and makes the necessary arrangements thereof;

+ Repares the reports of extra budgetary funds;

+ Is responsible for the fulfillment of the financial obligations of the Bank ;

+ Keeps, follows and controls the accounting records of foreign exchange transactions of the Head Office;

+ Gives instructions to the branch offices and to the bank s on the related matters

 Foreign exchange department:

+ Purchase and selling all kinds of foreign exchange and bank notes pursuant to the Law on the Protection of the Value of the Vietnamese Currency;

+ Responsible for transaction related to buying and selling in the foreign exchange and bank notes markets within the Money Markets and Treasury Department, and the transactions related to foreign exchange remittances for public sector and invisible transactions

+ Maintain the foreign exchange deposit accounts of the Vietnamese workers abroad and conducting transactions related thereto

 Computing and Marketing department:

+ Acts as intermediary in the foreign exchange and bank notes markets in order to obtain a more efficient utilization of the funds in the banking system, and operates, when necessary, in the name and on behalf of the Bank , ensuring smooth

functioning of the markets;

+ Makes arrangements in the foreign correspondent banking relationship; the sale

of government papers by ―auction‖ and ―outright sale to public‖ methods;

+ Executes the credit transactions of the Bank with the Treasury, public institutions

and the banking system;

+ Acts as the reporter of the Discount Committee of the Head Office;

 Internal control department

+ Inspects all operations of the branch and representative offices abroad to ensure that they are executed in compliance with the regulations; conducts examinations and inquiries within the limits of the powers and duties granted by the Bank s Act

and other related laws;

+ Follows and controls the transactions of the branch offices to ensure that they are

executed in accordance with the regulations;

+ Follows and audits the existence and movements of the cash and in kind values in

order to verify whether they correspond to the records; notifies the illegal activities

and important troubles concerning the security and works of the branch

 Human resource department

+ Provides proposals to the top management for setting the branch‘s personnel

policy and for its effective application;

+ Recruits the personnel suitable to the Bank ‘s needs, determines their employment

conditions and employs them in the organization according to their qualifications; + Conducts and follows the matters of all kinds pertaining to personnel;

+ Informs the employees of the regulation pertaining to personnel, personal rights,

and social security;

+ Develops an effective training system in accordance with the Bank ‘s general objective and policy as well as technological, economic and social developments

2.1.4.1 Labor structure by gender

The following chart shows the percentage of each gender in ACB bank (the

author choose ACB Phan Chu Trinh branch), in which, the number of female

accounts for 60% in total workforce while the number of male just make up the rest

of 40% These figures may indicates that this branch can attract more female than male or we can predict that the female staff at ACB bank have higher level of satisfaction in comparison with the male In fact, the difference in the number of male and female in ACB bank is linked with this of ACB bank Vietnam The total number of female in ACB bank accounts for 57% in total workforce The number

of female in accounting department and treasury department is up to 90-95% out of total number of staff Perhaps, these functions require more special skills like carefulness, meticulosity and patience which a woman usually possesses

Figure 2.2:Labor structure by gender

Source: Collected by author

2.1.4.2 Labor structure by qualifications

Figure 2.3: Labor structure by qualifications