Establishing a new pay structure to improve employee engagement at Kim Quy Limited Liability company

FOREIGN TRADE UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION -*** 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 Research background: 1.2 Research objectives 1.3 Research questions 1.4 Scope of research 1.5 Structure of the thesis: CHAPTER 2: LITERATURE REVIEW 2.1 Overview 2.2 Definitions of a pay structure 2.3 The role of pay structure 2.3.1 Improving employee engagement and attracting talents 2.3.2 Motivating and boosting individual and group performance 2.4 Factors affecting pay structure 2.4.1 Legal requirements 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 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 i 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 ii LIST OF ABBREVIATION ESOP: Employee stock ownership plan Kim Quy Co., Ltd: Kim Quy Limited Liability Company iii 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 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 iv 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 their performance is satisfactory to the employer However, the predictors of low turnover may sometimes differ than those of high turnover Aside from the forementioned 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 5.1.1.2 Replacing the experience-based pay system The system which is suggested by the researcher is merit pay system or performancebased 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: 54  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 55  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 56 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 57 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, to 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 58 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 59 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 60 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 61 Appendix 1: The first part of the survey Questionnaire Are you often presented for work? Never Rarely Often Usually Always Index 0% 14% 12% 54% 20% 0.76 15% 2% 4% 10% 71% 0.852 77% 3% 8% 12% 0% 0.31 Can your monthly income afford your family’s expenses? Do you often stay late to work for a bonus? Source: Office department of Kim Quy (2015) 62 Appendix 2: The second part of the survey Questionnaire No Yes Index 19% 81% 0.905 33% 67% 0.825 55% 45% 0.725 24% 76% 0.88 26% 74% 0.87 32% 68% 0.84 0% 100% 6% 94% 0.97 53% 47% 0.735 Have you ever denied a substitute job with similar salary? Are company’s subsidies demanding? Do you often get a pay rise? Do you want to work here for a long period of time? If the company suffers losses, will you stay? Do you love the job? Does the company pay salary on time? Do you like bank transfer more than direct payment? If a nearby factory goes on strike for a pay rise, will you the same? Source: Office department at Kim Quy (2015) 63 Appendix 3: Kim Quy’s financial statement in 2013 and 2014 (unit: VND) Account Code Sales and Service Revenue Revenue deductions Net Sales Revenue and Service 10 2013 2014 10,163,809,772 16,789,981,000 10,163,809,772 16,789,981,000 revenue(10 = - ) 4.Cost of goods sold 11 8,550,786,550 15,104,827,226 Gross profit (20 = 10 - 11) 20 1,613,023,222 1,685,153,774 Financial revenue 21 Financial cost 22 186,804,000 413,675,620 Interest expenses 23 186,804,000 413,675,620 Sales expenses 24 9.Organizing expenses 25 1,180,458,677 1,203,692,834 245,760,545 67,785,320 5,678,000 7,553,040 5,678,000 7,553,040 251,438,545 75,338,360 50,287,709 18,834,590 201,150,836 56,503,770 10 Net sales profit (30 = 20 + (21 30 - 22) - (24 + 25)) 11 Other revenue 31 12 Other expenses 32 13 Other profit (40 = 31 - 32) 40 14 Total profit before taxes (50 = 50 30 + 40) 15 Current business income tax 51 charge 16 Property tax deferred 52 17 Profit after taxes (60 = 50 - 51 60 - 52) Source: Office department of Kim Quy (2015) 64 Appendix 4: Kim Quy’s classifying standards for recruiting employees Position Requirements Job description Protecting company’s Guardians Hardworking, careful, properties dedicated Observing people getting Good physical condition in or out of company Able to work overnight Checking workers’ appearances Employees Hardworking, dedicated, responsible for careful odd jobs Able to work in toxic Cleaning the office and factory environments Hardworking, dedicated, The Cooks careful Good physical condition Warehouse4 keepers and treasurers Responsible for lunch of all employees Hardworking, dedicated, Managing warehouse careful input and output One year experience at the Responsible to deliver same position and store uniforms, tools, machines Sewing workers Hardworking, dedicated, Interacting with machines careful Sewing, cutting, Able to work with sewing finishing, packaging 65 machines products Educated by the company or having past experience at the same position Working in toxic, dangerous environments Hardworking, dedicated, careful Technicians One year past experience at Sewing sampling the same position products Understanding machines and Instructing workers the way products are made Graduated from college Working in toxic, dangerous environments Managing workers in the Group leaders, vice group leaders Hardworking, trustworthy, group dedicated, careful Responsible for the One year past experience quantity and quality of working for company products manufactured by Working in toxic, dangerous the group environments Instructing, assigning tasks to workers 66 Hardworking, trustworthy, dedicated, careful One year past experience Foremen/ Forewomen working for company Working in toxic, dangerous environments Good management skill Managing all groups in a shift Responsible for the quantity and quality One year past experience as group leaders Hardworking, trustworthy, Human resource management officers dedicated, careful Graduated from college at the Recruiting, establishing related major pay structure Able to use related software Human resource planning program Fluent at Microsoft office Hardworking, trustworthy, dedicated, careful 10 Organizational Graduated from college at the planning related major officers Able to use related software Responsible for organizational planning program Fluent at Microsoft office 11 Accountants Hardworking, trustworthy, Responsible for dedicated, careful company’s accounting 67 Graduated from college at the books related major Recording transactions Able to use related software Reporting to auditor program Fluent at Microsoft office program 12 Medical Graduated from medical major Responsible for workers; workers at a college health care Three years past experience as Head and vice 12 head of a department 13 Director the officer Good management skill Able to use related software program Establishing the company Source: Office department of Kim Quy (2015) 68 Responsible for managing his/her department Report to director every month Administering the company’s activities ... to the readers also, whose feedback will help much in improving the thesis Hanoi, April 2013 Chu Quoc Cong i ABSTRACT The purpose of the thesis is to evaluate the pay structure and discuss the... 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... 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