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

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

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

Student name : Vũ Khánh Linh

Class : A1 – High Quality

Intake : K46

Supervisor : Dr Đào Thị Thu Giang

Hanoi, May 2011

TABLE OF CONTENTS

ABSTRACT 6

CHAPTER I: INTRODUCTION 7

1.1 Statement of the Problem 7

1.2 Objectives of the Study 7

1.3 Subject of the Study 8

1.4 Scope of the Study 8

1.5 Structure of the Dissertation 8

CHAPTER II: LITERATURE REVIEW 9

2.1 Overview of Salary and Wage 10

2.1.1 Definition of Salary and Wage 10

2.1.2 Roles of Salary and Wage 13

2.2 Payroll Account 13

2.2.1 Definition and Roles of Payroll 13

2.2.2 Public Payroll 14

2.2.3 Construction of a Public Payroll Account 20

2.2.3.1 Legislature regulation 20

2.2.3.2 Salary structures 21

2.3 Salary and Wages In Construction Companies 22

2.3.1 Time-based Pay 23

2.3.2 Product-based Pay 24

2.3.3 Package Contracts 27

2.3.4 Standards to Pay Structures 27

2.3.4.1 Educational backgrounds 27

2.3.4.2 Craft levels of manual workers 28

2.3.4.3 Pay levels of white-collar staff 29

2.4 Bonus Payment 29

2.4.1 Definition of Bonus 29

2.4.2 Types of Bonus 30

2.4.3 Effects of Bonus 31

2.5 Bonus Payment In Construction Companies 32

CHAPTER III: METHODOLOGY AND DATA 33

3.1 Research Approach 33

3.2 Data Collection Method 34

3.2 Research Methodology - Case Study 35

CHAPTER IV: EMPIRICAL FINDINGS 37

4.1 Overview of the Ho Chi Minh Museum Construction JSC 37

4.2 Current Payroll Systems At The HCMCJSC 46

4.2.1 Regulations on Minimum Payment at the Company 46

4.2.2 Regulations on Pay Levels, Pay Scales at the Company 48

4.2.3 Construction of the Payroll Account 55

4.2.4 Salary/Wage Payment Systems at the Company 58

4.2.4.1 Time-based pay 58

4.2.4.2 Job-based wage 61

4.2.4.3 Product-based pay 65

4.2.5 Bonus Payment at the Company 67

4.2.5.1 Allowances and welfares 68

4.2.4.2 Salary increase procedure 68

4.2.4.3 Bonuses and awards 70

4.2.6 Assessments on the Payroll System 72

4.2.6.1 Achievements 72

4.2.6.2 Limitations and Reasons 74

CHAPTER V: CONCLUSION 76

5.1 Recommendations for the Company 76

5.1.1 Improve the Performance Assessment 76

5.1.2 Improve the Time-based Pay System 77

5.1.3 Improve the Job-based Pay System 80

5.1.4 Improve the Unit Cost Standardization 82

5.1.5 Improve the Reward System 83

5.2 Limitations of the Study 86

LIST OF REFERENCES… 88

LIST OF FIGURES AND TABLES

Figure 4.1: Organizational Structure of Ho Chi Minh Museum Construction

JSC 40

Figure 4.2 Salary increase procedure 69

Table 2.1: Diagnosis Criteria for Public and Private Companies - Problem Contexts 15

Table 2.2: Alternative Decision Rules for Public and Private Problems - Bureaucratic and Contingent Action Models 16

Table 4.1: Quantity and Quality of Technical and Management Staff 41

Table 4.2: Quantity and Quality of Blue-Collar Workers39 42

Table 4.3: Financial Results of the Company from 2007 to 2009 42

Table 4.4: Performance-indicated Ratios 44

Table 4.5: Pay Table for Members of the Board 46

Table 4.6: Pay Table for Executive Director, Deputy Directors, and Chief Accountant 48

Table 4.7: Pay Table for Professional / Departmental Staff 49

Table 4.8: Status allowances for Head of Department, Deputy Head of Department 50

Table 4.9: Pay table for directly in-charge construction workers 53

Table 4.10: Report of salary in the years from 2007 to 2009 56

Table 4.11: Reward – Bonus Funds from 2007 to 2009 57

Table 4.12: Job-based wage contract 61

Table 4.13: Contracted team payroll 63 Table 4.14: Output quota and unit cost of 1m2 beam forms 66

Table 4.15: Employees’ Incomes from 2007 – 2009 73

This study is on the regime of salary, wage and bonus payment at the Ho Chi Minh Museum Construction JSC It first aims to provide insights on salary, wage and bonus, their theoretic definitions and roles as important components

of an employee compensation plan Subsequently, it will review the

applications, achievements and limitations of the regime at Ho Chi Minh Mausoleum Building JSC, as an illustration for the academic background Afterwards, suggestions and solutions will be given to improve the employee payment regime at the company

In general, the study can contribute to the systemization and improvement of the salary, wage and bonus payment regime at public/State-owned

organizations Hopefully, better systems at many other enterprises can be made, with adjustments to the individual circumstance of each enterprise

Chapter I: INTRODUCTION

Payment to the employees – Salary, wage and bonus – always receivesgreat concern because of its social-economic significance For the employees,these payments are important because they could be their sole incomes, tosupport their whole families’ lives For every business, it accumulates in theexpense account that takes up a great proportion in total costs It can be thedriving force behind the increase of labor productivity, if it is paid inaccordance with the employees’ contribution; or otherwise if it is not.Therefore, how to construct a sound payroll account and how to select anappropriate payment form – so that a payment could be both the mental andphysical reward for an employee, his or her real strong motivation to do abetter job, and also one of the reasonable expenses for business – are veryessential

Payroll issue is not new; however many deficiencies still need to beaddressed now to perfect the work of paying salary, wage and bonus inenterprises – especially in State-owned enterprises – to ensure that thepayments are equitable and reasonable for the employees, thus drive upprofits for the business

1.2 Objectives

The dissertation has three objectives:

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

done by clarifying the concept of salary, wage and bonus, their determinants,their efficiencies in different payment systems

Second, it is to illustrate how State companies in Vietnam make

payments to their employees, taking the scenario at Ho Chi Minh MuseumConstruction JSC as a case for study, and reviewing its achievements andlimitations in payroll

Third, it is to suggest possible solutions to improve the payment regime

at Ho Chi Mnh Museum Construction JSC, some of which could be appliednationwide in other State companies

1.5 Structure of the Study

The Study will be divided into five parts: Introduction to the subject,general theoretic background of payroll in State construction companies, datamethodology, founded results, and conclusion of the Study

In the first part, brief introduction will be provided to explain theimportance of salary, wage, and bonus payment, the objectives of this Study,and how its contents will be elaborated

The second part: Literature review will present theories about salary,wage and bonus, their payment models in State-owned enterprises andparticularly in the construction field It will present both academic andpractical approaches: perspectives from socialist or traditional economist, alsofrom entrepreneurs and employees Formulas to calculate payments will also

be provided, as they summarize and illustrate the logic behind the monetaryvalue itself

Data methodology, how research is conducted and how its results arelooked into will be explained in part three It will clarify the empiricalfindings described in the fourth part of the Study

Part four, empirical findings, will give the answers to the objectivequestions in section 1.2 of this Study It practically invests in the case study of

Ho Chi Minh Museum Construction Company, a long-standing Statecompany in Vietnam

Finally, in the last chapter, recommendations will be given, togetherwith a conclusion for the Study

Chapter 2: LITERATURE REVIEW

2.1Overview of Salary and Wage

2.1.1 Definition of Salary and Wage

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

1 Karl Marx, 1995 The Capital vol 1 [Online] s.l.: Marx/Engels Internet Archive

Available at: http://www.marxists.org/archive/marx/works/1867-c1/

theories (Johnson et al2, 2005) that think human capital is a contradiction interms

Capitals is owned by a segment of the population in the society, whileother segments of the population, due to having no capital, have to offer theirown labor power to those with capital for an amount of money in return,which is known as wage

Since labor became commodity, the labor market and the concept ofwage appeared Wage is the result of the exchange of labor power on thelabor market; the compensation for labor power per period of time is referred

to as the wage rate

In the planned economy, wage is the price of neither labor power norgoods, neither in the private nor public sector In the market economy, wage

is understood as cash value of labor power, the price of labor power thathirers must pay to the providers That price, in compliance with the principles

of supply and demand, market price, the ability to negotiate, and the currentlaws of the State, can be higher or lower than the value of labor power

Normally, unless the government takes actions to prevent it, highunemployment will lower wage, and full employment will ỉncrease wage, inaccordance with the laws of supply and demand But wage can also bereduced through high price inflation and consumer taxes Therefore adistinction must always be drawn between nominal gross wages' and realwages adjusted for tax and price inflation, and indirect tax imposts must beconsidered

2 Dr Paul M Johnson et al,, 2005 A Glossary of Political Economy Terms [Internet] Alabama:

Paul.M.Johnson

Available at: http://www.auburn.edu/~johnspm/gloss/human_capital

Accessed 11 March 2011

Nominal wage is the amount which the employers pay for workers.This amount is more or less correlative to working capacity and workefficiency of workers, and work experience of them.

Real wage is the value of consumer goods and other necessary servicesthat they can purchase from the nominal wage The relationship between realwage and nominal wage is expressed through the formula3:

Real wage=

PI

wageNominal

Where:

PI = Price indexThus we can see that if price increases, real wage declines, this canhappen even when the nominal wage increases Real wage does not onlydepend on the nominal amount of money but also depends on prices ofconsumer goods and other necessary services that they want to buy This is avery complex relationship due to the change of nominal wage, the prices aswell as other factors In society, real wage is the direct target of employees,and also the direct subjects of management policies such as on income andliving conditions To achieve business goals, the enterprise should haveappropriate policies to raise real wages of workers, only then are the workersassured to be dedicated to the enterprise

Salary/wage reflects different social and economic relations4 First, it isthe amount that employers pay for workers; therefore it reflects the economic

3 R O'Donnell, 1987 "real and nominal quantities," The New Palgrave: A Dictionary of Economics, v 4, pp

97-98 Hamshire: Palgrave Macmillan

relations Second, the special nature of the commodity of labor power thatwage represents also reflects social relations related to living standards,conditions and social orders.

Third, for the whole society, salary/wage is reviewed and placed inrelations with income distribution, relations of production and consumption,and relations of exchange Therefore, every country should have reasonablewage policies and income distribution regulations in consistent with thedevelopment of the country

However, in daily operations, definitions of salary and wage are muchmore simplified: Salary is a fixed amount of money or compensation paid to

an employee by an employer in return for work performed5; an employee who

is paid a salary is expected to complete a whole job in return for the salary.Wage is payment for labor or services to a worker, especially remuneration on

an hourly, daily, or weekly basis or by the piece

2.1.2 Roles of Salary and Wage

For employees, salary/wage is the compensation for labor power and

motivation to do a better job The employees can only put their best on works

if they are given fair, sufficient compensation packages Essentially,remuneration is also considered a key gauge of the level of skills andprofessional seniority; thus, employees will be proud of their high salary andwant a raise, even though the salary may only account for a fraction of theirtotal income

For enterprises, wage/salary is a considerable part of production costs,

as well as a key lever to improve business efficiency If paid fairly, it will

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

contribute to the maintenance, consolidation and development the business’work force.

For policy-makers, wage/salary is one of the most important tools for

economic management; it is a tool to assess the quality, quantity anddistribution of labor benefits in enterprises Reasonable payment regime hasgreat impact in promoting economic and social development

The salary/wage must meet the economic and social goals And thereshould be no conflict of interests between: the State, enterprises and thelegitimate interests of workers

2

2.2 Payroll Account

2.2.1 Definition and Roles of Payroll Account

In any organization or company, payroll is the total sum of allcompensations that a business has to pay its employees for a set period oftime or on a given date6 It’s the sum of all financial records of salaries,wages, bonuses and deductions; for examples it includes salary payments toemployees, tax withholdings, and deductions from a paycheck

In accounting, payroll refers to the amount paid to employees forservices they provided during a certain period of time (Bragg, 2004) Payroll

is usually managed by the accounting department of a business business payrolls may be handled directly by the owner or an associate

Small-6 Steven M Bragg, 2004 Essentials of Payroll: Management and Accounting New York: J Wiley and Sons.

Payroll can differ from one pay period to another due to overtime, sickpay and other variables It is a major expense for most businesses and isalmost always deductible as such.

Payroll plays a major role in a company for several reasons From anaccounting point of view, payroll is crucial because payroll and payroll taxesconsiderably affect the net income of most companies and they are subject tolaws and regulations From ethics in business viewpoint payroll is a criticaldepartment as employees are responsive to payroll errors and irregularities:good employee morale requires payroll to be paid timely and accurately Theprimary mission of the payroll department is to ensure that all employees arepaid accurately and timely with the correct withholdings and deductions, and

to ensure the withholdings and deductions are remitted in a precise manner

1.EXTERNAL

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

environment in which the

A Number of relevant actors Low High

2 EXTERNAL/

INTERNAL TRANSACTIONS

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

relationship between the relevant

organization and its environment

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

technology being employed in

LESSPROGRAMMAB

LE

C Decision rules Known Not Known

Table 2.2 Alternative Decision Rules for Public and Private Problems

Bureaucratic and Contingent Action Models

4 Preferred timing Goals → act → evaluate Evaluate → act → goals STRUCTURE

role → person Person → role

Problem to be "solved" Resources to be "elicited"

Whether public sector and not-for-profit organizations should manageperformance and reward differently than private sector, for-profitorganizations has always been the subject of considerable controversy.Should public and non-profit organizations emulate the strategies and

programs used by the private sector or are their contextual differences thatmake it prudent for them to do things differently? It will be argued here thatcommon principles apply across sectors, but that custom strategies may need

to be employed, owing to differences in the context within which both publicsector and not-for-profit organizations must function

In the public sector, long-term careers is a positive value This value issupported by structures and policies that promote seniority-based direct(salary and wages) and indirect (benefits) compensation, and relativelypermanent formal role relationships as the basis for reward compensationequity (longer stay, higher pay) In the contingent model, however, theindividual acts more independently; there is a high incidence of role mobility,creation, and modification This situation might be described as one oforganizational risk sharing by employees (Siegel, 1992), as individual andgroup rewards also become contingent on the fortunes of the organization forassumption of risk In the private sector, so-called bottom-line profit sharingmay be a basis for rewards

However, as the environment has become much more dynamic,competitive and globalized, an increased need to ensure ongoing viability andflexibility has emerged for the public sector

Another difference that exists between the public and private sector isthe legal and regulatory scrutiny to which public sector organizations aresubjected8 This scrutiny makes it more difficult for managers to differentiatesignificantly between employees when measuring performance; it's hard topunish poor performance by discharging employees It is also more difficult

to adequately reward outstanding performance, owing to the absence of merit

8 Ran Lachman, 1985.Public And Private Sector Differences: CEOs’ Perceptions Of Their Role

pay programs and incentive plans that provide significant rewards on adifferentiated basis The amounts available for rewarding top performers arelimited by the reality that legislatures regulate funding, based on what isavailable, rather than what are needed or warranted (structured pay, opposed

to performance-based pay or negotiable pay) The control of salary budgets bylegislatures and councils also has a major impact on compensation packages

2.2.3 Constructing the Payroll Account

2.2.3.1 Legislature regulation

Principles to determine wage rate depend on the socio-economicsystem In public sector, the Government decides salary for civil servants andState employees In the private sector, the salary and wage is determined byagreement between employers and the workers on the State labor laws basis

In Vietnam, there are a number of factors that go into determining thisitem They include:

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

of living

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

 Industry and geographic disparities

 Job categories and levels of employees

An important statutory instrument on payroll in Vietnam is the Decree

No 204/2004/NĐ-CP dated December 14th, 2004, providing the gradingsystems and salary tables for senior experts, Governmental officers, publicregular staffs in State-owned companies and organizations, as well as military

personnel It also has provisions on allowances, bonus, subsidies and otherwelfares for the mentioned subjects

Another document is the Decree numbered 108/2010/NĐ-CP, datedOctober 29th, 2010 regulating the minimum salary payment to eachemployee, in any Vietnamese organizations and enterprises, with regionaladjustments In addition, the Circular No 02/2007/TT-BNV of Ministry ofHome Affairs instructing the salary increases for employees who arepromoted to the next higher grades

Also, a very recent instrument is the Decree No 22/2011/NĐ-CP onApril 4th, 2011, valid from May 1st, 2011 raising the minimum salary inpublic enterprises and organizations to 980,000 VND

2.2.3.2 Salary structures: Pay grades, pay levels/steps

In Vietnam the payroll system is promulgated by the State Itcategorizes national employees according to their jobs and job sectors; theseare from elected officials, Governmental staffs, public servants,administrators, military personnel, to manual workers

Among the categories, the payrolls will be different due to specialarrangements of certain priorities; for example, the category of militaryofficers and trained soldiers is ranked higher than several others, resulting inhigher salaries

The content of salary payment including: salary pay tables, pay grades,and pay steps

Pay grades: Are the hierarchical pay level within a job category

Pay table: Is a table describing the absolute amount of salary, salary

coefficients and grades of the same rank

Pay steps: Within each grade level, there are smaller pay steps or pay

levels

Salary coefficient: Is the difference ratio between the current level’s

amounts with the minimum salary amount legalized The salary coefficientmust be gradually increased in the pay scale

The n-th coefficient of a salary level (Kn) is determined by thefollowing formula9:

n is a determined salary payment amount

This is the determination for basic salary In addition to the basic pay,workers can also receive different types of allowances, for example mobility

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

allowances or telephone allowances

2.3 Salary and Wage in Construction Companies

As stated by Bui Nu Thanh Ha, there are three main forms of payment in

a construction company: Time-based pay, product-based pay, and packagecontract

The most significant disadvantage of this system is that it doesn’treflect the relationship between the salary paid and job done It raises costsover time without making these cost increases contingent on the benefitsderived from high levels of performance/productivity that the organizationshould receive It also sends a strong signal to employees that performancedoes not matter, which will create a mentality to the employee that he/shemust only survive on the job for a sufficiently long period of time and will be

paid substantially more for the job So it does not encourage them to raiseproductivity or save materials It also typically sends better performerselsewhere (where they will be paid for their contribution fair and square)

A common dilemma for an organization which has used time-based payfor a number of years is to have a large majority of its employees at the toppay rate in the schedule, which is a high-cost workforce This situation is evenmore troublesome if a significant number of these employees are notperforming well in their jobs

Therefore this system works well for routine jobs where the potentialfor varying performance is small, and where the workload and quality ofperformance are not clear to measure

There are two methods for time-based pay approach: Plain pay overtime, and pay timely salary plus bonus (Bui Nu Thanh Ha, 2008)

- Plain pay over time:

L =  Working time x Pay rate

- Time-based pay with bonus:

This is a blended form of payment and actually a transitional systemfrom time-based to performance-based It combines paying over length ofservice with bonus when employees reach and exceed the performancetargets, work with productivity and economic efficiency

The bonus amount will be determined by looking at the employee’swork period (in a month or quarter), his/her results, and types of the jobsworked on

2.3.2 Product-based pay

Product-based pay is a type of performance-based pay It is also called

‘piece work’ by Winslow Taylor11, who was a great supporter of this method

of payment because he believed there was none incentive better than money

It is a method of payment which depends on the number of products Aworker will be paid a fixed "piece rate" for each unit produced or actionperformed regardless of time12 The amount of wages will be decided bymultiplying the total number of products with the unit wage costs, whichdetermination is based on the common productivity of a single worker or agroup of workers in a time unit, and the common wages of the industry for thesame job in the time unit

If the quality of performance is equal, piece work will offer more toproductive worker and less to those who aren’t So it will encourage them toimprove work productivity and effective use of time and equipments, in order

to be paid higher Also, an advantage for the company is that this model ofpayment helps guarantee the production costs per unit, which is useful forplanning and forecasting It will as well give reasons to improve the statistics,accounting, and product quality control at the company

However, if paying on a piecework basis, the amount paid per piecemust reflect the level of quality that’s required in a particular plant Producing

a quality, finished output requires more time, and the result is lowerproduction per hour So the employee may compromise product quality andmaterial saving to rush production In many cases, the employee probablydoes not want to do a job that requires high levels of skills, because then itwould be hard to exceed the number target and earn bonus

11 Frederick Winslow, Taylor, 1911, The Principles of Scientific Management [Online] Google Books Available at: http://books.google.com/books?id=HoJMAAAAYAAJ&pg=PA3#v=onepage&f=false

[Accessed May 4, 2011].

12 Anon.1865 The piece work principle in agriculture Journal of the Statistical Society of London 28 pp 29–

Thus, to make sure that the product-based pay system works well, thecompany needs to have good quality control and new product testingprocesses

There are different branches of product-based pay (Bui Nu Thanh Ha,2008):

 Plain pay is calculated solely by the number of finished products:

L = Product Unit Rate * Q

Q is the total amount of finished products

 Payment with bonus: It is the plain product-based pay plus bonus orpenalty High productivity, good product quality, good efficiency will

be rewarded and vice versa The employer will need to stipulate thereward criteria, reward earnings, and sources for the reward budget

 Progressive pay: The product pay rate will increase as the product amount increases It applies fixed rate for the products withinquantity target, and higher pay rate for any that exceeds this target

finished- To achieve economic efficiency, the total wage increase must be lessthan or equal to total fixed costs The increased expense due toincreasing rates will be recompensed, as higher productivity shouldreduce the fixed costs per unit of product

 Pay to indirect workers (apprentices or helpers): The wage for workers

or staff who are indirectly in charge of production, but directly affectthe productivity of the main workers

Indirect workers will be paid based on the following formula:

product amount

quantity target that main workers complete

If executed well, this settlement will encourage indirect workers tosupport main workers and thus improve the labor productivity of thegroup of workers

2.3.3 Package contracts:

It’ a form of payment that is used for the full implementation of aworkload which volume is usually difficult to determine Package contractswill also be applied whenever it’s deemed economically efficient to do so,especially in a job that requires many steps which closely relate to each other

This method is usually employed in construction It is an advancedform of paying by products, and differs from the former that:

- Outputs of package contracts have higher levels of perfection

- Contracted employees are more closely associated with each other,and more attentive to the final results

- It helps avoid calculating the volume of work for payment andreducing process in ensuring output quality.

- A contract must be signed between workers and the constructioncompany, which specifies the both sides’ responsibilities Thecontractor will be aware of tasks to do, expenses, earnings, and timerequirement, which should have stimulation effects

- The contractor can be a construction company, a building team or anindividual

2.3.4 The standards to pay structures

2.3.4.1 Education background

Pay rates will be different for different jobs and different levels within

a single job Commonly, there are three main tiers of careers based oneducational background, which largely influence the salary or wage paid tojob holders

The three main tiers of construction employees/ workers are:

- Unskilled and Semi-Skilled: They are general site labors with little

or no construction qualifications

- Skilled: They are on-site managers who possess extensive

knowledge, and experience in their craft or profession

- Technical and Management: They are personnel with the greatest educational qualifications, usually bachelor or postgraduate degrees,trained to design, manage and instruct the construction process

2.3.4.2 Craft levels of manual workers

A craft level reflects how skillful the worker is, serving as the basis todetermine the wage of a manual worker Therefore, it should be able reflectthe work’s nature and its special requirements, also consider the dexterity,trainings and job understanding of the worker Looking at the worker’s craftlevel, an expertise should know what types of jobs the worker can do Thehigher the craft level of a worker is, the more complex the task he is able toperform

Special working conditions such as involving heavy physical strains,contacting toxical chemicals, or in unpleasant environment need to be takeninto account when determining the worker’s payment Special adjustments tobase pay and additional harmful subsidies or special grants should also beallocated, depending on the situation

Standards to determine craft levels need to be constantly updated, astechnology changes fast The most current legal document that regulatescriteria to determine craft levels is the Decree 205/204/NĐ-CP datedDecember 14, 2004

2.3.4.3 Regulations on white-collar employees’ pay grades, grade levels, and levels/steps within each level

Pay grades facilitate the employment process by providing a fixedframework of salary ranges Criteria to determine which grade, level, or stepthe employee belongs to include requirements of qualities, professionalqualifications, technical knowledge, and performance abilities for each grade,level or step

Four contributor categories of white-collar employees areadministration/clerical, professional, supervisory & management, and projectmanagement

2.4.1 Definition of Bonus

Bonus is the extra pay due to good performance As defined by the TheAmerican Heritage Dictionary of the English Language, Fourth Edition,bonus is a sum of money or an equivalent given to an employee in addition tothe employee's usual compensation

Generally, bonus pay is the compensation over and above the plainamount of pay, which is a set salary or pay rate Bonus pay can be distributedrandomly when the company is able to afford a bonus, or the amount of thebonus pay is specified by contract

Bonus pay is used as recognition and appreciation to employees or ateam that achieves significant goals Thus it is used to improve employeemorale, motivation, productivity Also, as long as bonus pay is discretionary

by the employer, it is not considered to be a contract If the employerpromises a bonus, however, the employer may be legally liable to pay thebonus (Susan M.Heathfield13, nd.)

2.4.2 Types of Bonus

There are three main types of bonuses:

13 Susan M Heathfield, nd Bonus Pay About.com Guide [internet] Available at

http://humanresources.about.com/od/glossaryb/g/bonus.htm

- Seniority-based bonus:

Bonus rewarding based on length of service and status could help retaingood employees, however could raise uncertainty avoidance – it would besafer to stay within the lines, especially from senior employees

- Annual and other periodic bonus:

Each year, month, or quarter, if making profits, the company may takeexcerpts from the profits to bonus employee Also, some company will makeemployees’ performance reviews or list of employees with details of bonuspercent each person after a business period, which will decide the bonusamount that person will have

Periodic bonus effect is to draw people to complete the company’s yearplan In this case, the company gains benefits for reducing the fixed costs perproduct, and eliminating any redundant costs associated with unexpectedchanges

- Criteria-based bonus:

An employee may be qualified for a special recognition award orindividual performance award if his or her performance is excellent and farabove average This requires the greatest amount of innovation and activethinking from the outstanding employee

An employee can have more than one bonus at a time, if he or she isdeemed qualified

2.4.3 Effects of Bonus

Bonus is a form of extra PRP that relates to how well the receiverworks at the workplace Business theorist Frederick Winslow Taylor was a

great supporter of this method of payment, and he believed money was themain incentive for increased productivity This performance appreciationmethod motivates the rewarded behavior; employees would be secure inknowing that their good performance will be appreciated It sends the signalthat there are clear differences between very good, good, and passable andinadequate performances, if the employee evaluation is done right

However, academic evidence has increasingly mounted indicating thatperformance related pay leads to the opposite of the desired outcomes when it

is applied to any work involving cognitive rather than physical skill.Research14 funded by the Federal Reserve Bank undertaken at the

demonstrated that as long as the tasks being undertaken are purely mechanicalperformance related pay works as expected However once rudimentarycognitive skills are required it actually leads to poorer performance

These experiments have since been repeated by a range of economists,sociologists and psychologists15 with the same results

2.5 Bonus payment in construction companies

Generally, construction companies use all three types of bonus paymentdescribed above Also due to specific circumstances and workingenvironments in construction companies, it has its own bonus plans, whichare:

Project-completion bonus is the reward for effective work as soon asthe construction plan completes After the completion, the employees who aredirect or indirect in charge of the project may be able to claim an extra pay Itwill motivate employees to ensure that the project will be completed bydeadline, and the progress of construction will be as planned By that itreduces the chance the construction company will have to pay penaltiesand/or damages, and any costs associated with delaying time

This is also the appreciation of their work done, which shouldencourage workers to constantly improve techniques, skills and productivity

to finish the project

- Performance-based bonuses:

This type of bonuses is measured against a set of performance-basedcriteria A bonus could be rewarded for shortening the construction period,good material savings, exceeding the planned targets, or having innovationsthat benefit the company, etc

Chapter 3: RESEARCH METHODOLOGY 3.1Research approach

By analyzing the research approach there are three different forms;induction, deduction and abduction Bryman & Bell (2005) define induction

as when the theory is generated from practice However, deduction is the mostcommon understanding of how the relationship between theory and practiceworks in the social science It begins with the knowledge and the theory in thefield, and then the researcher deduces hypothesizes which will be tested in anempirical study (Bryman & Bell, 2005) According to the case study that hasbeen made, abduction is the most suitable research approach The abductivemethod is according to Dubois & Gadde (2002) a combination of inductionand deduction, and therefore not an approach in itself, however it is a method

to use when moving back and forth between the theoretical world andempirical world When doing so, the understanding of both worlds will befurther extended, since it is not possible to understand the whole picture withjust one of the two parts

To decide which strategy is the most appropriate one, the researchquestion is the most important factor According to the research problem ofthis dissertation, case study approach is the most suitable strategy Yin (2003,13), defines a case study as “…an empirical inquiry that investigates acontemporary phenomenon within its real-life context, especially when theboundaries between phenomenon and context are not clearly evident.” Thecase study of Ho Chi Minh Museum Construction JSC was chosen to beexamined in depth, because it provides events which are aligned to theresearch problem of this dissertation Also, the reason for choosing a single

case study research is because the research question is about trying tounderstand a specific social phenomenon (Yin, 2003).

When doing case study as the research methodology, multiple sources

of data have been used Data have been collected from open-endedinterviews, observations, and documents/databases, which will be describedmore in details in the later part Also, quantitative and qualitative studies havebeen conducted based on statistics information Data analysis is chiefly based

on qualitative approach and interpretation of the data collected duringresearch

3.2 Data collection methods

To conduct this dissertation, both secondary and primary data havebeen used

Secondary data are collected from both academic literatures andpopular writings They include legal regulations, previous scholar findings(new definitions, calculations, key facts and survey results), in researchpapers, published books, journal articles, and from the World Wide Web Oneimportant source of secondary data for this dissertation is the internalcirculated documents from Ho Chi Minh Museum Construction JSC.Organizational documents such as administrative reports, agendas, letters,minutes, and news clippings were gathered and studied

Primary data are gathered mainly by qualitative methods, which areparticipant observations, conducting unstructured interviews and interpretingsecondary information A short placement in the company’s Finance andAccounting Department was helpful to gain insights into the payroll job of thecompany, because it provided opportunities to observe the processes and

conduct interviews with the staff, including the Chief Accountant of thecompany and other employees

Thus, the author can gather documents and details of the company’spayroll policies, how they are carried out, and understanding as well asattitudes of employees (white-collar employees) towards the company’spolicies

3.3Research Methodology: Case Study

The methodology of this research is to study the case of Ho Chi MinhMuseum Construction JSC Case study research can lead to understanding ofthis complex issue of payroll in State-owned companies, also extendexperience and add strength to previous researches’ findings

This case study will provide detailed contextual analysis of a limitednumber of events, conditions and their relationships relating to the payrollactivity in the investigated construction company Researcher Robert K Yindefines the case study research method as an empirical inquiry thatinvestigates a contemporary phenomenon within its real-life context; whenthe boundaries between phenomenon and context are not clearly evident; and

in which multiple sources of evidence are used (Yin, 1983, p 24)

Critics of the case study method believe that the study of a smallnumber of cases can offer no grounds for establishing reliability or generality

of finding (web) However, it is possible to generalize the theories based fromthe results (case study), but not to specify frequencies (Yin, 2003).Nevertheless, the Ho Chi Minh Museum Construction JSC was chosenbecause it is a typical State-owned enterprise working in construction field,which payroll policy has been practiced for a long time Therefore, it canreflect more or less the payroll systems that Vietnamese public construction

companies are using Also, the aim of this study is not to generalize theresults and make them valid also for other organizations, but to look deeperinto the case of the company and analyze their payroll process.

Chapter 4: EMPIRICAL RESULTS

4.1Overview of the HOCHIMINH Museum Construction JSC.

Transaction Name: HOCHIMINH MUSEUM CONSTRUCTIONJOINT STOCK COMPANY

Abbreviation: HCMCJSC

Legal form: HCMCJSC is an equitized state enterprise which bothretains the existing state capital in the enterprise and issues more shares toincrease its charter capital However, the state still holds controlling shares

The Board of Management consists of five members, two of which aresenior member of the Board of Directors The Vice Chairman is alsoExecutive Director

The Company’s Headquarter is located at 48A Lang Ha, Dong DaDistrict, Hanoi Head office is at 381 Doi Can Ward, Lieu Giai, Ba DinhDistrict, Hanoi

The Company has representative offices and/or branches in someprovinces and cities in Vietnam, as well as in foreign countries in accordancewith the law.

Through 35 years of development, Ho Chi Minh Museum ConstructionCompany has undergone many changes in its name, legal form and size of thebusiness

Ho Chi Minh Museum Construction Company was established on July

30, 1975 according to the decision numbered 389/BXD-TC of the Minister ofConstruction, formerly known as Construction Site 75808 under Ministry ofConstruction, constructing the Ho Chi Minh Mausoleum

Renamed in 1977 to Construction Company No.3, the Companyremained under the Ministry of Construction, according to Decision No 105/BXD-TC dated July 7, 1977 of Ministry of Construction

It was renamed again in 1985 to Ho Chi Minh Museum ConstructionCompany, under the Hanoi Construction Corporation, by Decision No.618/BXD-TCCB on April 23, 1985 of Ministry of Construction

In 1993, it was reformed to be a State Enterprise in accordance withDecree 388/HDBT and once again renamed Ho Chi Minh MuseumConstruction Company, by Decision No 144A/BXD-TCLD, dated March 26,

1993 of Ministry of Construction

In 2005 it was Ho Chi Minh Museum Construction Joint StockCompany according to Decision numbered 2055/QĐ-BXD, dated October 31,

2005 of Ministry of Construction