Employee compensation at the Ho Chi Minh museum construction jsc

FOREIGN TRADE UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION Major: International Business Management -------***------
GRADUATION THESIS Thesis title: EMPLOYEE COMPENSATION AT THE HO CHI MINH MUSEUM CONSTRUCTION JSC. Student name : Vũ Khánh Linh Class : A1 – High Quality Intake : K46 Supervisor : Dr. Đào Thị Thu Giang Hanoi, May 2011 TABLE OF CONTENTS ABSTRACT 6 CHAPTER I: INTRODUCTION 7 1.1. Statement of the Problem 7 1.2. Objectives of the Study 7 1.3. Subject of the Study 8 1.4. Scope of the Study 8 1.5. Structure of the Dissertation 8 CHAPTER II: LITERATURE REVIEW 9 2.1. Overview of Salary and Wage 10 2.1.1. Definition of Salary and Wage 10 2.1.2. Roles of Salary and Wage 13 2.2. Payroll Account 13 2.2.1. Definition and Roles of Payroll 13 2.2.2. Public Payroll 14 2.2.3. Construction of a Public Payroll Account 20 2.2.3.1 Legislature regulation 20 2.2.3.2 Salary structures 21 2.3. Salary and Wages In Construction Companies 22 2.3.1. Time-based Pay 23 2.3.2. Product-based Pay 24 2.3.3. Package Contracts 27 2.3.4. Standards to Pay Structures 27 2.3.4.1 Educational backgrounds 27 2.3.4.2 Craft levels of manual workers 28 2.3.4.3 Pay levels of white-collar staff 29 2.4. Bonus Payment 29 2.4.1. Definition of Bonus 29 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 LIST OF ABBREVIATIONS ATM  Automatic Telling Machine   Contr.  Contract   CQC  Construction Quality Control   Dep.  Department   GPD  Gross Domestic Product   IT  Information Technology   JSC  Joint Stock Company   KPI  Key Performance Index   MATL  Material   MEP  Mechanical, Electrical and Plumbing   Mgmt. Prj.  Management Project   PRP  Performance-related Pay   USD  United States Dollar   VND  Vietnam Dong      ABSTRACT This study is on the regime of salary, wage and bonus payment at the Ho Chi Minh Museum Construction JSC. It first aims to provide insights on salary, wage and bonus, their theoretic definitions and roles as important components of an employee compensation plan. Subsequently, it will review the applications, achievements and limitations of the regime at Ho Chi Minh Mausoleum Building JSC, as an illustration for the academic background. Afterwards, suggestions and solutions will be given to improve the employee payment regime at the company. In general, the study can contribute to the systemization and improvement of the salary, wage and bonus payment regime at public/State-owned organizations. Hopefully, better systems at many other enterprises can be made, with adjustments to the individual circumstance of each enterprise. Chapter I: INTRODUCTION Statement of the Problem Payment to the employees – Salary, wage and bonus – always receives great concern because of its social-economic significance. For the employees, these payments are important because they could be their sole incomes, to support their whole families’ lives. For every business, it accumulates in the expense account that takes up a great proportion in total costs. It can be the driving force behind the increase of labor productivity, if it is paid in accordance with the employees’ contribution; or otherwise if it is not. Therefore, how to construct a sound payroll account and how to select an appropriate payment form – so that a payment could be both the mental and physical reward for an employee, his or her real strong motivation to do a better job, and also one of the reasonable expenses for business – are very essential. Payroll issue is not new; however many deficiencies still need to be addressed now to perfect the work of paying salary, wage and bonus in enterprises – especially in State-owned enterprises – to ensure that the payments are equitable and reasonable for the employees, thus drive up profits for the business. 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 Museum Construction JSC as a case for study, and reviewing its achievements and limitations in payroll. Third, it is to suggest possible solutions to improve the payment regime at Ho Chi Mnh Museum Construction JSC, some of which could be applied nationwide in other State companies. Subjects Subjects of the Study: Salary, wage, and bonus – their definitions, impacts, constructions, and reflections in different payment systems. Scope The Study provides analysis and evaluation of the payrolling at Ho Chi Minh Museum Construction JSC, a State construction company. Structure of the Study The Study will be divided into five parts: Introduction to the subject, general theoretic background of payroll in State construction companies, data methodology, founded results, and conclusion of the Study. In the first part, brief introduction will be provided to explain the importance of salary, wage, and bonus payment, the objectives of this Study, and how its contents will be elaborated. The second part: Literature review will present theories about salary, wage and bonus, their payment models in State-owned enterprises and particularly in the construction field. It will present both academic and practical approaches: perspectives from socialist or traditional economist, also from entrepreneurs and employees. Formulas to calculate payments will also be provided, as they summarize and illustrate the logic behind the monetary value itself. Data methodology, how research is conducted and how its results are looked into will be explained in part three. It will clarify the empirical findings described in the fourth part of the Study. Part four, empirical findings, will give the answers to the objective questions in section 1.2 of this Study. It practically invests in the case study of Ho Chi Minh Museum Construction Company, a long-standing State company in Vietnam. Finally, in the last chapter, recommendations will be given, together with a conclusion for the Study. Chapter 2: LITERATURE REVIEW Overview of Salary and Wage Definition of Salary and Wage According to Marxism, in order to be able to proceed to production, there should be a combination of two basic factors which are labor and capital. Labor is a measure of the work done by human beings. It is conventionally contrasted with such other factors of production as land and capital. There are theories which have developed a concept called human capital (referring to the skills that workers possess, not necessarily their actual work), although there are also counter posing macro-economic system theories (Johnson et al, 2005) that think human capital is a contradiction in terms. Capitals is owned by a segment of the population in the society, while other segments of the population, due to having no capital, have to offer their own labor power to those with capital for an amount of money in return, which is known as wage. Since labor became commodity, the labor market and the concept of wage appeared. Wage is the result of the exchange of labor power on the labor market; the compensation for labor power per period of time is referred to as the wage rate. In the planned economy, wage is the price of neither labor power nor goods, neither in the private nor public sector. In the market economy, wage is understood as cash value of labor power, the price of labor power that hirers must pay to the providers. That price, in compliance with the principles of supply and demand, market price, the ability to negotiate, and the current laws of the State, can be higher or lower than the value of labor power. Normally, unless the government takes actions to prevent it, high unemployment will lower wage, and full employment will ỉncrease wage, in accordance with the laws of supply and demand. But wage can also be reduced through high price inflation and consumer taxes. Therefore a distinction must always be drawn between nominal gross wages' and real wages adjusted for tax and price inflation, and indirect tax imposts must be considered. Nominal wage is the amount which the employers pay for workers. This amount is more or less correlative to working capacity and work efficiency of workers, and work experience of them. Real wage is the value of consumer goods and other necessary services that they can purchase from the nominal wage. The relationship between real wage and nominal wage is expressed through the formula: Real wage =
Where: PI = Price index Thus we can see that if price increases, real wage declines, this can happen even when the nominal wage increases. Real wage does not only depend on the nominal amount of money but also depends on prices of consumer goods and other necessary services that they want to buy. This is a very complex relationship due to the change of nominal wage, the prices as well as other factors. In society, real wage is the direct target of employees, and also the direct subjects of management policies such as on income and living conditions. To achieve business goals, the enterprise should have appropriate policies to raise real wages of workers, only then are the workers assured to be dedicated to the enterprise. Salary/wage reflects different social and economic relations. First, it is the amount that employers pay for workers; therefore it reflects the economic relations. Second, the special nature of the commodity of labor power that wage represents also reflects social relations related to living standards, conditions and social orders. Third, for the whole society, salary/wage is reviewed and placed in relations with income distribution, relations of production and consumption, and relations of exchange. Therefore, every country should have reasonable wage policies and income distribution regulations in consistent with the development of the country. However, in daily operations, definitions of salary and wage are much more simplified: Salary is a fixed amount of money or compensation paid to an employee by an employer in return for work performed; 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. Roles of Salary and Wage For employees, salary/wage is the compensation for labor power and motivation to do a better job. The employees can only put their best on works if they are given fair, sufficient compensation packages. Essentially, remuneration is also considered a key gauge of the level of skills and professional seniority; thus, employees will be proud of their high salary and want a raise, even though the salary may only account for a fraction of their total income. For enterprises, wage/salary is a considerable part of production costs, as well as a key lever to improve business efficiency. If paid fairly, it will contribute to the maintenance, consolidation and development the business’ work force. For policy-makers, wage/salary is one of the most important tools for economic management; it is a tool to assess the quality, quantity and distribution of labor benefits in enterprises. Reasonable payment regime has great impact in promoting economic and social development. The salary/wage must meet the economic and social goals. And there should be no conflict of interests between: the State, enterprises and the legitimate interests of workers. Payroll Account Definition and Roles of Payroll Account In any organization or company, payroll is the total sum of all compensations that a business has to pay its employees for a set period of time or on a given date. It’s the sum of all financial records of salaries, wages, bonuses and deductions; for examples it includes salary payments to employees, tax withholdings, and deductions from a paycheck. In accounting, payroll refers to the amount paid to employees for services they provided during a certain period of time (Bragg, 2004). Payroll is usually managed by the accounting department of a business. Small-business payrolls may be handled directly by the owner or an associate. Payroll can differ from one pay period to another due to overtime, sick pay and other variables. It is a major expense for most businesses and is almost always deductible as such. Payroll plays a major role in a company for several reasons. From an accounting point of view, payroll is crucial because payroll and payroll taxes considerably affect the net income of most companies and they are subject to laws and regulations. From ethics in business viewpoint payroll is a critical department as employees are responsive to payroll errors and irregularities: good employee morale requires payroll to be paid timely and accurately. The primary mission of the payroll department is to ensure that all employees are paid accurately and timely with the correct withholdings and deductions, and to ensure the withholdings and deductions are remitted in a precise manner. Public Payroll Gilbert B. Siegel, 1992, has demonstrated environmental differences in public and private companies in the following tables: Table 2.1 Diagnosis Criteria for Public and Private Companies - Problem Contexts Policy and Administrative  Problem and Context Attributes   Features  Public  Private   1.EXTERNAL (e.g., What is the character of theenvironment in which the particularproblem is set?)  STABLE  TURBULENT   A. Number of relevant actors  Low  High   B. Change of actors/ground rules  Minimal  Maximal   C. Independence of actors  Low  High   2. EXTERNAL/INTERNAL TRANSACTIONS(e.g., What is the character of therelationship between the relevantorganization and its environment inregards to negotiations around goalsand objectives?)  CERTAIN  UNCERTAIN   A. Preference /goals of relevant actors  Clear  Unclear   B. Criteria of goodness  Unambiguous  Ambiguous   C. Comparability of actor's agenda  Congruent  Noncongruent   3.INTERNAL(e.g., What is the character of thetechnology being employed in doingwork within the organization on thisproblem?)  MOREPROGRAMMABLE  LESSPROGRAMMABLE   A. Expected variability  Low  High   B. Work Specifiability  High  Low   C. Decision rules  Known  Not Known     Table 2.2 Alternative Decision Rules for Public and Private Problems -- Bureaucratic and Contingent Action Models  Public  Private   Modes of Decision Rules  Bureaucratic  Contingent   PLANNING     1. Scale of preferences  Comprehensive  Incremental   2. Scope  General  Specific   3. Time horizons  Long-range  Short-range   4. Preferred timing  Goals → act → evaluate  Evaluate → act → goals   STRUCTURE     5. Orientation andstrength  Maintenance /continuity  Adaptation/change   6. Nature of organization  Permanent  Temporary   7. Assumption  Organizations persist  Persons persist   8. Key value amplified  Responsibility  Responsiveness   9. Unit of organizationalconstruction  Abstract (role)  Concrete (person)   10. Presumed role/personrelationship  role → person  Person → role   11. Redundancy ofinformation  Minimize  Maximize   12. Problem recognitionand response  Slow/expensive  Quick/cheap   13. Make termination  Hard to achieve  Hard to avoid   MANAGEMENT PROCESS   14. Preferred managerialstrategy  Exception  Situational specificity   15. Operational processes  Functional  Project   16. Major presumed risk  Inefficiency  Catastrophic error   17. Major rationalityassumption  Benefit-cost  Disaster control   18. Key intra-organizationquestion  Consistency/equity  Issue specific/efficacy   19. Key resource controlstrategy  Fixed budgets  Licensed budgets   20. Meaning of conflict  Problem to be "solved"  Resources to be "elicited"   Whether public sector and not-for-profit organizations should manage performance and reward differently than private sector, for-profit organizations has always been the subject of considerable controversy. Should public and non-profit organizations emulate the strategies and programs used by the private sector or are their contextual differences that make it prudent for them to do things differently? It will be argued here that common principles apply across sectors, but that custom strategies may need to be employed, owing to differences in the context within which both public sector and not-for-profit organizations must function. In the public sector, long-term careers is a positive value. This value is supported by structures and policies that promote seniority-based direct (salary and wages) and