Have you spent months designing a “perfect” salary and bonus policy with a competitive pay scale and attractive incentive programs? Yet, upon its announcement, you’re flooded with questioning emails, waves of employee dissatisfaction, and tense meetings? The issue may not lie in the content itself but in how it is implemented, or perhaps you’re facing both challenges simultaneously.
In this article, drawing on practical experience advising numerous FDI enterprises in Vietnam, KMC provides you with a comprehensive A-to-Z roadmap to develop and successfully implement a salary and bonus policy.
Why FDI Enterprises Need a Well-Structured Salary and Bonus Policy
Address the “dual challenge” of legal compliance
FDI enterprises must navigate two legal systems: Vietnam’s Labor Code and the international standards from their headquarters. A well-structured salary and bonus policy helps FDI companies:
- Avoid domestic legal risks, ensuring compliance with minimum wage, social insurance contributions, overtime, Tet bonuses, and other statutory requirements.
- Comply with strict international regulations on anti-corruption and financial transparency, such as the U.S. FCPA or the UK Bribery Act, especially regarding executive compensation policies.
Retain talent amidst fierce competition
In the competitive Vietnamese labor market, a clear and fair salary and bonus policy allows employees to understand their career path and the mechanisms to earn deserved salary increases and incentives. This clarity encourages employees to stay longer with the company.
Foster fairness in a multicultural environment
Even if unspoken, gaps often exist between Vietnamese staff and foreign experts. A structured salary and bonus policy helps bridge these gaps, as all employees are assessed and compensated based on unified criteria: position, competence, and performance. Transparency removes doubts about favoritism or special treatment, building a cohesive and committed workplace culture.
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Principles for Building a Salary and Bonus Policy for FDI Enterprises
Principle 1: Legally compliant framework with flexible application
When designing a salary and bonus policy, you must fully comply with the Vietnam Labor Code 2019, covering regional minimum wages, social insurance contributions, and overtime. Additionally, FDI enterprises need to consider the international standards required by the parent company. This approach helps you avoid unnecessary legal risks from both domestic and international perspectives.
While a standard framework is essential, it should not be applied rigidly across all branches or departments. Instead, the policy should be flexible, tailored to the specific characteristics of each group. For example, incentives for the R&D department may be tied to creativity, while the Sales department’s rewards could be linked to revenue performance.
Principle 2: Transparency of rules while protecting personal information
Employees need to understand: “Why am I paid this way?” Therefore, it’s important to publicly share the core principles of the policy. For instance:
- How the salary scale is determined (e.g., the 3P model: Position, Person, Performance)
- How KPI-based bonuses are calculated
- Which allowances are applicable
This transparency turns the policy into clear “rules of the game” that everyone can understand and strive toward.
However, you must protect sensitive personal information, such as individual salary amounts. This respects privacy and prevents unnecessary comparisons, jealousy, or internal conflicts.
Principle 3: Align closely with company strategy and culture
A successful salary and bonus policy must support business strategy and nurture the corporate culture that the FDI enterprise aims to foster.
For example:
- A technology startup FDI company may offer equity-based incentives (ESOP) to attract and retain top talent.
- A Japanese manufacturing company prioritizing stability and seniority may balance base salary with performance-based bonuses.
Regarding corporate culture:
- If collaboration is valued, include team-based rewards in addition to individual performance bonuses.
- If innovation is a priority, offer recognition for breakthrough ideas, even if they do not succeed, to encourage risk-taking and creative thinking.
Step-by-Step Process for Building a Salary and Bonus Policy
Step 1: Collect and Analyze Information
Internal Analysis
Start by asking yourself: “What behaviors and outcomes does our company want to encourage?” From there, review your business strategy, corporate culture, financial capacity, and current organizational structure.
Market Survey
Collect salary and bonus data from reputable surveys (e.g., Mercer, Towers Watson) and benchmark against other FDI companies in the same industry in Vietnam. This ensures that your salary levels are competitive, helping you attract and retain talent.
Legal Research
Before creating the policy, ensure full understanding of the Vietnam Labor Code and relevant circulars regarding salary, bonuses, and overtime. Compliance is critical to avoid legal risks.
Step 2: Job Analysis and Salary Scale Development
Evaluate each role systematically based on responsibility, required skills, complexity, and impact. Commonly used methods by multinational corporations include Point Factor Method or the 3P Model (Position, Person, Performance).
Using job evaluation results and market data, establish salary grades and steps. Each grade corresponds to a group of positions of similar value, while steps within the grade allow employees to progress in salary based on competency and tenure.
Step 3: Design a Flexible Salary and Bonus System
First, define the income structure, which typically includes: Fixed salary (base pay), Allowances (e.g., role, transportation, meals), Variable income (performance-based “incentives”)
The bonus policy should be tied to clear objectives. Design various types of bonuses, such as: Performance bonuses (linked to individual or departmental KPIs), Project completion bonuses, Innovation or initiative bonuses
Ensure that the bonus calculation is transparent, measurable, and fair. For example, bonuses for sales staff may be based on revenue and contract closure rates.
Step 4: Draft and Finalize the Policy Document
Compile all the above into a clear and comprehensive official document. A standard structure should include chapters/sections on: Scope of application, Eligible employees, Principles, Components of salary, Bonus policy, Enforcement clauses
Tip: Use simple language and explain technical terms clearly, especially in a multicultural environment where language barriers may exist.
Step 5: Gather Feedback and Obtain Approval
Wider consensus helps ensure smoother approval. Present the draft to: Executive leadership, Department managers, Employee representatives or trade union committee (if applicable)
When submitting for approval, support your proposal with data, market benchmarks, and impact analysis to demonstrate the necessity and effectiveness of the new policy.
Step 6: Communication and Implementation
After approval, do not immediately roll it out. Develop a communication plan: Who should be informed? When? How? What content should be shared?
Train managers in advance so they understand the policy, can explain it to their teams, and guide employees effectively. Consider piloting the policy in a few departments first to gauge reactions and make adjustments. Positive results can then be scaled company-wide.
Building a salary and bonus policy is not just about the content, but also about how it is implemented. Mistakes in implementation can undermine even a well-designed policy. If your company lacks experience, KMC experts can support you. With nearly 20 years of experience, our payroll services not only provide you with comprehensive documentation but also accompany you through communication, internal training, and post-implementation effectiveness evaluation.
