The Impact on Compensation Strategies on an Vietnam IT Industry

Subject: Financial Management
Pages: 7
Words: 2166
Reading time:
8 min
Study level: PhD

Good employees are hard to find and once available than an organization must have the ability to retain them in long run. IT industry has grown up a lot and changes in trends are coming up daily. IT industry is a little different than other fields as it needs frequent updates and motivated personnel who possess the ability to improve skills with time. IT is the only field where change comes frequently so individuals need to work more than earlier. New talent is full of courage and possesses the ability to do more in less time. New talent needs encouragement and proper guideline for achieving high goals in less time. Many organizations in Vietnam do not realize the needs and requirements of an employee. Numerous employers do not consider the need to facilitate employees with allowances.

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Cash Compensation

Salary is one of the most important factors which help in retaining IT employees for years. IT professionals work hard and want to achieve high goals in less time. Compensations and salaries play an important role in motivating employees to produce quality output in long run (Randy & Vivienne, et, al, 2002). The employee doesn’t feel good if the salary is low. There are some factors due to which the job switching trend has increased, a to overtime few of them are listed below: diversity, low salary, no allowances, low overtime, no health care, and employee’s welfare, no financial support for further studies or training. IT field is a dynamic field that grows daily and needs frequent updates from employees to produce the best results. Numerous employers do not believe in communications and discussions while developing salary plans for employees. Time to time discussion with team members and feedback from an employee helps a lot in the decision-making process. Feedback empowers employers to judge employee’s responses in the account of salary plans. There are many components of the Compensation system which help in determining job type and ranking; a few of them are job description, job analysis, job evaluation, Pay structures, salary survey, policies, and regulations.

Compensation can be categorized into different types; a few of them are as follows: Base Pay, commission, overtime pay, Bonuses, Profit sharing, Stock options, Travel, meal, housing allowance, and all medical facilities. Following are some factors that have a great influence on compensation system design:

  • Complexity
  • Education
  • Experience
  • Financial impact
  • Freedom to act
  • Management scope
  • Impact on policies
  • Patient welfare
  • Skills
  • Supervisory responsibility

Small and medium-sized enterprises face numerous challenges because of their small size as compared to multinational organizations. To support the country’s economy, SMEs should be encouraged. To encourage job seekers to work at SME, an attractive compensation plan must be there (Hee Ang, 1994). Attracting and retaining new talent at the workplace for many years is a little difficult and it has now become a challenge for small and medium enterprises. As competition has grown up a lot and every professional wants to achieve high goals in less time for which he needs complete support from employers. Companies that left their employees unguided have a high rate of job shifts. Competition between professionals has increased a lot and new talent always searches for better options with salary benefits. Competition for experienced accounting and IT professionals increases as an impact of which SMEs are looking for ways to give themselves an edge (Anonmynous, 2001).

An attractive salary and allowance packages can help in retaining employees in long run (Max Messmer, 2006). Computers are playing an important role in the growth of an economy of a nation. IT service and support workers govern everything from top to bottom and lack of these professionals can lead any organization towards downfall (Jenny, 2000). Employee benefits typically concern with policies and time to time financial support. It refers to retirement plans, family welfare, health insurance, paid vacation, employee stock, ownership plans, and other related financial support. Providing time to time benefits and financial support to all employees is challenging for an organization’s economy therefore, benefits and compensations are designed according to employee’s rank and working experience. Compensation includes salary ranges, merit-based programs, and bonus and commission-based programs. Employees’ benefits are the form of values regardless of payment that is usually provided by the employer to an employee in return for his services and contribution to the growth of the organization. Unemployment and worker’s compensation are federally required. For example life and disability insurance, unemployment paid vacation, paid maternity and parental leave, profit sharing, stock options, and bonuses fall into worker’s benefits. The above-listed benefits are tangible, intangible benefits are unseen benefits like appreciation from the boss, college co-operation, etc.

Compensation strategies in Vietnam SME for IT professionals are designed to keep an eye on employees’ time to time requirements. SME in Vietnam offers compensation plans for IT professionals which are based on two important components i.e. Base pay and bonuses, bonuses are based on job and function, according to laws an employee may also be eligible for commission and overtime premiums. Base pay is usually determined by two factors: competitors are paying what amount for this job and employee’s skills, experience, and job performance. Commission in SME highly depends on sales performance. Some SMEs follow an employee bonus program which provides a financial incentive related to sales performance. The incentives are highly based on the to with time jobanSMEsthe a bonuses, performance, skills, and hard work. Shift premiums and overtime premiums are also included in compensation strategies.


Compensation including benefits is not a tool for retention of IT employees in Vietnam SMS as they are in a critical state nowadays but it plays a significant role. Changing compensation strategies have a positive influence and create a strong relationship between employees and employers for the betterment of an organization. Most companies use compensation plans, base pay, performance pay, retention pay, and benefits. An employee usually prefers to stay long in such organizations which offer funding schemes for higher studies and training programs. No one can deny the importance of training programs in the IT field as it helps a lot in enhancing employees’ productivity and skills. In the compensation programs dealing with culture is a little challenging but with the aid of different tools and compensation plans, this has become so easy now. Face-to-face relations of employees with the employer also helps in the retention of employees. The following step helps a lot in retaining talent in long run: Hire top performer before they get a better offer, implement a comprehensive monitoring plan, offer better career visibility, cash compensation, benefits, retirement policies, use explicit ranking system tied to incentives, broaden the concept of retention.

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Attractive Compensation and benefits

Offering a fair and high salary option always helps to retain IT talent at SMEs. As SME in Vietnam is facing crises and turnover is 28% so offering effective compensation plans and noncash plans will help a lot in retention talent. In recent years, the demand for professionals in the IT field has increased a lot and in response to demand, salaries of IT professionals are also increasing. Employers should evaluate that a compensation plan they offer is more attractive than others. Many organizations are now offering flexible or cafeteria benefits in order to retain expert professionals in an organization. Financial support for training programs also helps in retaining high-level employees (MAX Messmer, 2006).

Effective compensation strategies are crucial to attracting and retain key talent to the growth of global institutions. The salary increase is a charming tool for employees. Some employers first hire contract-based employees on a trial basis and after some time they re-hire individuals at the good package. Salary negotiating affects every one time to time; a salary increase can be difficult for numerous employers as it highly affects an organization’s economy. However, an increase in salary with time is an excellent way to retain employees in a place in the long run. Salary increase highly depends on an employee’s performance and job status. Deferred bonus motivates employees to perform quality service and instigates them to work hard in one place. Compensation components are involved in the design of compensation strategy. Three basic types of compensatory stock plans are stock option, stock grant, and stock purchase plans. In stock plans, the employer has the right to purchase employer stock at a set price. Under the stock grant program stock is given to employees at no cost. In stock purchase plans employees must commit their funds to purchase shares. To attract and retain new IT talent at SMEs, adopting a compensation philosophy is always beneficial. In this philosophy, a company looks to pay the same or little less amount to an employee same as its competitor paying (Jim Klein & Aidan Langley, 2002).

McClelland Theory

McClelland’s two factors theory highly focuses on employee motivation and encouragement. Macland identified three themes that are necessary for an employee’s retention in long run. He identified that compensation and benefits provide support to an employee. The first theme is that an individual needs achievement, the second need is of appreciation and benefits and the third theme is the need for some financial support from time to time for full filing employee’s requirements. Individual needs cash compensation time to time and appreciation from management and Boss which helps a lot in improving employee’s creativity and productivity. Following are the ways by which a manager can increase employee motivation: compensation of good performance job, non-cash benefits, employee family care, etc. The above-listed ways play a significant role in the retention of employees in long run.

Impact of remuneration and benefits to the retention success/turnover

The impact of compensation strategies to retain new IT talent highly depends on its design. For instance, a stock option program has two major advantages: it brings cash flow and no charge to earning gains given to employees. Option programs usually give dilution to a firm. To reduce overall financial impact shareholders often resist allocating more than 10% on employees’ compensation programs. These programs if designed and implemented effectively have always a positive impact on talent retention (Points of retention, 2007). Cash compensation and benefits played a pivotal role in the retention of employees at a place in the long run at P&MM (Part of motion Plc).

“Recent research from the CIPD indicates that the average cost of turnover per employee is now £8,200 rising to £12,000 for managers”.(Succesful staff retention & Motivation)

Ways to attract employee

Compensation plans should be designed in a way to facilitate employees as much as possible. Young talent prefers to have bonuses and allowances with base salary. Skilled employees always prefer to work at the organization which offers financial support for further studies. There are a number of ways by which SMEs in Vietnam can reduce the job shifting rate in Vietnam. Bonuses are a major element for the retention of employees, employee cash bonus plans, employee bonuses. Benefits both tangible and intangible have great importance in employee retention, Medical benefits, retirement policies, life, and accident insurance, paid time off, paid vacation, paid maternity leave, parental leave, holidays package, leave time, employee assistance programs, life event gifts. Internal and external education programs also attract new talent to work in an organization for many years. Effective pension schemes should be designed in such a way to facilitate old employees in return for their lifetime service to an organization (Stephen Taylor). The best solution for achieving good results from an employee is to pay more than others. High bonuses motivate employees to work hard and produce the best results. Bonuses and incentives show immediate results in form of best results.

“If money is not the answer perhaps perks and incentives can
do the job of motivating the workforce. Many firms now offer
perks ranging from on-site gyms and private health insurance
to extra time away from work. ’’ (Feeling Valued is the best motivation)

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Valuing employees instigate employees to work hard and produce the best quality results. Every employee wants to be praised by employers it gives him motivation for hard work. Compensation cash plans, non-cash benefits, and rewards are useful for employee motivation and retention in an IT industry (Huff, 2007). Non-cash benefits are also known as perks fringe or perqs. The impact of these benefits is very high as it helps in retaining better-qualified employees, it provides high-risk coverage at low cost, improves efficiency and productivity, employees enjoy peace of mind and personal life insurance. In some countries, these benefits are often taxed at normal rates by individuals (Cash and Non-cash rewards, 2008).


Compensation plans and benefits are the right of an employee, flexible work environment, less stress, pressure, no diversity, insurance plans, and stock funds all are the ways to retain high professionals in long run. Vietnam SMEs are facing bad crises these days so there is a strong need to increase sales and to have highly skilled professionals at the place. An employee needs to be treated fairly and compensated fairly at all times (Employee rights, 2003).


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