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
1.1. Research background: ............................................................................................ 1
1.2. Research objectives ............................................................................................... 2
1.3. Research questions................................................................................................. 3
1.4. Scope of research ................................................................................................... 3
1.5. Structure of the thesis: ........................................................................................... 4

CHAPTER 2: LITERATURE REVIEW ......................................................................... 5
2.1. Overview ................................................................................................................ 5
2.2. Definitions of a pay structure ................................................................................ 5
2.3. The role of pay structure ........................................................................................ 7
2.3.1. Improving employee engagement and attracting talents ................................. 7
2.3.2. Motivating and boosting individual and group performance .......................... 7
2.4. Factors affecting pay structure............................................................................... 8
2.4.1. Legal requirements .......................................................................................... 9
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

9

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
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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.
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The main and most important issue appeared at Kim Quy is the employee engagement
which is regarded as seasonal labors. Because this poses a deadly threat in forming a
capable and trustworthy line-up of employees, there must be changes in the company’s
policy to erase damages. After a long and struggling period of searching for solutions,
the board of director found that there had to be something wrong with their
compensation system and they should have established a new pay structure for the
company.
The research aims to generate solutions for Kim Quy case in term of pay structure. In
detail, the research’s process includes following steps:
(1)

Literature review

(2)

Analyzing Kim Quy Case

(3)

Generating solutions for the case.

1.3. Research questions
The key question of the study is: “How to use pay structure as a tool to increase
performance at Kim Quy Limited Liability Company?” To answer this research
question, it is necessary to answer the following sub questions:
i. What is a pay structure?

ii. How does the pay structure work at Kim Quy Company?
1.4. Scope of research
This study focus on how to establish a pay structure at Kim Quy Limited Liability
Company by analyzing the term “pay structure” in order to improve the employee
engagement here. The period of time the research is conducted is from 2014-2015.
Data is taken from the source of data published in 2013 and 2014 at Kim Quy Limited
Liability Company.

3


The procedure of the research is qualitative method, in which the data is taken and
analyzed to give the final conclusion on whether the pay structure in the organization is
good or not.
1.5. Structure of the thesis:
There are 5 chapters in the thesis:
Chapter 1: Introduction.
It identifies the statement of aims and objectives with clear indication of the issues,
problems and hypothesis being considered.
Chapter 2: Literature review.
Definitions, forming factors and impacts of pay structure can be found in this
chapter. A description of the layers of pay structure is also provided to help the readers
get a sound understanding of pay structure.
Chapter 3: Methodology.
This chapter presents the research methods. The manifestations are seen from different
perspectives, ranging from visible to invisible manifestations.
Chapter 4: Data analysis
This chapter describes how the data is collected, processed and analyzed to give out the
final result.
Chapter 5: Recommendation and Conclusion

The conclusion should be a brief resume of the investigation design and results and an
overall, personal evaluation of the whole study. It also includes some implications,
assessments and recommendations about the pay structure of the company.

4


CHAPTER 2: LITERATURE REVIEW
2.1. Overview
This chapter covers background knowledge about the study. There are six main parts in
this chapter: the concepts of pay structure, the role of pay structure, factors affecting
pay structure, types of pay, the way an entrepreneur establish a pay structure and
requirements of a good pay structure.
2.2. Definitions of a pay structure
If someone was asked: “Why do you work for a certain company instead of one
another?” the possible answer might at first be the reasonable salary, welfare or the
high position this organization offers. All these elements relate to the same issue which
is compensation, the benefits employees want to get after they contribute to achieve the
common goal for the firm. As far as you know, every organization represents their
compensation system 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 edition, “A pay structure is the pay policy resulting from job structure
and pay-level decisions”. This definition means pay structure is a system in which an
organization uses to decide the compensation employees get through their contribution
and the essence of the work. In this clause, it is a common knowledge that a job
structure is a layout that defines what a particular career entails; the structure has well
defined job descriptions of a particular job, responsibilities, qualifications, and salary
structure and performance matrix. Obviously, different companies have different job
structures for different positions. If job structure is the base for deciding the

compensation, pay-level decision is the final gate in which the head of a company
arranges and agrees on payment for their employees. Without one of these two factors,
a pay structure cannot be established.

5


From the other point of view, Hollenbeck stated another detailed definition “A pay
structure is a collection of pay grades, levels or bands, linking related jobs within a
hierarchy or series that provides a framework for the implementation of reward
strategies and policies within an organization”. A company needs pay grades, levels of
band or linking related jobs for all its positions so that people know where they fall
within the organization. A pay structure also helps answer questions about who's who,
what each person's role is, and why people are compensated differently. It also helps
human resources personnel to fairly administer any given pay philosophy. Specifically,
the definition by Hollenbeck listed out a lot of minor ones including pay grades, levels
or bands, linking related jobs within a hierarchy or series. As things change every day,
the lists of these things may endure so that the definition of Hollenbeck is detailed but
never be complete. On the other hand, pay structure and pay-level decision are 2
basically determinants in which we can develop sub-determinants of pay structure, for
instance, pay-level decisions include pay rates, pay ranges, pay policy line, etc.
With a different approach, the third definition about pay structure which belongs to
Erisa Ojimba, Director of Human Resources at Autodesk described a pay structure
from a spectacular aspect. She stated that “A company's pay structure is the method of
administering its pay philosophy”. This is a short but detailed and easy to understand
definition. The clause stated that pay structure is the tool for a company to build up
compensation system. In addition to that, pay philosophy is regarded as the method or
exactly the strategy that the company wants to apply to their compensation system. For
example, a company allows payment to worker for a limited number of days and it is a
philosophy in which the company applies to support their labors with days off. To be

honest, her clause seems to be rather too general as it only describes what a pay
structure is but neglect to informing how it is constructed. At that point, the definition
by Raymond Noe completely overwhelmed het statement because Raymond’s
definition not only expresses what a pay structure consists of but also the process to
establish a pay structure with 2 main steps which are building up job structure and
determining pay-level decision.
6


In comparing these three definitions, the first definition seems to be more trustworthy,
formal and widely used. Obviously, the definition of Raymond Noe is more reliable
than the others as it was taken from the Human Resource Management manual. Due to
these reasons, the thesis will choose the definition of Raymond Noe as the standard
definition: “A pay structure is the pay policy resulting from job structure and pay-level
decisions”.
2.3. The role of pay structure
2.3.1. Improving employee engagement and attracting talents
An organization needs talented and skilled individuals to build a successful business.
Because these talented people are highly sought after, an attractive pay structure is
often the key to bring in the best candidates on board. It is a common knowledge that a
fair compensation system is among one of the most effective ways in retaining and
motivating employees.
When an organization is made up of people who is skilled and motivated, business
thrives. Furthermore, salary structures provide a framework for fair and consistent pay
policies, they help monitor and control the implemented pay practices and demonstrate
possible pay opportunities to the employees. Implementing good salary structures is
critical for any company. Another issue relating to pay structure is that a compensation
system proves itself appropriate with a firm will help reduce the retention rate as a
matter of fact.
2.3.2. Motivating and boosting individual and group performance

There are two main theories of how to reward employees by Nancy Katz, N.R which is
presented at the “Do Rewards Make a Difference?” session at the Academy of
Management Conference. She promoted a healthy balance between individual
achievement and team success: the impact of hybrid reward systems, characterized the
theories as two opposing camps. The first camp advocates rewarding individual
performance, through plans such as commissions-sales schemes and merit-based-pay.
7


The claim is that this will increase employees’ energy, drive, risk taking, and task
identification. The disadvantages of rewarding individual performance are that
employees will cooperate less, that high performers may be resented by others in the
corporation, and that low performers may try to undermine top performers.
The second camp believes that organizations should reward team performance, without
regard for individual accomplishment. This reward system is thought to bring the
advantages of increased helping and cooperation, sharing of information and resources,
and mutual-respect among employees. The disadvantages of team-based reward
schemes are that they create a lack of drive that low performers are “free riders,” and
that high performers may withdraw or become tough cops.
Katz sought to identify reward schemes that achieve the best of both worlds. These
hybrid pay systems would reward individual and team performance, promoting
excellence at both levels. Katz suggested two possible hybrid reward systems. The first
system features a base rate of pay for individual performance that increases when the
group reaches a target level of performance. In this reward system, individuals have a
clear pay-for-performance incentive and their rate of pay increases when the group as a
whole does well. In the second hybrid, the pay for performance rate also increases
when a target is reached. Under this reward system, however, every team member must
reach a target level of performance before the higher pay rate kicks in. In contrast with
the first hybrid, this reward system clearly incentivizes the better performers to aid
poorer performers. Only when the poorest performer reaches the target does the higher

pay rate kick in.
2.4. Factors affecting pay structure
According to the book the fundamental of Human resource management by Raymond
Noe, on forming a pay structure, there are several factors in which affect the way it
functions. Whether it is internal or external forces, managers should consider it
seriously before establishing a complete compensation system. Based on the common
knowledge, there are 3 main factors in which a firm’s pay structure is reliant on:
8


Figure 2.1. The forming factors of a pay structure
Market
forces
Legal
requiremens

Organization
al goal

Pay
structures

Source: A. Noe, 2011
2.4.1. Legal requirements
In 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.
2.4.1.1. Equal employment opportunity
Under the laws governing Equal Employment Opportunity, employers may not base
differences in pay on an employee’s age, sex, race, or other protected status. Any

differences in pay must instead be tied to such business-related considerations as job
responsibilities or performance. The goal is for employers to provide equal pay for
equal work. Job descriptions, job structures, and pay structures can help organizations
demonstrate that they are upholding these laws.
2.4.1.2. Overtime pay
Under the Vietnamese Civil Code 2005, employees should be paid for overtime work
at higher rate than the normal rate. It may create a huge change on how a person
receives his/her salary as the amount of overtime hour may be flexible depending on
his/her decision.

9


2.4.2. Market forces
Market forces are an important factor to decide how a firm pays their employees. A
firm can only pay their employees under the condition that the cost of labor does not
exceed an appropriate number with them. Organizations must keep costs low enough
that they can sell their products profitably, yet they must be able to attract workers in a
competitive labor market. Decisions about how to respond to the economic forces of
product markets and labor markets limit an organization’s choices about pay structure.
2.4.2.1. Product market
To succeed in their product markets, organizations must be able to sell their goods and
services at a quantity and price that will bring them a sufficient profit. They may try to
win customers by being superior in a number of areas, including quality, customer
service, and price. An important influence on price is the cost to produce the goods and
services for sale. And of course the cost of labor, which is reliant on company’s pay
structure, is a significant part of an organization’s costs.
2.4.2.2 Labor market
Workers prefer higher-paying jobs and avoid employers that offer less money for the
same type of job. In this way, competition for labor establishes the minimum an

organization must pay to hire an employee for a particular job. If an organization pays
less than the minimum, employees will look for jobs with other organizations.
Therefore, the labor market has huge impact on how an organization compensates their
employees.
2.4.3. Organizational goal
Organizational goal affects pay structure through the company policy on deciding the
quality of the workforce, the current financial position and the fairness between
employees.

10


Figure 2.2: How organizational goal affects a pay structure

Organizational goal

Quality of the workforce
Financial situation
Fairness between
employees

Pay structure

Source: A. Noe, 2011

Organizational goal affects a pay structure through the quality of company’s workforce
because if a firm chooses to employs high quality workforce, they are meant to pay
higher. Therefore, the quality of the workforce is absolutely a factor affecting pay
structure.
In addition to that a firm decides their pay structure based on their financial situation,

they will not pay what they cannot afford. In addition to that, a company should base
on the cost-control policy of themselves in order to decide their pay policy.
Finally, a good pay structure which has highest percentage of achieving the
organizational goal is probably a structure that remains the fairness of benefit between
employees and. It makes sense that the more one contributes, the more he gets.

11


2.5. Types of pay
2.5.1. Pay for individual performance
2.5.1.1 Based on the essence of work and employees ‘ability
2.5.1.1.1. Job-based pay
According to the book the fundamental of human resource management “Job-based
pay is a pay structure in which employees are paid based on their contribution to the
work”. This is the traditional and most widely used paying type in nowadays business...
This type is pretty common due to the fairness it creates, no one can disapprove a pay
structure that remains equality at all.
This emphasis on jobs has some limitations. First of all, the precise definition of a job’s
responsibilities can contribute to an attitude that some activities “are not in my job
description”, at the expense of flexibility innovation, quality, and customer service.
Also, the job structure’s focus on higher pay for higher status can work against an
effort at empowerment. Organizations may avoid change because it requires repeating
the time-consuming process of creating job descriptions and related paperwork.
Another change-related problem is that when the organization needs a new set of
knowledge, skills, and abilities, the existing pay structure may be rewarding the wrong
behaviors. Finally, a pay structure that rewards employees for winning promotions may
discourage them from gaining valuable experience through lateral career moves.
2.5.1.1.2. Skill-based pay
In the book The Fundamentals of Human resource management, 4th edition, the author

stated that “Skill-based pay systems are pay structures that set pay according to the
employees’ level of skill or knowledge and what they are capable of doing”. Skillbased pay is important for those firms with special tasks requiring high-skill worker in
which not others can performance as well as at organizations where changing
technology requires employees to continually widen and deepen their knowledge.
Skill-based pay also supports efforts to empower employees and enrich jobs because it
12


encourages employees to enrich their knowledge so they can make decisions in many
areas. In this way, skill-based pay helps organizations become more flexible and
innovative. More generally, skill-based pay can encourage a climate of learning and
adaptability and give employees a broader view of how the organization functions.
These changes should help employees use their knowledge and ideas more
productively.
2.5.1.1.3. Performance-based pay (Merit pay)
Merit pay is a term that describes pay structure which is established based on the
performance of employees, most frequently in the context of educational reform or
government civil service reform. It provides bonuses for workers who perform their
jobs effectively. One example of Merit pay is teaching area in which the quality of the
work can easily be measured. The pros can be gained are that it leads to better
educational outcomes, helps low-performing schools attract teachers and increases the
teacher retention rates. However, it may affect the teacher morale, increase the
competition between teachers, waste time and money for merit pay plans and
sometimes do harm to student achievements.
2.5.1.1.4. Experience-based pay
The term experience-based pay is used to describe a pay structure in which employees
receive the salary reliant on the period of time they worked in an organization. This
kind of pay is rare and only appears in special area, Vietnam is one of those countries
in which people sometimes regard the experience employees tend to perform better
than those who with less experience. Therefore, the one with better work experience

will get higher salary. Basically, this is only correct in some circumstances, in order to
evaluate people in common, we should base on different criteria to get a deeper
understanding about one’s ability.

13


2.5.1.2. Based on the reward form
2.5.1.2.1. Salaries and Wages
Many sales employees receive a fixed amount of hourly compensation called a wage or
a fixed amount of monthly compensation, known as a salary. Salaried workers are paid
a fixed amount of money per month based on an annual salary regardless of how many
hours they actually work.
2.5.1.2.2. Fringe Benefits
Fringe benefits describe non-cash form of compensation, such as health insurance
benefits, access to a company vehicle and health club memberships. Sales employees
often receive certain fringe benefits as compensation along with normal cash pay.
2.5.1.2.3. Commissions
While most workers receive wages or salaries, sales employees also commonly receive
pay in the form of commissions. Commissions are payments that sales workers receive
based on the amount of product that they sold.
2.5.1.2.4. Bonuses
Bonuses are special awards of cash that employers sometimes give to workers for
exemplary performance. If sales employees perform especially well during a certain
moth or year, they may receive bonus pay at the end of that month or year.
2.5.1.2.5. Considerations
Sales employees can receive a mixture of different types of compensation. For
instance, a single sales person might get a salary, fringe benefits, commissions and
bonuses. Some sales workers do not receive commissions, while others do not receive
salaries and rely entirely upon making sales commissions for cash income.


14


2.5.1.3. Based on the payment method
2.5.1.3.1. Direct payment
This is the most simple and widely used method throughout the history in which the
employers pay the employees by cash, coins, etc in-hand, usually at the beginning or
the end of paying period in which may be weekly, monthly, quarterly or annually. The
advantages of this method include the openness of the pay structure, delay avoiding
and availability for everyone.
2.5.1.3.2. Paying through credit card or bank transfer
Employees will receive salaries through the credit card, debit card, etc. This method
seems to be convenient for those who own a bank account. However, it sometimes
causes trouble for employees due to the limitation post number at the paying day or the
holiday. Despite that fact, paying through credit card proves itself a safety and modern
method by far.
2.5.2. Pay for group performance
Employers may address the drawbacks of individual incentives by including group
incentives in the organization’s compensation plan. To win group incentives,
employees must cooperate and share knowledge so that the entire group can meet its
performance targets. Common group incentives include gain sharing, bonuses, and
team awards.
2.5.2.1. Gain sharing
Organizations that want employees to focus on efficiency may adopt a gain sharing
program, which measures increases in productivity and effectiveness and distributes a
portion of each gain to employees. Gain sharing addresses the challenge of identifying
appropriate performance measures for complex jobs. Even for simpler jobs, setting
acceptable standards and measuring performance can be complicated. Gain sharing
frees employees to determine how to improve their own and their group’s performance.

It also broadens employees’ focus beyond their individual interests. But in contrast to
15


profit sharing, discussed later, it keeps the performance measures within a range of
activity that most employees believe they can influence.
2.5.2.2. Group Bonuses and Team Awards
In contrast to gain sharing plans, which typically reward the performance of all
employees at a facility, bonuses for group performance tend to be for smaller work
groups. Bonuses reward the members of a group for attaining a specific goal, usually
measured in terms of physical output. Team awards are similar to group bonuses, but
they are more likely to use a broad range of performance measures, such as cost
savings, successful completion of a project, or even meeting deadlines. Both types of
incentives have the advantage that they encourage group or team members to
cooperates so that they can achieve their goal. However, depending on the reward
system, competition among individuals may be replaced by competition among groups.
Competition may be healthy in some situations, as when groups try to outdo one
another in satisfying customers. On the downside, competition may also prevent
necessary cooperation among groups. To avoid this, the organization should carefully
set the performance goals for these incentives so that concern for costs or sales does
not obscure other objectives, such as quality, customer service, and ethical behavior.
2.5.3. Pay for organizational performance
Two important ways organizations measure their performance are in terms of their
profits and their stock price. In a competitive marketplace, profits result when an
organization is efficiently providing products that customers want at a price they are
willing to pay. Stock is the owners’ investment in a corporation; when the stock price
is rising, the value of that investment is growing. Rather than trying to figure out what
performance measures will motivate employees to do the things that generate high
profits and a rising stock price, many organizations offer incentive pay tied to those
organizational performance measures.

The expectation is that employees will focus on what is best for the organization.
These organization-level incentives can motivate employees to align their activities
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with the organization’s goals. At the same time, linking incentives to the organization’s
profits or stock price exposes employees to a high degree of risk. Profits and stock
price can soar very high very fast, but they can also fall. The result is a great deal of
uncertainty about the amount of incentive pay each employee will receive in each
period. Therefore, these kinds of incentive pay are likely to be most effective in
organizations that emphasize growth and innovation, which tend to need employees
who thrive in a risk-taking environment.
2.5.3.1. Profit sharing
Under profit sharing, payments are a percentage of the organization’s profits and do
not become part of the employees’ base salary. The formula for computing and
dividing the profit-sharing bonus is included in the union contract. Organizations use
profit sharing for a number of reasons. It may encourage employees to think more like
owners, taking a broad view of what they need to do in order to make the organization
more effective. They are more likely to cooperate and less likely to focus on narrow
self-interests. Also, profit sharing has the practical advantage of costing less when the
organization is experiencing financial difficulties. If the organization has little or no
profit, this incentive pay is small or nonexistent, so employers may not need to rely as
much on layoffs to reduce costs.
Employees also may feel that small profit-sharing checks are unfair because they have
little control over profits. If profit sharing is offered to all employees but most
employees think only management decisions about products, price, and marketing have
much impact on profits, they will conclude that there is little connection between their
actions and their rewards. In that case, profit-sharing plans will have little impact on
employee behavior. This problem is even greater when employees have to wait months
before profits are distributed. The time lag between high-performance behavior and

financial rewards is simply too long to be motivating.
An organization setting up a profit-sharing plan should consider what to do if profits
fall. If the economy slows and profit-sharing payments disappear along with profits,
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