Solutions for low compensation of technician team in prestige sports cars company

Since technician team plays an essential role in company operation, it is no doubt to say the high turnover rate will lead to significant negative impact to the whole company.. And below

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

TO NGUYEN QUYNH TRANG

SOLUTIONS FOR LOW COMPENSATION OF TECHNICIAN TEAM IN PRESTIGE SPORTS CARS

COMPANY

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – Year 2018

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

TO NGUYEN QUYNH TRANG

SOLUTIONS FOR LOW COMPENSATION OF TECHNICIAN TEAM IN PRESTIGE SPORTS CARS

COMPANY

MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: PHAN THI MINH THU

Ho Chi Minh City – Year 2018

Contents

Executive Summary 1

Chapter 1: Background Information 2

1.1 Company Background 2

1.2 Company Symptoms 3

1.2.1 The High Turnover Rate 3

1.2.2 Decrease of Productivity Index and ASI Index 7

1.2.3 The Fluctuation of total After Sale’s Revenue 9

Chapter 2: Problem Identification 10

2.1 Identifying and Diagnosing Tentative Problems 10

2.1.1 The first tentative problem: Excessive workload 14

2.1.2 The second tentative problem: Low compensation for technician team 16

2.1.3 The third tentative problem: Ineffective leadership 18

2.1.4 Central problem: Low compensation for technician team 20

2.2 Problem Justification 21

2.2.1 Problem Definition 21

2.2.2 Problem Existence 22

2.2.3 Problem Importance 23

Chapter 3 Causes and possible solutions 26

3.1 Analyzing causes of the problem 26

3.1.1 Potential causes of the problem 26

3.1.2 Main causes of the problem 31

3.2 Alternative solutions 31

3.2.1 Set solution 1 34

3.2.2 Set solution 2 41

3.2.3 Choosing the most suitable set solution for company 43

Chapter 4 Action plan for set solution 1 44

4.1 Objective 44

4.2 Timeline 44

4.3 Cost 47

Conclusion 51 Reference 52 Appendix 58

Executive Summary

Recently, Prestige Sports Car Company Limited - an official distributor of Porsche cars in Vietnam, is facing with some serious issues, in which the high turn overate of technician team is the most significant issue Since technician team play an essential role in company operation, this issue will surely lead to some negative results with company And the most noticeable signal is the increase of the training and

recruitment cost for technician team along with the decrease of after sale’s department revenue Therefore, this thesis will focus to analyze these issues with technician team and figure out what is the main problem of these things through the data from

company and from some qualitative research Not only that, this thesis will evaluate and raise the most suitable solution as well as detail actions plan for solving problem And as finding from the research, the main problem lead to the high turn overate of technician team is the low compensation of company Through the depth interview with technician team, it is found that the base salary of company is low compare to other competitors in the market Not only that, the performance bonus with the benefit package is not really attractive Therefore, many technician of company feel

disappointed and they decide to leave And through qualitative research as well as theories, it can be stated that this problem does exist due to the limited pay structure, the expense control of company and the subjective evaluation of manager Hence, it is suggested that company should design a new compensation plan by creating a new base salary range, keeping the same performance bonus and increasing benefits for employees The cost for applying this set solution is high, but the return benefit will help improve company performance, surely

Chapter 1: Background Information 1.1 Company Background

Prestige Sports Cars Co., Ltd ( herein call “PSCL”) is the official Porsche Distributor

in Vietnam with currently two branches in Vietnam, located in Ho Chi Minh City and

Ha Noi City

The entire model range of Porsche can be named as the 911 – an exclusive sport car, the Boxster, the Cayman as well as some famous SUV cars for family purposes like Cayenne or Macan And the thing that makes Porsche so special and different from other cars company in the world is the sportiness and the designation of the car With Porsche, customers have their right to choose in the variety option to make their car unique and outstanding Not only that, Company also offers one of the highest quality cars in the world along with the excellent safety equipment for customers

In Vietnam, Porsche has been well established firstly in Ho Chi Minh City since 2007 And five year later, another center has been set in Ha Noi Both outlet center has been working quiet effective and bring to Vietnam customers this excellent cars

For both outlets, total 97 employees have been working in There are five departments

in PSCL: Sales, After Sales, Marketing, HR & Admin and Finance; in which After Sales is the department with highest number of employees: 44 employees Please refer

to below figure 1 for more information about the organizational chart of After Sales department

In After Sales department, there are 30 technicians, 8 service advisors, 3 service

executive, two workshop foremen and one manager The responsibility of the whole department is to keep the service process smoothly and to ensure the quality of each car bought by customers In which, the service advisor team will schedule the repair appointments considering workshop capacities and control the quality of serviced vehicles while technician teams will repair and maintain cars in accordance with

manufacturer’s procedures and diagnosis guidelines

Figure 1: Organizational chart of After Sales department

Hence, it can be said that After Sales department plays an essential role in company working operation and every small effect from this department will lead to significant result for company In After Sales department, technician staffs achieve the highest percentage with 68%, which means almost jobs will be done by technician team

Therefore, this essay will discuss on the problems that After Sales, especial technician team, have been facing in recent years and create the detailed action plan to improve the problem

1.2 Company Symptoms

It can be seen that After Sales team have been struggling with one of the hardest time since many symptoms have been proved as below

1.2.1 The High Turnover Rate

The most significant important symptom that needs to mention here is the turnover rate of technician team in recent year Since technician team plays an essential role in company operation, it is no doubt to say the high turnover rate will lead to significant negative impact to the whole company

After Sale manager

Workshop foremance

Technnician

Service advisor

Service Executive

To figure out if the turnover rate is high or not, normally, it need to be compared with the average industry Unfortunately, it is extremely difficult to have this data in

Vietnam market since there are no research company provided this information

Therefore, the turnover rate of technician team will be put in comparison with other departments of company And below Figure 2 will demonstrate the turnover rate of technician team as well as the turnover rate of the whole company for the period from

And when employees resign from company, the cost for new recruitment will increase because HR team needs to find more candidates for the vacancies Therefore, company has to pay money to advertise the vacancy and may incur costs related to finding the

new vacancies Not only that, high turnover rate also costs company time in addition to money Managers or HR team have to spend time to conduct interviews, advertise the job and recruit candidates Moreover, their colleagues have to cover their job until a new employee is hired and begins working When new employees start their job in company, they also need to be trained to perform their jobs completely The new

employee may take several months to fully learn the job and achieve competency in the position Hence, the cost for replacement training will increase Therefore,

company will face with serious problem if the turnover rate of company is high

Firstly, the recruitment cost of team will surely increase along with the high turnover rate The recruitment cost in company will be calculated here as only advertising fee for the vacancies The below figure 3 will demonstrate the recruitment cost for

technician team and other departments in company for giving research period From

2015 to 2017, there are a dramatically increase in the recruitment cost for technician team, from 124.8 million Vietnamese dongs into 185.6 million Vietnamese dongs, nearly 48.71% In the opposite, the amount spent on other departments gradually

decline

Unit: Million Dongs

Figure 3: The recruitment cost of technician team and other departments

Secondly, the replacement training fee also incurs for guiding the new technician how

to repair and fix one Porsche car following the typical standard of company Normally,

it took from six months to one year to train one technician to perform jobs completely The length of time will be depended on the existed experience of the technician and the ability to learn the new things of them Through that time, company has to pay money not only for outside and inside training but also for foreign training Technician will be sent to training centers in Penang and Singapore to learn the Porsche

procedures Therefore, the cost training arrangement like transportation and

accommodation will be high, along with the cost for hiring professional trainer to hold

a class

The below figure 4 will illustrate the training cost for technician team in the period three years from 2015 to 2017 This data is calculated based on data from HR team

Figure 4: The training cost of technician team from 2015 to 2017

Source: Data of HR team

It can be seen that the training cost increase dramatically from 2015 to 2017 It can be explained by the high number of resigned employees of the team

Therefore, the issue of high turnover rate should be concerned carefully by the

management If not, it will lead to some negative results for company, in which the total cost of company will have impact firstly because of the increasing of recruitment

708,138,783

929,089,095

1,123,245,144

200,000,000

cost and replacement cost as above stipulated As a result, the profit of company will

be decreased, surely

1.2.2 Decrease of Productivity Index and ASI Index

Productivity Index In After Sales team, each technician will have a computer that

records their working schedule for each car When they start to fix the car, the

computer will count the time until that car is completely ready to transfer customers Every small item will be calculated to identify the percentage to perform the job for all technicians And at the end of the month, each technician will receive the average productivity index and then their bonus will be calculated based on their ranking The formula for calculating the productivity index is as below:

Productive time

Attended working time

In which, productive time is the time clocked onto job cards The attended time includes idle time, but excludes clocking time for other tasks than repair jobs (“Workshop” clocking) The productivity calculation data is recorded and monitored via the Employee Project Clock Program system

Figure 5: The average productivity of technicians from 2015 to 2017

Source: Monthly report of After Sales team

Upon the monthly report of After Sales team, the average productivity index of

technician has been showed as figure 5 for the period from 2015 to 2017 It can be seen from the chart that the average productivity decreased year by year from 2015 to

2017 This is the alarm for After Sales managers about the working attitude of this team

ASI Index One more index that need to be consider is the After Sales Satisfaction

Index (ASI) This index can be found in the monthly report of Marketing department

by conducting the surveys with customers Thanks to this survey, PSCL management can have a deep look of how company is performing and how customer was satisfied and happy with the products or services

This survey was divided into two parts, purchase satisfaction and after sales

satisfaction The purchase satisfaction part was designed to collect the feedbacks of customer through the purchasing process by using ten questions on a rating scale of 1-

10 regarding to their experiences of product To evaluate this part, company used the purchase satisfaction index (PSI) that reflected the satisfaction with the purchase and delivery process, the experience with the sales person as well as the appearance In other hand, the after sales satisfaction index (ASI) was calculated to reflect the

satisfaction with the service process as well as the experience with the technicians will

be showed in the second part of the survey And figure 6 will illustrated the average ASI for After Sales team for the period 2015-2017 It can be seen that the ASI

decrease significantly from 2015 to 2016, and then slightly decrease from 2016 to

2017 It is a signal that customers are not really satisfied with the services provided by After Sales team

In fact, the Productivity Index and the ASI Index can have a deep relationship with each other Productivity Index decrease means that technicians do not fully focus on the job to repair the cars And customers will complaint on the fixing car of the whole team, sometimes And as the result, they will mark low score for the services that they receive from company and the ASI Index will decline along with the Productivity Index And if customers are not happy with the services, the revenues of the team will have negative effect as mentioned in the next part

Figure 6: The average ASI of After Sales from 2015 to 2017

Source: Monthly report of Marketing team

1.2.3 The Fluctuation of total After Sale’s Revenue

Unit: Million Dongs

Figure 7: The total revenue of After Sales team from 2015 to 2017

Source: Data of HR team The revenue of After Sales team comes from two sources Firstly, revenue from the service advisor team, in which customers will buy small items of the cars and the amount will be counted to after sales team The second revenues come from the

repairing and caring services from technician teams It can be seen from the figure 7

that revenues of After Sales team increase slightly from 2015 to 2016, then

significantly decrease from 2016 to 2017 It can be assumed that for the period

2016-2017, there was some issues happened in After Sales department and it lead to the bad result for this period And one of the most important reasons is from the decrease of the productivity of the technician team As explained in the previous part, the revenue

of After Sales team have relation with the Productivity Index and the ASI Index When customers are not happy with the services from company, they will find other agencies

to have their car fixed completely With the development of the automobile industry, it

is not difficult for customers to have a professional car center to care for their cars And this will definitely lead to the decline of the revenue of the team as well as

revenue of the whole company In sum, company should focus on these symptoms because they also have negative impacts to the total sales and the profit will have effect, too

Chapter 2: Problem Identification 2.1 Identifying and Diagnosing Tentative Problems

The first round of depth interview has been taken to figure out if these symptom have existed in After Sales team or not and then to understand which is the main problem lead to these symptoms

The reason for using depth interview is because there may be some confidential

information that cannot be discussed publicity Depth interview will help interviewer understand deeper and gain more detailed information rather than other types of

research Not only that, using depth interview will help to create good rapport between interviewer and interviewees, so that interviewees can easily to share their story in the most convenient way

The first round of depth interview has been conducted from August 01st, 2018 to

August 07th, 2018 through telephone The interviewees include one After Sales

manager, three current employees and two past employees Each interview lasts

approximately from 15 minutes to 20 minutes and they have been recorded under the permission of all interviewees The arrangement for the interview is as below table 1

Interview Interviewee

First Current technician 1 - Mr Hoang

Second Current technician 2 – Mr Trung

Third Current technician 3 – Mr Tung

Fourth After Sales manager – Mr Thanh

Fifth Past technician 1 – Mr Huy

Sixth Past technician 2 – Mr Thac

Table 1: The first depth interview arrangement

Moreover, the interview guide consists of 10 questions They are open-ended

questions The first and the second question are about general information of

employees, and then followed by the question about the attitude of employees with companies Question 4 asks some difficulties that employees have to face while

working in company; whereas question 5 mentions about employees opinions on productivity evaluation machine After that, question 6 and question 7 collects

information about the After Sales Satisfaction Index and the high turnover rate of technician team, respectively Question 8 has been asked to know what are the main reason for above symptoms and their solution for this Finally, question 9 and 10 ask if they would like to stay in company for a long time and their additional information in the interview

Base on the above symptoms of technician team as mentioned in chapter 1 and the results from the first depth interview, the initial cause-effect map has been created for more detailed analysis about the context of the problem, please refer to Figure 8 Then some theories related to the potential problems have been consulted to create the

updated map To check the existence of the new variables from theories, the second round of the depth interview has been conducted with three interviewees from the first round The questions in the second round are about asking if these problems will lead

to the new variable or not And with the results of the second round, the updated map has been created as Figure 9

Potential central

problems

Organizational symptoms Potential central

High turnover rate

of technician team

Low ASI

Low revenue

of After Sales team

High recruitment and training cost

Low profit

Personal relationship breakdown

Increasing stressful feeling

Lack of engagement feeling with company

Low working motivation

Potential central

Figure 9: The updated cause-effect map

Personal relationship breakdown

Increasing stressful feeling

Lack of engagement feeling with company

Low working motivation

Lack of team collaboration

Negative effects to employee’s health

Low technician‘s productivity

High turnover rate

of technician team

Low ASI

Low revenue

of After Sales team

High recruitment and training cost

Increasing mistake in task assignments

Low profit

According to these maps, there are three potential problems that can lead to these

symptoms They are excessive workload, low compensation for technician team and ineffective leadership

2.1.1 The first tentative problem: Excessive workload

Firstly, the problem may come from the workload of employees As discussion with interviewees in the first round of depth interview, employees who have to take many tasks

in everyday may experience some situations as below:

Work-life unbalance Mr Thac – past employee shared his story in the depth interview

that:” I have family to care But sometimes, there are so many jobs need to be done, and

then I have no time for them I am not able to allocate between working time and other aspects of my life I mean that I cannot even balance between my private life and my job.”

According to the interview, they have to spend too many times in company and cannot have enough time with their family and their friends, even time for themselves Excessive workload makes employees, sometimes, unclear about their priority Therefore, it can lead them to the ultimate work-life unbalance

When consulting from theories, it is confirmed that workload have negative relationship with work-life unbalance The higher of workload carried by employees, the lesser work-life balance enjoy by them (1)

Personal relationship breakdown Interviewees inform that they have to spend all day

long with car fixing and preparing and it truly have negative effect to their relationship

Like Mr Tung – current employee shared that:” Well sometimes, my work is overload At

these times, my relationship with family and my friend also gets worse since I have no time for them My friends even complaint that they have not seen me for such a long time.” Or as Mr Thac stated that:” And then my family will, not usually, get angry with me” when he did not spend time with them Surely, their personal relationship may

breakdown if this situation continuously happens in the future

In theories, it is said that work responsibility, family as well as personal life should be complimentary to each other and not conflict with each other (2) Not only that, several job demands with heavy workload have also been found to be important predictors for work-family conflict (3)

Increasing stressful feeling “I feel stressful and my productivity had decreased in that

time How can I handle such a large amount of job like this in just a short time.” – Mr

Thac talked in the interview With heavy workload, emotional of employees will be

affected They have to face more stress that may impact their productivity because they cannot focus on their job And then, they may overlook some procedures to meet the deadlines of managers Hence, their productivity will have negative impact; it will lead to client loss since customers will find others suppliers and revenues of company will

decrease surely Not only that, they may become depressed and decide to quit the job for better working environment

In theories, it is found that job stress normally happen when many tasks were given

together along with the tight deadline of each task This will make it rather stressful and impossible for employees to fully implement that (4)

These above variables are concluded through the first round of depth interview Then, some theories have been consulted to figure out some new variables that can link to the excessive workload problem as below:

Negative effects to employee’s health This variable is not found through the first round

of depth interview In theories, there is a risk that employees in academic work place will begin using compensatory coping strategies to face with heavy workload and that may have negative effect to their health (5) Higher physical load will lead to higher

psychological job demands and this will be associated with poorer physical health for all employees (6) That mean the more job that each person has to carries, the more damage

to health that they have to suffer

Workplace bullying This variable is also not discovered in the first round of depth interview It is found in theories that high level of workload will have relationship with

high risk of workplace bullying (7) Workplace bullying can be described as repeated behaviors like harass or offend that can cause both physical and emotional harm to

employee’s health (8) (9) Some other researchers have also figured out empirical

findings about direct effect of excessive workload on workplace bullying If employees have to conduct and perform their job with many assigned task, they may feel frustrated

and may undertake withdrawal or uncivil behaviors (10) (11)

The second round of depth interview has been conducted to know if excessive workload will lead to negative effect to employee’s health and workplace bullying or not

According to the second interview, most of the respondents agree that the high job

assignment really have impact to their health, in a negative way Some of them feel

exhausted and others have backache while working “I do not have time to go to gym

center for doing some exercises; hence I do not feel healthy as before Not only that, I also get backache because of such a long hour working day like this.” - Mr Thac said.

With workplace bullying, they do not think that this factor have existed in company

2.1.2 The second tentative problem: Low compensation for technician team

Secondly, low compensation for technician team may be a reason With most of

interviewees, compensation is the essential motivation element for them to achieve a greater height If company pays them low salary, it will lead to some situations as below:

Lack of engagement feeling with company With low compensation, employees may

feel underappreciated and unsatisfied because they have been trying their best to complete the assigned job Therefore, they may have lack of engagement feeling since their hard working is not paid well With this problem, almost interviewees agreed that they do not feel a part of company and they want to find a better working environment As Mr Trung – current employee informed in the interview about the low salary rate of company every

year”: Actually if each year salary just increase 3%, it is hard for employees This

increase rate is even lower than the inflation rate every year With this salary, I think it will hard to create the engagement between company and employees” Or like Mr Thanh

– After Sales manager shared about his team ideas regarding to the compensation of

company: “Well I have talked to some of my team member and they said that our

company salary range is quiet low Therefore, they feel discouraged sometimes and they cannot focus to their work” In sum, almost of them agreed that company can engage

employees by many essential things, in which compensation are play an important role They also expressed that they cannot just go to work and do the same thing for the same amount every year They need a stable salary range to keep their high working

engagement with company

And when conducting literature review, it is found that compensation is an essential factor that attributes to employee engagement and motivates them to achieve more milestones in their personal development Moreover, employee's level of engagement has positive relation with the benefit that they receive Therefore, when one employee can achieve recognitions from company by rewarding, their level of engagement will be higher (12)

On the contrary, it is found that the limitations on salary arrangements will

damage employee engagement and employee relations (13)

Low working motivation And then employee’s motivation for working will drop

because they do not receive enough compensation to which they are entitled Mr Hoang

stated in the interview about the salary that he received from company that: “If company

pays low salary, then employee may feel unhappy and unsatisfied with their job Then, they are easy to bear the burden of depression if they feel the received salary is not worth for the effort they spend I do not think they will have fully motivation to complete their job” Not only salary makes them feel disappointed but also benefit decreases their

emotion down Like Mr Huy - past employees talked: “One more things, the benefits that

new companies offer are quiet better Your company does not really care about benefits for employees Sometimes, I also feel lack of motivation for working when comparing with

my friends in other companies” He expressed that it is quiet hard to keep a high working

motivation if company just pay a low salary range without much benefits for their

employees

In theories, some researchers also stated about the importance of compensation with employee’s motivation Compensation is the one the oldest and one of the most important motivator for each employee (14) Therefore, company that pays low compensation will make employee unhappy and their motivation will go down (15)

Increasing stressful feeling This variable is not concluded from depth interview Some

theories have been consulted and it is found that low compensation also lead to the

stressful feeling of employees Employees who cannot earn high salary may suffer stress related to financial worries that can lead to the workplace stress and have negative impact

to employee’s productivity (16) (17)

Personal relationship breakdown This variable is also discovered by theories, not the

depth interview Some theories have stated that low compensation can ruin their personal relationship since employees are not paid enough to support for themselves and their families Their family relations will suffer due to the difficulties that employees have to face at workplace (17) (18)

When asking interviewees in the second round of depth interview, they totally agree that they might feel stressful and disappointed with low salary and benefit and their personal relationship will breakdown surely

2.1.3 The third tentative problem: Ineffective leadership

The last problem may be the ineffective leadership of After Sales manager And below information is induced from the depth interview

Lack of team collaboration One interviewee - Mr Thac informs that their manager

does not have an effective method to lead the team, so that the whole team lack of

coordination and teamwork in some cases He stated that: “Sometimes, I think he does not

really know how to lead the team As I had seen, technician team quietly lack of

collaboration Not usually, but they do not work well together.” According to that, the

manager of After Sales team does not understand how to utilize his team members to enhance their working performance as well as he cannot provide effective motivation for his team through management actions It leads to result that the team member will lack of team work attitude without the direction from manager

In theories, some researchers also found the relationship between leadership and team collaboration An ineffective leadership behavior will affect the team performance since managers do not know how to guide their team in the most suitable way Not only that, they do not know how to empower their team working environment and team

commitment, then it is easy to lead team conflict (19) (20)

Increasing mistake in task assignments In addition, poor leadership will make

employee loss their morale because employees may have feeling misdirected about their future In consequences, the chance of making mistakes may be higher for workers and

customers may feel unhappy with that Mr Thac showed his opinion about that: ”When

one technician cannot work well with other, they may fell lack of morale and they will make mistake, surely.” Hence, if manager cannot give a clear expectation or demands to

his team, it will make them frustrated and hinders their ability to successfully complete an assignment (21)

Low working motivation This variable is developed base on theories Some researchers

have proved that ineffective leadership has an adverse impact on workers' motivations to attain common goals Poor leadership will affect company on retaining employee’s

motivation and morale on working Moreover, autocratic leadership style will create a significant negative relationship with employees' motivation (22) (23) And in the second round of depth interview, interviewee also agrees with that point of view According to interviewee, manager with ineffective management method will make employee feel disappointed and they will not have motivation for working

2.1.4 Central problem: Low compensation for technician team

From the depth interview and from the theories, it can be seen that there are three

potential problems that may occur in technician team They are low compensation,

excessive workload and ineffective leadership; in which low compensation for the

technician team may be the central problem for After Sales department The below

paragraphs will demonstrate some reasons for choosing low compensation as the main problem of company

With excessive workload, it can be said that this is not a real central problem since there

is just one interviewee complaint about this The remaining interviewees all express that the workload of company is not really overload It just become excess for each person, sometimes, when there are so many technicians resigned at the same time After that, the workload return to normal and it cannot be the main reason for employee for leaving

In case of ineffective leadership, there is no evidence to prove that this is the central problem Since everyone have their own attitude with the manage style of manager, it is difficult to convince base on just one interviewee words When one person expresses their unsatisfied attitude with manager, it does not mean that the manager is wrong It may be the subjective judgment of one person It needs to be supported by at least some of the team’s voices to avoid bias Hence, ineffective leadership should not be named as the central problem of company

With compensation, all of the interviewees agreed that if company continuously pays this salary range and benefits, they may and they will consider to quit job and to find better chance in other companies; meanwhile they may not think about resignation in case of excessive workload and ineffective leadership They stated that low compensation will make them unhappy and they do not have engagement feeling with company They also lack of motivation to keep working and their performance will be affected It will lead to bad result for company revenues and the profit of whole company will be seriously

affected Not only that, some of them may decide to quit job to find better package in

other companies When one employee resigns, HR Department has to find new candidate for the vacancy It will cost company an amount of money to recruit new one Hence, the total cost for company operating will increase; meanwhile the sales of company decrease And the profit of company will significantly decrease It is no doubt to say low

compensation must be the central problem that company has been facing Therefore, After Sales manager should significantly focus and find the suitable method to control and reduce the negative impact of this problem to company

2.2 Problem Justification

2.2.1 Problem Definition

Firstly, compensation has been defined as a pay level, in which consist of base salary, bonuses and benefits in exchange for effort of work (24) Another researcher states that compensation is a method to assign monetary value to employees in return for their work performance and it will be illustrates as not only employee salaries but also all other benefits received which stipulated in their contracts (25) Then compensation is stipulated

as financial returns and tangible benefits that employee receives as part of working

relationship (26) Not only that, compensation is also defined as a factor consist of fairy pay, competitive market rate and reasonable incentives for performance improvement

This factor should make sure cost effective to motivate employees as well as should comply with government policies (27)

In addition, compensation can be clarified in many ways One researcher states that there are two types of compensation: direct and indirect Direct pay include cash compensation, basic salary, deferred cash, share options, share ownership and restricted shares In the other hand, indirect pay include: benefits mandated by law; deferred income plans or pension plan; health-related benefits; paying for time not worked; employee services like employee assistance programmes or food services, miscellaneous benefits ranging from provision of agency cars to purchase discounts on agency products or services (27)

Other classify it as intrinsic and extrinsic compensation Intrinsic compensation

comprised two oponents: monetary like basic salary, pay incentives and benefits like health insurance, paid holidays or pension plan Meanwhile, extrinsic compensation is psychological like working conditions or the feeling accomplishment or interesting job (28)

collected Since there is no data report about this salary in Vietnam market, these number have been take from the Application Form (see appendix 10) for Technician position who have from one to two years experiences working The data from three companies like Mercedes, Lexus and Audi has been summarized as table 2 to compare with the salary range for this position of PSCL It can be realized that PSCL is paying the low salary in comparison with other companies

Unit: Million Vietnam Dongs

Table 2 The average salary of 04 companies

Not only that, there is a differences in the increase rate of salary from each departments of company, please refer to table 3 as below It can be seen that salary of After Sales

department increase with a lower rate in comparison with other departments Therefore, it can prove that the low compensation of technician team do really exist in company

Position Marketing Finance HR & Admin After Sales

Table 3 The salary increase rate in 2017 of PSCL

This problem lead to the significant high turnover rate of technician team; and lead to many direct consequences like the low ASI and the low productivities indexes This problem will become even more serious if company cannot provide efficiency solution to

to know their ideas about solution to solve the problem

According to theories and the result of the third depth interview, some below

consequences may happen if company cannot solve the problem

Negative effect on recruitment process Company can increase the interest of job

seekers with a generous salary and benefits system Normally, job seekers will be more eager and happy to apply for a job with the content the same as their expectation It will

be easy and beneficial for both company and applicants if the right person is chosen for

the suitable job Therefore, company pays their employee low salary and low benefit will have negative effect with the job interest of candidates (29) And it will make the

recruitment process of company become difficult because there will be less CVs apply for company’s vacancies Nowadays, there is many factors impact candidate’s decision for choosing job application People not only care about working environment, co-worker or training procedure, they also care about total compensation package that they can receive (30) Hence, if candidates know about the low salary and benefits of company, their

interest may dramatically decrease Then it will take more time for HR team to find

suitable candidates and it will lead to the increase of recruitment cost

And when conducting the third round of depth interview, all of the interviewees agree that the low compensation can lead to the negative effect of recruitment process Like Mr

Hoang shared:” Nowadays, job seekers will consider many things when they decide to

apply for a job, and salary is one of the essential factors that they care most If they know about the salary of company, I think some of them may not apply for the vacancies.” He

also stated that this consequence is serious and he has already seen the effect of this on company’s recruitment

For more detail, the below table 4 shows the number of applicants for technician position

of After Sales team from 2015 to 2017 It can be seen from the table that the number of candidates decreases significantly year by year this position Although there are many reasons for such decrease, it is believed that compensation system is one of the most

Negative effect on company brand image The brand image is an essential element for

company competitiveness in the labor market; in which annual labor compensation has played a significantly impact on the brand image of each company (31) If employees are not happy with their salary, they may tell their problem with customers, their friends or their relatives In consequence, the reputation of company will be significantly affected since customers may be not willing to buy products of company In addition, one research has concluded that there is a correlation between employee satisfaction and customer satisfaction (32) Employee satisfaction consists of many factors, in which salary and benefit is an essential element (33) Therefore, low salary and low benefit will lead to low satisfaction and it will have impact to customer satisfaction

The result from the third depth interview also supports for this theory Mr Thanh said

about this consequence that: “Technicians are people who have connection with customer

because they fix the car directly Therefore, if they complaint with customer about

company’s compensation, it will have negative effect with company branding Customer will wonder what happen with company and why company pays such a low range

salary.” From the interview, the entire interviewees also expressed about their concern

regarding to the impact on company image They worried that if this situation

continuously happens, customers will have negative look about company

Decreasing psychological well-being Psychological well-being refers to how people

evaluate their lives It consists of six elements: self-acceptance, positive relations with

others, autonomy, environmental mastery, purpose in life and personal growth (34) And

one researcher concludes that individuals in low-paid employment may suffer decreasing psychological well-being They may increase feeling anxiety, depression, un-confidence and decreasing level of happiness (35) In addition, worker productivity and workers’ financial well-being are positively related Employees with high financial stress and low financial well-being tend to be more frequently absent from work They cannot fully focus on their duty and it will lead to their low job performance and affect their

productivity (36) Therefore, low compensation will make productivity of employees decrease

With this consequence, Mr Hoang showed his concern that:”I know that if employees do

not have enough money for their life, then they may feel depression and it will affect to their personal growth.” Not only that, all of the interviewees suppose that this

consequence should be consider carefully because it has direct effect into the whole team productivity Since low compensation will lead to the decreasing of psychological well-being, it may effect to worker’s performance

Not only that, some symptoms of After Sales department like the high turnover rate of technician team, low ASI, sales fluctuation and low productivity can be also considered as the consequences of the central problem - low compensation for technician team If

company cannot solve this problem, these consequences will surely continue happening in the future

Chapter 3 Causes and possible solutions 3.1 Analyzing causes of the problem

3.1.1 Potential causes of the problem

Both theories and the third round of depth interview have been consulted to analyze what are the causes that lead to the low compensation According to that, there are five

potential causes that may lead to the low compensation of technician team They are limited pay structure, expense control, subjective manager evaluation, economic inflation and the absence of welfare group in company And the details of these causes have been concluded as below

Limited pay structure It may be a result of each company's current pay structure that

leads to low compensation Often, companies will use pay structures to determine

appropriate levels of pay for individual jobs These structures help assure that people are paid fairly compared to others in the organization However, some companies have been conducting some policies that stipulated about the structure of the employee’s paying, in

which the salary range for each position is not really high compare to market Therefore, the salary that employees can receive each month will be low in contrast with their

competitors (37)

When asking interviewees if salary structure is the cause or not, they all agreed about that

Mr Huy also shared his idea: “Well normally that applicant will have their right to

negotiate salary It is different in our company The compensation has been set in the first establish day This mean the salary range of each position has been decided You have your right to choose to work for company or not with this salary.” According to them, the

salary structure of company is fixed and applicants have to accept this salary range if they want to be a member of the team Therefore, they have no chance to deal a higher salary This is one of the potential causes for the low compensation that they have to receive afterward

Expense control for salary increase budget Some companies have frozen or even

reduced officers' salaries rate due to the expense control With many companies,

compensation for employee is a real challenge and it represent a large part in the total operating cost of each company (38) Therefore, instead of increasing salary for

employees with a suitable rate to cover their life, companies decide to offer unreasonable index to reducing the employment cost It can be explained that the board of director want

to control the total expenses of company by reducing some labor cost or because the employer’s overall financial situation is bad, then compensation of the team will be

affected surely (39)

And almost interviewees agreed that expense control will be a reason for the low

compensation They said that company wants to control the expense and it will have impact to employee’s right, surely They expressed that company just want to raise salary with a low rate and hence, their life would be impacted since the cost living expense is increase day by day

Subjective manager evaluation Evaluation errors and bias may affect the accuracy of

the performance evaluation Manager evaluation may lead to the bias aspect that has negative impact on employee compensation since some managers may let their personal feeling with this employees to impact their performance rating If manager have

unfriendly attitude with one employee, they may evaluate employees under their

performance and it will lead to low salary adjustment As consequences, other bonus and commission will be affected, too (40, 41)

In addition, halo effect may also happen in the conceptualization of evaluation Halo effect is the tendency to rate a person high or low base on one particular aspect Manager will let a single strength of a person determine the overall rating This results lead to an overall lower rating than it may be warranted This means if one technician have mistaken

in one aspect, the manger may have a negative look and may give this employee a low rating in all areas of work In the contrary, if a technician has a few absence, the manager might give hima high rating in all other areas of work (42) As a result, their salary will have impact

“This factor is subjective That means the performance of employees is based on the subjective evaluation of manager If he doesn’t like you, your performance will be

underrated and your salary increase and your bonus each year will be affected.”Mr

Hoang said in the interview He thought the evaluation of his manager was not fair,

sometimes But Mr Thanh was assertive about his evaluation process every year He stated that he treat fair with his team member and their result reflected their real

performance in the whole year

Economic inflation There are many macroeconomics factors that have impact on a

structure of company, in which inflation is one of the most significant factors Every year, inflation will have effect into the salary structure of each company Therefore, managers need to adjust suitable rate to adapt the significantly increase of inflation rate Because inflation pushes companies to increase salaries ahead, companies have to face with some

serious problem Companies cannot just simple increase the price of their product or services to cover the rising cost from salary Hence, it should be carefully considered when conducting compensation adjustment Manager have to balance between company operating cost and revenue to have suitable adjustment of compensation system (43) (44)

And in the interview, Mr Thanh said about the inflation rate increase every year that:

“The inflation increase rate is quite high every year And the salary increase rate of

company, actually of my team, is not high compare to the inflation rate So the salary of

my team is not high.” He also confessed that he knew about this cause but he has not

found any suitable solution to solve it

Absence of welfare groups One researcher has stated that lack of welfare group in

organization may lead to low salary for employees Welfare groups are normally known

as some group like worker unions, if utilized for the well-being of employees, it can produce excellent results In constraint, company without worker unions will have

negative impact to employee’s right, especially on their salary If there is no welfare group, management will be easier to decide a low salary range for employees without the agreement from employees (45)

When discussing about the potential causes of this problem, Mr Hoang raised the concern

regarding to the absence of welfare group in company: “I mean that we do not have labor

organization to protect employee’s right Therefore, it is hard for us to request for an enhance in salary system.” On the contrary, Mr Thanh did not think having labor union

may have any positive effect to the salary system of company

These are some factors that may be the potential causes that will lead to the central

problem of company – low compensation for the technician team These factors are

assumed from the literature reviews and they are examined in the depth interview Based

on that, the final cause effect map has been created as figure 10 below

Figure 10: The final cause-effect map

Low compensation

Negative effect on recruitment process

Economic inflation

Absence of welfare group

Subjective manager evaluation

Revenue Fluctuation

High turnover rate of technician

Low ASI

Negative effect on brand image

- tive efn brand image

Limited pay structure

Decreasing psychological well-being tive efn brand image

3.1.2 Main causes of the problem

As discussing in the previous part, there are five potential causes that lead to the low compensation for technician team They are: limited pay structure, expense control,

economic inflation, absence of welfare group and subjective manager evaluation These causes can really happen in company but just three of them are the important factors for the main problem: limited pay structure, expense control and subjective manager

evaluation The reason will be illustrated as below

With economic inflation, it may have effect to salary increase rate of company but it does not significant Moreover, the impact of this factor, if have, will be on the whole

company And even the whole automobile industry will also suffer negative effect

Hence, this is the macroeconomic factors and it should be solved by the government to help organizations get through it

Without the welfare group, employee’s legal right may not be assured because there is no official group to stand by and protect them But it may be true for only state-owned

enterprises if they do not hold the welfare groups in their organization With a invested enterprise like PSCL, it will have not much effect

foreign-Against the background of technician team, it is no doubt to say limited pay structure, expense control and subjective manager evaluation will be the main causes Limited pay structure will narrow the salary range of each position Meanwhile, expense control and manager evaluation will have impact into salary increase rate and bonus each year

Hence, these factors will be considered carefully in the following part

3.2 Alternative solutions

As discussed in the previous part, there are three main causes that lead to low

compensation of company They are limited pay structure, expense control and subjective manager evaluation While limited pay structure will have impact to employee’s base salary, expense control and subjective manager evaluation will influence the increase rate

and bonus of each year Hence, the solution should be designed carefully to solve these main causes and bring the best cost-effective result for company

In each organization, compensation should be considered as a mechanism for improving worker performance, not just as unavoidable cost in traditional thinking And limited pay structure will have negative impact to company, surely For a long time, many

organizations have been struggling to find suitable method to motivate employee’s

performance and to avoid losing current and potential employees to competitors They tried to combine base salary, bonus and many types of benefits to attract and keep

employees stay loyal with company But what is the best cost-effective package in each organization is the questions need to be concerned (46)

A comprehensive compensation plan should have some key factors like base salary, incentive compensation as well as some benefits (47) In PSCL, company is using

incentive pay, or pay-for-performance system In this system, employees will be paid base

on how much each person does and how well they perform their job Moreover, this monetary incentive systems is ideal for linking pay structure to staff performance (48) With this type of system, employee will be paid three main opponents: base salary,

performance bonus and benefits

Meanwhile, expense control and the subjective of manager evaluation will have negative effect to the salary increase rate of each technician as well as to the bonus at the end of year In salary review process, the performance appraisal is the key element to decide the effectiveness and the success of this Currently, the performance appraisal in PSCL has been following these steps Firstly, the performance appraisal form will be email to head departments as reminders for the evaluation time each year Then, head department will conduct the evaluation process only by themselves and the results will be sent back to HR department for recording It can be seen through this process is that the evaluation is depended on the manager’s ideas Hence, the bias in the evaluation cannot be control That is the reason for company to build a new salary review plan

Figure 11: Map of alternative solutions for low compensation of technician team

increasing benefits for employees

Creating a suitable salary review plan

performance bonus and increasing benefits employees

Creating a suitable salary review plan

Subjective manager evaluation Expense control

Limited pay structure

Low compensation for technicians

And figure 11 will illustrate two set of alternative solutions, in which each set will consist

of two small solutions to solve these main causes, respectively With the set solution 1, it

is expected that company should create a new base salary range for technician team, keep the same performance bonus each month and increase the benefits for the whole company

to change the salary structure of company In addition, the salary review plan also should

be revised to avoid the bias in the evaluation each year Meanwhile, set solution 2 will be designed by keeping the same salary range, change the performance bonus and increase benefit packages With set 2, the salary review plan will be adjusted, too

3.2.1 Set solution 1

3.2.1.1 Designing a new compensation plan by creating a new base salary range, keeping the same performance bonus and increasing benefits for employees

Create new base salary range

Base salary is the total fixed cost pay for each individual When setting base salary,

company should decide that company will pay at- market, below-market or above-market wages If company set at the below- market, it hard for company to attract best

employees With pay at-market, it would be attractive for both current and potential

employees But to create a competitive element with other competitors, company should also provide an effective benefits package And with above the market, it is no doubt that company can keep and retain good employees One thing need to be carefully considered

is the expenses incur for this (49)

As discussed before, when comparing with other competitors in the market, it is believed that PSCL is paying a low salary range for technician team And as a result, it is hard to keep employee stay with company Please refer to table 5 below for the current base salary for technician team from level 1 to level 4 with the salary for each level,

respectively It can be seen that the salary range or each level is quite low And there is no clear information about base salary for employees who has been working for company

more than 7 years This will be a disadvantage of company to keep those with many years

of experiences working continuously with company

Table 5: The current base salary for technician team

Source: HR Data And from the table 5, it can be seen that company is using a limited pay structure with a low and narrow salary range This structure leads to the turnover rate of technician team increase for the research years And to help company keep the best performers, it is

suggested that company should create a new base salary structure to set the range for each position while still maintaining control over costs

The new salary range will be created with a more level for technician team as mentioned

in table 6 In this structure, salary of each level will be calculated as below:

Base salary = Pay rate * Basic salary

In which:

Pay rate: the rate for each level as mentioned in table 6 This rate is designed based on the market research from other competitors in the market like Mercedes, Audi and Lexus Upon the data from the Application Form collected from some candidates who had

worked for these companies before, the pay rate has been set to have a fair pay for all employees

Basic salary: The current basic salary is VND3,980,000 This basic salary is stipulated and adjusted by government every year

The first level will be applied for those employees who have less than two year of

working experiences After two year, each technician will be evaluated; and if they pass the evaluation step, they will enter the new level with the new salary range The

difference for two level is 0.4 This means if one technician successfully passes to the new level, his pay rate will increase 0.4 compare to the old one

And this structure will be applied for both new comers and current technicians They will

be applied the level base on the number of working experiences as well as base on the evaluation of managers And if there is any dispute, the decision from managers will be the final decision For example, if this person should be put in level 2 with 3 year

experience, but manager evaluate his working ability just can put in level 1, then this person will be allocated to level 1 with final decision of managers

to be understood easily Next, the plan should not have any negative effect to the cash flow of company And the last thing is the incorporating staff-related expenses This means that the plan should include the staff expenses with a percentage basic If the staff expenses exceed the limit percentage, the bonus will not be paid until the percentage