This thesis aims to provide scientific and experimental evidence of the factors affecting the compensation of manager and the current situation of the payment policy for manager among listed companies in Vietnam during the period from 2010 to 2017. Based on the research results of the model combined with compensation policy’s situation, the author gives some solutions to improve management compensation policies in Viet Nam joint stock companies.
Trang 11. Rationable
At present, Agency cost has become a common issue and a great challenge in financial management activities with jointstock companies around the world. Apart from finding out effective compensation policy, avoiding the disagreement about benefits between managers and shareholders is also a remarkable concern of companies due to its complexity. A poor compensation plan would encourage the maximization of current income without paying attention to future income. More seriously, value for future shareholders would
be chosen to sacrifice for the generation of high results in short term
Under another point of view, conflicts between stakeholders are manifested through contradiction Income of manager entirely depends on business results; therefore, executives tend to limit their risk by rejecting highprofit but highrisk projects and focusing on moderately profitable but less risky ones. On the other hand, investors tend to accept higher risks with the desire of earning remarkable returns. As soon as this conflict is solved, company could create more values.
Current situation in Vietnam also shows that the more competitive and professionally oriented the market economy is, the more important this problem could become A large number of jointstock companies are confused in determining the income distribution (salaries, bonuses) to the managers. This issue results in negative impacts on compensation policy. In particular, in the past time, there was a large number of jointstock companies in Vietnam paid
“skyhigh” incomes to managers that neither reflected the values they brought back to enterprises nor based on any scientific foundation. In Vietnam's context, due to some limitations in accessing to reliable sources of data, there are not many researches about this subject, especially empirical studies.
Therefore, the topic "Research on the comppensation policy for managers of joint stock companies in Vietnam" was selected ro research.
2. Research objectives
This thesis aims to provide scientific and experimental evidence of the factors affecting the compensation of manager and the current situation of the payment policy for manager among listed companies in Vietnam during the
Trang 2period from 2010 to 2017. Based on the research results of the model combined with compensation policy’s situation, the author gives some solutions to improve management compensation policies in Viet Nam joint stock companies.
New contribution to the emprical: The thesis has analyzed the current situation of compensation policy for managers of listed companies in the Vietnam stock market in the period 2010 2017. The thesis provided emprical for key factors effecting on the compensation policy for managers of listed companies on the Vietnam stock market. In combination with the case study of compensation for the key manager of FPT Corporation and conducted indepth interviews with expert. From there, the conclusions were made: (i) The impact
of input factors on the management compensation policy of listed companies on the Vietnam stock market from 2010 2017; (ii) An assessment of the successes, limitations and reasons to make an important practical basis for proposing solutions to improve the compensation policy in VietNam listed companies
New recommendation from our findings: Based on an empirical study
on the compensation for manager in Vietmam joint stock companies, my thesis has suggested the following recommendations:: (i) The thesis proposes the application of advanced compensation models in the world to joint stock
Trang 3Chương 3: Current situation of compensation policy for managers of Viet Nam joint stock companies
Chương 4: Recommendations to improve the compensation policy for managers of Viet Nam joint stock companies
CHƯƠNG 1: OVERVIEW OF LITERATURE AND RESEARCH
METHODOLOGY
1.1. Overview of literature
1.1.1. Studies on the relationship between the agency cost and the payment policy for managers of joint stock companies
The agency cost has been mentioned quite early in various studies, but this is a big challenge for corporate governance. This is the cost that arises when there is a separation of ownership and management (Jensen and Meckling, 1976) According to the agency theory given by Jensen and Meckling (1976) the principal (who provides finance) and the agent (who manages the firm) both want to maximize their utility1 and in doing so they will not act in the best interest for each other They further suggest that the shareholders (principal) can control the actions of the agent by methods like auditing, formal control systems, budget restrictions and the establishment of
Trang 4incentive compensation system. An implication of this theory can be that it is always complicated to evaluate the actions of the agent i.e whether their actions have a positive or negative effect on the firm value. That is why it would be in the interest of the shareholders to align the pay of the agent with the performance of the firm.
In a number of studies on the agency cost, studies dealt with the relationship between agency costs and executive compensation for jointstock companies, including: Jensen and Meckling (1976); Lucian Arye Bebchuk & Jesse M. Fried (2003); Hongxia Li and Liming Cui (2003) or incountry studies such as Ha Thi Thu Hang (2007); Nguyen Ngoc Thanh (2010); Than Thi Thu Thuy et al. (2014)
1.1.2. Studies on executive compensation models
T i Vi t Nam, các nghiên c u đ c l p v chính sách chi tr cho nhàạ ệ ứ ộ ậ ề ả
qu n lý trong các doanh nghi p nói chung và các CTCP niêm y t nói riêng cònả ệ ế khá m i m , có ít nghiên c u xem xét v n đ này. Các nghiên c u ch y uớ ẻ ứ ấ ề ứ ủ ế
t p trung vào nghiên c u t ng m ng v n đ riêng r nh : v n đ ti n lậ ứ ừ ả ấ ề ẽ ư ấ ề ề ương,
ti n thề ưởng c a ngủ ười lao đ ng nói chung trong các doanh nghi p. Trong cácộ ệ nghiên c u liên quan tr c ti p đ n v n đ này, có th k đ n m t s cácứ ự ế ế ấ ề ể ể ế ộ ố công trình nghiên c u ch y u sau đây: Bùi Xuân Chung (2009)ứ ủ ế ; Nguy n Vănễ Thanh (2005); Alex Edmans, Xavier Gabaix, Tomasz Sadzik, Yuliy Sannikov
(2012); Hoàng Văn H i, Nguy n Anh Tu n và Nguy n Phả ễ ấ ễ ương Mai (2011);
Tr n Kim Dung (2014).ầ
1.1.3. Studies on the Factors affecting Executive compensation.
* Effect of firm performance on executive compensation
Most studies on the relationship between firm performance and executive compensation show that there is a positive relationship between firm
performance and executive pay. Both Usman Tariq (2010), Ntim et al (2015) and Johnson (1982) find a positive relationship between accountingbased firm performance and executive compensation. Similarly, Belliveau et al. (1996),
Finkelstein and Boyd (1998) , Core et al. (1999), Cyert et al. (2002), Kato and Long (2006), Ozkan (2011), Farmer et al. (2013), Schultz et al. (2013) and Swatdikun (2013a) show that marketbasedperformance has a positive relationship to executive remuneration
In contrast, Brick et al. (2005), Zhou (2000) shown that as a negative
Trang 5* Effect of corporate governance on executive compensation
nAumber of studies show that executive remuneration is not only influenced by firm performance, but also by corporate governance For example, Cyert et al. (2002) suggest that executive cash compensation is higher when the board of directors is represented by greater outside directors. Shah et
al (2009 found that CEO pay were a function of firm performance and corporate governance such as: CEOs' talents, board independence, board size, Equity and independence of the audit committee. Berkema and Mejia (1998) identified important factors affecting the level of pay for CEOs; These include: (i) Market forces, (ii) Ownership structure, and Large shareholders (blockholders). And in particular, the appearance of a remuneration committees
* Effect of corporate ownership on executive compensation
Shleifer và Vishny (1986) shown that concentrated ownership has been one of the control mechanisms of managers. It follows that based on these arguments, ownership concentration negatively affects total executive compensation The results of empirical studies on the concentration of ownership revealed, overall, a negative influence of the presence of controlling shareholders on executive compensation (Haid and Yurtoglu (2006) on the German market and Mehran (1995) on the U.S. market)
In the AngloSaxon context, Lambert et al. (1993) and Core et al. (1999) verify that the level of executive compensation is lower when the executives’ participation in capital holding is larger. Zhaoyang Gu, Kun Wang and Xing Xiao (2010) verify that there is the relationship between Government control and executive Compensation
1.1.4. Research gaps
Testing the factor affecting to executive compensation in Viet Nam listed companies is an essential requirement.
Studies on the compensation policy for managers in Vietnam has been limited to qualitative analysis methods and descriptions of basic theoretical frameworks, thus providing emprirical evidence is needed
My thesis targets to answer the following research questions:
Question 1. What is the current situation of the compensation policy for managers and the application of compensation models in Viet Nam listed
Trang 6Question 2. What factors impacts to the management compensation of joint stock companies are?
Question 3 What are the achievements and limitations on the compensation policy for managers in Vietnam?
Question 4. What recommendations and solutions should be implemented
in Vietnam listed companies?
Trang 71.3. Methods of data collecting and data processing
Methods of data collecting: Primary data were collected through expert interviews. Secondary data were collected from the financial statements and the annual report audited
Methods of data processing: The collected data will be imported and the storage inti data files and processed with Eview software and Exel…
n policy for manager
Experiences
in building compensatio
n policy for managers of joint stock companies
in the world
Overview of The current situation of executive compensation policy in VietNam listed company
Testing the impact of factors on the compensatio
n policy for managers of listed companies in Viet Nam
Case study
of compensati
on policy for
managers of FPT
Corporation
RECOMMENDATIONS TO COMPLETE THE COMPENSATION POLICY FOR MANAGERS OF
JOINTSTOCK COMPANIES IN VIETNAM
Trang 8
* The internal structure system of joint stock company
The General Meeting of Shareholders (AGM) is composed of all shareholders with voting rights, which is the highest decisionmaking body of the company
The Board of Directors (or Board of Directors Board of Directors) is elected by the owners to manage and run the company on their behalf
The Executive Board is a collection of individuals who hold the highest executive positions in a joint venture, headed by an executive director (director
or general director) assigned by the Board of Directors to manage and run the business. The Executive Board is entrusted with the daytoday management of the business, implementing the directions, resolutions and conclusions of the Board of Directors and the General Meeting of Shareholders
2.1.2. The defenition manager of joint stock company
The manager of a jointstock company is the person who holds the key managerial positions capable of directing the direct management of the activities of the various sections of the company following a common strategy
to achieve the objectives of firm, including the members of the executive board.2.2. The compensation policy for manager
2.2.1 Theory agency cost and the role of Executive compensation in resolving conflicts of agency problem in Joint Stock Companies
According to Jensen and Meckling (1976), Fama and Jensen (1983), the agency problem may exist between the owner (shareholders) and the agencies (BoD and BoE) or even among BoD and BoE. This problem is clearly revealed
Trang 9According to researches about agency costs, the basic principles that companies need to master when developing a reasonable income policy for executives include:
(i) The income payment policy should have the effect of encouraging BoE to work with the utmost effort. In order to do so, the level of income must
be proportional to the level of effort of the board;
(ii) The income payment policy should encourage BoE to get balance between the shortterm and longterm interests of the business the benefits of shareholders
(iii) Ensure risk management at all levels for enterprises
2.2.2. The concept and nature of the compensation policy for manager
Executive compensation or executive pay policy of the joint stock company is the whole system of regulations on criteria for determining the total pay and method of payment to managers for the purpose of treating them.
In other words, the compensation policy for manager is the policy that the BOD provide financial and nonfinancial compensation for managers of the company, which describes in detail the structure of the payment components and conditions apply specifically for managers
Generally, It is typically a mixture of salary, bonuses, shares of or call
take into account government regulations, tax law, the desires of the organization and the executive, and rewards for performance
2.2.3. The basic tools of compensation or remuneration
Salary
Shortterm incentives (STIs), sometimes known as bonusesLongterm incentive plans
Employee benefits
Paid expenses (perquisites)Insurance
Trang 102.3.1. Salary payment models
The payroll model is based on the traditional salary scale: it is a state payroll system, or is designed according to the same principle with some basic characteristics such as attachment to seniority, degree instead of actual capacity and results
An additional pay scale beyond managerial leverage is a model for calculating salaries based on criteria other than the traditional salary system. This system strives to create a reasonable income gap between managerial titles and ordinary workers
3P compensation Model: 3P compensation is a combination of pay for position, Person and Performance
2.3.2. Incentive compensation models
Incentive compensation model based on profit: One of the criteria for determining the level of pay for managers is profit (profit exceeds the annual plan of the business)
Incentive compensation model based on the results of the increase in the value of the enterprise or stock price: The objective of the investor is to maximize the value of the firm, thus linking the manager's income with Stock price will help unify the goals of managers and investors, thus limiting repatriation costs, including:
ESOP Employee Stock Ownership Plan
SO Stock Option
MBO – Management Buy Out)
EVA – Economic Value Added
Trang 11The development cycle of the economy Industry
2.5. Experiences in building compensation policy for managers of joint stock companies in the world
2.5.1. In Australia
Australian listed companies are also paying close attention to the executive pay policy. Remuneration for managers is increasing over time. The structure of longterm bonus, bonus and stockbased incentives encourages managers to engage and engage in longerterm engagements with the company.
A number of studies have shown that increasing the compensation rates of Australia's 200 largest listed companies over the past 20 years has a linear relationship with the company's performance (2009)
2.5.2. In USA
According to a study by the US Groom Law Firm in 2011 on the guidelines for payment regulations for managers of listed companies by the US Securities and Exchange Commission, the SEC asked The public disclosure of all information to clarify the policy of the companies to pay for the manager. Some of the divisions included in the payroll policy for managers of a listed company in the United States include: Basic salary; Reward incentives with
Trang 12shortterm focus; Longterm incentive payments; Enhanced welfare policy packages; Other benefits and conditions, such as car and club membership. In addition, USbased companies also use a "hell of a hell" bonus policy for executives from rival companies to compensate for their money. Valuable from the stock options of the old company.
2.5.4. Lessons for joint stock companies in Vietnam:
Firstly, to determine the structure of components in the compensation system to ensure reasonable incentives, gradually reduce the proportion of fixed wages, increase the proportion of bonuses, longterm incentives
Secondly, limit the total annual cash compensation for managers
Thirdly, use a comprehensive assessment system with a combination of different indicators as the basis for determining the level of pay for managers, including traditional criteria such as profitability, turnover, price and modern norms such as EVA, MVA
The Fourth, establish and improve Remuneration Board
CHAPTER 3: THE CURRENT SITUATION OF COMPENSATION POLICY FOR MANAGERS IN VIET NAM JOINTSTOCK
COMPANIES
3.1. Overview of joint stock companies listed on Vietnam's stock market
The number of listed companies is increasing, which is one of the signs that the growth of the stock market in Vietnam From the perspective of investors, the number of listed companies increased means the increase of goods and investment opportunities in the market. As of the beginning of 2018, the proportion of listed companies classified by sectors on the HNX is as follows: The number of listed companies occupying the highest proportion on
Trang 133.2. The current situation of executive compensation policy in VietNam listed company
3.2.1 Overview of The current situation of executive compensation policy in VietNam listed company
When considering the implementation of the policy of paying a manager of a joint stock company, the factors to be considered are the total annual payment and the structure of payments to the manager. In general, the level of payment for managers of companies listed on the Vietnam stock market tends to increase over the years from 2010 to 2017, especially for companies in the two financial sectors and Agriculture and Forestry Fisheries. Compensation for managers in the telecommunication and hospitality services sector is not very volatile as these are basic sectors so the performance of companies is not affected much. for the period 2010 2016. The industry that the listed companies pay the lowest for managers is the science and technology sector and the average pay for the management team of a company. over $ 1.2 billion per year, while the industry's highest payouts for managers are for companies operating in the financial and real estate industries with an average payout per company. is 4.08 billion per year (financial sector) and 3.75 billion per year (real estate). The payoffs for managers of listed companies operating in different sectors also differed by sector
3.2.2. The situation of using models in the payment policy for managers of joint stock companies listed in Vietnam
According to a survey of the statutory salary scheme of JSCs in Vietnam, 100% of JSCs now apply the basic salary model based on the salary scale based
on the basic salary and minimum salary of the region State regulations. However, each company, based on the characteristics and size of its business through the Board of Directors, will set the average base salary, adjustment factor in different salary scales