LV Thạc sĩ_Improving the reward system at VID public bank

VID Public bank is chosen to help the authorwith chance to have diversified perspectives on different elements of reward systemincluding base pay, variable pay, benefits financial reward

TABLE OF CONTENT

ACKNOWLEDGEMENT 3

ABBRIVIATIONS 4

LIST OF FIGURES 5

LIST OF TABLES 6

EXECUTIVE SUMMARY 7

CHAPTER 1: INTRODUCTION 9

1.1 Rationale 9

1.2 Research Objectives 10

1.3 Research Questions 10

1.4 Research Scope 10

1.5 Theoretical Background 10

1.6 Research methodology 11

1.7 Structure of thesis 12

CHAPTER 2: THEORETICAL BACKGROUND ON REWARD SYSTEM .13 2.1 The concept of reward system 13

2.2 The supporting components 15

2.2.1 Business Strategy 15

2.2.2 Reward strategy 15

2.3 The elements of reward system 17

2.3.1 Financial Reward 17

2.3.1.1 Base Pay 17

2.3.1.2 Variable Pay 18

2.3.1.3 Employee benefits 21

2.3.2 Non financial reward 23

2.4 The aims of reward system 30

2.5 Factors to assess the reward system 30

CHAPTER 3:CURRENT REWARD SYSTEM AT VID PUBLIC BANK 32

3.1 Overview of VID Public Bank 32

3.1.1 History 32

3.1.2 VPB business results 33

3.1.3 Corporate Philosophy 34

3.1.4 VPB business strategy and reward strategy 35

3.2 The current reward system at VID Public Bank 36

3.2.1 Financial reward 36

3.2.1.1 Base salary 36

3.2.1.2 Variable pay 36

3.2.1.3 Benefits 38

3.2.2 Non financial reward 43

3.2.2.2 Promotion Policy 43

3.2.2.3 Training 44

3.3 Findings on the VID Public Bank reward system 45

3.3.1 Findings on financial reward 45

3.3.1.1 Base pay 45

3.3.1.2 Variable pay 47

3.3.1.3 Benefits 49

3.3.2 Findings on non financial reward 51

3.3.2.1 Recognition 51

3.3.2.2 Growth and development 52

3.3.2.3 Work itself 53

3.3.2.4 Supervision 54

3.3.2.5 Interpersonal Relations 54

3.3.3 Summary of strengths and weaknesses of VPB reward system 55

3.3.3.1 Strengths 55

3.3.3.2 Weaknesses and causes of weaknesses 56

CHAPTER 4: RECOMMENDATIONS FOR IMPROVEMENTS 59

4.1 Business Target for 2010 - 2011 59

4.2 Recommendation to improve VPB reward system 59

4.2.1 Recommendations to financial rewards 59

4.2.2 Recommendations to non financial rewards 62

4.2.3 Participation of the management and staffs 65

CONCLUSION 67

REFERENCES 68

APPENDIX 69

First of all, I would like to express my sincere thanks to my supervisor - Dr … whoenthusiastically guided me during the last thesis’s implementation As one of theyoungest students at EMBA 7 program, I am still lack of certain knowledge andexperiences in both theory and practices Ms provided me with such a logicalthinking that I can make a clear part in conducting my thesis and view it fromdifferent scales

Secondly, I would like to thank my family members who support me a lot duringthe last time Especially, my mother always encourages me to study further forbetter chance in life She was the one to sponsor for my whole EMBA course evenwhen I got a job with stable salary

Moreover, my colleagues at VID Public Bank were so willing to contribute to thisresearch by sharing with me their perspectives I am also grateful of my Managerwho allowed me to approach VPB information and gave me useful advice

Last but not the least; I would like to mention my closed classmates who motivated

me much time by time I will miss some out goings for chatting/beer with thembecause such occasions enabled me to work harder on my thesis to catch up withthem

BIDV : Bank of Investment and Development

COLA: Cost of living allowance

HA : Housing Allowance

PAI : Personal Accident Insurance

PBB : Public Bank Berhad

PRP : Performance Related Pay

VPB : VID Public Bank

LIST OF FIGURES

Figure 1.1 – The extension of reward system model by Michael Armstrong 11

Figure 1.2 - Research Process 11

Figure 2.1 – The reward system 14

Figure 2.2 – Performance related pay scheme 18

Figure 2.3 – Job characteristics Model 27

Figure 2.4 – The extension of reward system model by Michael Armstrong 29

LIST OF TABLES

Table 2.1 – Advantages and Disadvantages of variable pay to individuals and teams 20

Table 2.2 – Types of benefits 22

Table 3.1 – VPB Business results 2008-2009 34

Table 3.2 – VPB current base salary structure 36

Table 3.3 – VPB types of leave 39

Table 3.4 – VPB COLA rate 40

Table 3.5 – VPB social and health insurance premium 41

Table 3.6 – VPB PAI coverage 42

Table 3.7 – VPB telephone expense 42

Table 3.8 – VPB transportation expense 43

Table 3.9 – VPB outstation allowance 43

Table 3.10 – VPB staffs perspectives on VPB basic salary (in term of position) 45

Table 3.11 – VPB staffs’ perspectives on VPB basic salary (in term of service duration) 46

Table 3.12 – VPB average incremental level 47

Table 3.13 – VPB average annual bonus 48

EXECUTIVE SUMMARY

Labor force is considered as one of the major elements to bring an organization withcompetitive advantages in business world Most of organizations realize suchimportant role of human resource that they always try their utmost to attract,motivate and retain talented, skilled and committed employees to achieve highturnover and outstanding productivity Among various aspects of human resourcemanagement, reward system is supposed to make considerable contribution to help

an organization to reach these targets

With reference to the above, the author wished to make a research on the rewardsystem of a bank where there is a tough competition in owning strong labor forceand high turnover situation occurring VID Public bank is chosen to help the authorwith chance to have diversified perspectives on different elements of reward systemincluding base pay, variable pay, benefits (financial rewards) and recognition,growth and development, work itself, supervision, interpersonal relations (nonfinancial rewards)

More than 20 interviews with both VPB employees and ex-employees and up to 50questionnaires were carried out at Hanoi offices Most data for the research wereranged from 2007 to 2009

The findings of the research reveal both strengths and weaknesses of the VPBreward system The strong points were found in competitive base pay level, widerange of benefits, supportive supervisors and comfortable relations among staffs.The limits of VPB reward system were mainly in the variable pay program,recognition scheme and growth and development Via the direct interviews withboth Human resource Manager and the Bank manager, the root causes of such weakpoints were also found out

Based on theoretical background, the results of the research as well as the bankrequirement to upgrade its reward system, the author has come up with certainrecommendations The improvement requires the involvement of changes in policyand procedures in implementation of each element Moreover, the cooperation of

the Management and Staff level employees are also crucial to ensure the success ofthe reward system enhancement.

Reward system if being concerned and implemented well will work as positive tool

to retain and motivate the labor force

CHAPTER 1: INTRODUCTION

1.1 Rationale

Human resource in banking sector in Vietnam has been more and more urgent due

to the imbalance between labor supply and demand As a report on online humanresource parameters in 1st Quarter 2010 by Vietnamworks.com, one of Vietnam’sbiggest online recruitment providers, banking field is among sectors beingconsidered to have highest human power demand In comparison with 4th Quarter

2009, the demand on human resource for banking sector increased 18 percent.Meanwhile, the gap between labor supply and demand of this sector still remainsthe biggest, which leads to a fierce competition in attracting employees amongbanks Thus, how to retain and motivate employees to maintain strong labor forcefor the bank has been a big question for human resource manager

VID Public Bank was set up in 1992 in a form of joint venture between Public BankBerhad in Malaysia and Bank for Investment and Development of Vietnam Sinceits establishment, VID Public Bank has always considered labor force asdeterminant factor to the bank’s success However, in recent years, VID PublicBank has had to cope with such problems coming from human resource when itsstaff turnover rate has kept staying at high level rate The turnover rate hasrespectively maintained at 18.5%, 18.7% and 11.44% in 2007, 2008 and 2009 Inexit interview forms that staffs have to fill in before resigning, the listed reasons arethe dissatisfaction about salary, bonus, benefits and etc…

Based on more than 03 years of working experience at Human ResourceDepartment of VID Public Bank, It is revealed that the high staff turnover rate is theresult of some shortcomings of VID Public Bank reward system It is the right timethat reward system at VID Public Bank should be reviewed so that weaknesseswould be found out and necessary actions should be taken By this way, VID PublicBank would strengthen its labor force to ensure its further development andexpansion in the coming time From the above, the thesis of “Improving the Rewardsystem at VID Public bank” is chosen with desire to help enhance VID Public Bankreward system as a method of motivation and retaining staffs

1.2 Research Objectives

In this research, the author would like to achieve the following objectives:

- To analyze the current reward system at VID Public Bank in order to find outthe strengths and weaknesses of the system

- To analyze the key causes of the weaknesses of the reward system

- To make recommendations to improve the current reward system so that itcan retain and motivate VID Public Bank employees

1.3 Research Questions

Within the framework of this thesis, there will be some relevant questions raisedsuch as:

- What is current reward system at VID Public Bank?

- What are the weaknesses and strengths of reward system at VID PublicBank?

- What are the roots of the weaknesses?

- How to improve the current reward system so that it will help motivate andretain employees at VID Public Bank?

1.4 Research Scope

Due to the time limitation and the accessibility to the whole VID Public Bank staffs,the thesis is focused on mainly staffs and management group working at Hanoioffice The data provided by the Bank from 2007 to 2009 and information collectedfrom employees are applied to find out the real situation of current reward system atVPB The thesis also focuses on the elements of the reward system instead ofdigging into the strategy scope of the subject

1.5 Theoretical Background

The study has been grounded on the following theories as the theoreticalbackground:

- Reward system model by Michael Armstrong

- The two factor theory by Frederick Herzberg

- Job Characteristics Model by J Richard Hackman and Greg Oldham

The reward system model by Michael Armstrong is chosen as the main model for

the research This model was extended with some supplementations/ additions for

further fit with the real situation The extension of reward system model by Michael

Armstrong is as follows:

Figure 1.1 – The extension of reward system model by Michael Armstrong

This modified model will be decisive framework for the author’s research

1.6 Research methodology

a Research Process

Figure 1.2 - Research Process

Variable Pay Employee

Benefits Recognition Growth Work

Secondary data Primary data

Data summary &

AnalysisResearch findings

Solutions &

Recommendations

b Collecting data

Secondary data: is collected from internal sources: (1) VPB HR manual policy,(2) VPB Guidelines, (3) VPB HR reports and external sources: (1) HumanResource management books; (2) websites

Primary data:

- In depth interview: The in depth interview is carried out with purpose to get

the different viewpoints of staffs and find out strengths and weaknesses on VIDPublic Bank’s current reward system The author conducted 20 interviews with 10VID Public Bank current staff, 05 VID Public bank current officers and 05 ex-staff.The interviews’ results were used for designing questionnaires

- Questionnaires: The questionnaires are designed for VPB current staffs to

get their comments on the existing reward system I delivered 53 questionnairesdirectly to them and waited to collect 50 were returned as a result

Chapter 3: Chapter 3 refers to the overview of VID Public Bank in history,

business results, corporate philosophy, business strategy and reward strategy Aftergoing through the actual situation of VPB current reward system, the authorhighlighted some findings about VPB reward system via the author research Thestrengths and weaknesses in reward system are then summarized

Chapter 4: Based on the found weaknesses and root causes of weaknesses,

recommendations are proposed with aim to develop and improve the VPB rewardsystem as a key to retain and motivate VPB staffs

Conclusion

CHAPTER 2: THEORETICAL BACKGROUND ON REWARD SYSTEM 2.1 The concept of reward system

Firstly, let’s have a look at what is reward Chambers, the Harrap Publishersdictionaries defines reward as “which is given in return of good, or in recognition ofmerit, or for performance of a service” Previously, rewards were broadly defined asthe base salary employees collected very fortnight or month However, the concept

of rewards has expanded to encompass the overall propositions that the employeroffers to the employee

“In today’s rapidly changing and highly competitive environment, a message that says grow, develop and perform well seems to be more on target than one that says you will be rewarded for outgrowing your job and getting promoted.” (6, p.142)

The definitions of reward typically encompass not only traditional factors likesalary, variable pay and benefits but also more intangible elements As Lawlermentioned, they might be the scope for growth and development

The emerging important role of other elements besides pays and benefits is

mentioned by Murlis and Watson (2001) as: “The monetary values in the reward package still matter, but they are not the only factors.”

Ken Gilbert – Mercer Human Resource consulting – posted his understandingsabout rewards on CEO Forum magazine in May 2005 that reward is a total packagewhich includes:

- Remuneration includes base pay, short – term incentives and long – termincentives

- Benefits are superannuation, cars, work/life and other benefits

- Careers refer to training and development and career opportunities

Gilbert listed out elements of a reward system in categories regardless of classifyingthem into financial/non financial sectors However, it is noted that the elements likecareer is concerned as Human resource professionals, while trying to determine theright combination of pay and benefits, sometimes overlook an equally importantreward component – careers To employees, careers represent the future value of

staying with an organization Many will leave higher salaries and better benefits forthe opportunity to learn and grow and advance their careers.

According to Michael Armstrong, “Employee reward is about how people are rewarded in accordance with their value to the organization It is concerned with both financial and non financial reward and embraces the philosophies, strategies, policies, plan and processes used by organization to develop and maintain reward systems.” (1, p.3).

This definition has clarified the point that rewards will be in both terms of financialand non financial

Figure 2.1 – The reward system

Source: Michael Amstrong, Employee Reward

The above chart describes the reward system of Michael Armstrong which consists

of an organization’s integrated policies, processes and practices for rewarding itsemployees in accordance with their contribution, skill and competence and theirmarket worth It is developed within the framework of the organization’s reward

Reward System

Reward Strategy Business Strategy

Reward

Base Pay Variable Pay Employee

Benefits achievement, development, growthRecognition, responsibility,

philosophy, strategies and policies and contains arrangements in the form ofprocesses, practices, structures and procedures which will provide and maintainappropriate types and levels of pay, benefits and other forms of reward.

In the limitation of this thesis, the following paragraphs will go through thesupporting components towards the reward system and thoroughly each element ofthe reward system that mentioned in the Figure 2.1

2.2 The supporting components

2.2.1 Business Strategy

The reward system comes firstly from the suggested needs by an organization’sbusiness strategy to meet the set target and business goals The strategic businesscriteria are often in forms of high performance, profitability, productivity,innovation, customer service, quality, price/ cost, leadership and the need to satisfystakeholders – investors, shareholders and employees Those business requirementssurely can not be achieved with only the endeavors of one Manager/ Director Theyshould be obtained with tremendous efforts from both Management and employees.Therefore, the issue how to possess skilled, competent and committed staff withenthusiasts and willingness is such a big question to an organization that it has putmuch concern on the reward strategy

2.2.2 Reward strategy

Reward strategy is viewed as the organization long term intentions to enhance staffengagement, commitment by developing and implementing such areas as paystructures, benefits and non financial programs By reward strategy, the organizationforms a vertical integration in which employees are rewarded for delivering yourorganization’s goals and strategies in the culture and environment in which itoperates

For a sound reward strategy, during the reward strategy designation the Humanresource manager should align closely with the organization business strategy Forinstance, BOC Gases UK – a provider of industrial, medical and special gases,aimed their business strategy to increase profitability The reward strategy then was

to develop a new incentive pay plan based on both the achievement of individual

profit targets and wider business targets Another example is Volkswagen ofAmerica It aligns its financial rewards to its business by paying incentives for theachievement of individual goals related to the attainment of shared company goals.

Ms Lynda Gugel, general manager of Human Resource said: “Our shared criticaltargets in areas such as sales, customer and dealer satisfaction, and profitability arealigned both top down and across business units to promote teamwork andorganizational performance” Besides, the company’s development programs alsosupport the achievement of business results Ms Gugel added: “We invest inlearning and development solutions that align competencies and behaviors withbusiness outcomes that most closely support our business strategy”

As you can see, the alignment of business strategy and reward strategy helpsrewards programs being best designed and implemented, which in return likelyensure a greater performance expectations and accountability of an organization With the very first start from deep analysis of the organization business strategy/desired targets/ goals, the design of the reward strategy will go through steps

Step 1: The organization’s business model, vision and strategy as well as its criticalsuccess factors would be taken into close consideration to clarify the keyorganizational issues that impact reward policies and practices From that point,proper rationale for introducing the reward strategy which will fit with Humanresource and business strategies and the existing reward system will be establishedStep 2: To review the existing reward practices

Step 3: To analyze current reward arrangements

Step 4: Get representative input across the organization from the employees andstakeholders

Step 5: Set reward goals This step will be based on the results of the 4 abovementioned step Moreover, this phrase is to account for the requirement that thedesigned reward strategy is to be fit with the organization’s culture and businessstrategy

Step 6: Review external trends and practices The wide range factors ofgovernmental policies, economic environment and etc…have to be reviewed

Step 7: Assess the organizational fit of the designed reward strategy

Step 8: Review and get approval for the proposed reward strategy

Step 9: Implement and review (16)

In companies/organizations with different business/Human resource culture, thesteps to develop a reward strategy may be differed

Findings from 2009 CIPD Reward management survey (12) reveal that meanwhile90% of employers have a business strategy and 64% of that group have an Humanresource strategy, 65% of them do not have a written reward strategy With purpose

of reward system to more effectively allocate resources and higher performance fororganizations, reward system should be in forms of words which are theneffectively translated into action through programs, systems and practices utilizedeveryday

2.3 The elements of reward system

Base pay is often determined by some following factors

- Job valuation: the employer will base on the job description and valuation todetermine the pay structure for each level – for example, managers, officers,staff, and non clerks

- The market pay rate for people doing the same work in similar industries inthe same region: the Human resource managers would take this rate intothorough consideration before deciding which rate to be used for theirorganization’s pay structure In some cases, the organizations do not hesitate

to pay higher than the market rate because of their belief that it would help

motivate staff, retain and attract skilled candidates and raise productivity.Individuals with skills, experiences, potentials and contributions are valued

by organizations in such cases

- The number of people available to perform one specific job The labormarket itself is the same as other market where the pay level may bedetermined by the supply and demand When the employee supply exceedsthe demand, the amount that an organization is willing to pay will bedecreased

The base salary is the core of all other payments in an organization The HumanResource managers, therefore, are to set up an appropriate base pay program

2.3.1.2 Variable Pay

Variable Pay is the term that refers to the employee compensation that change ascompared to salary When Base Pay is sufficient for an employee to livecomfortably, the variable pay is used to create the company productivity orprofitability by rewarding employee contribution

Variable pay is in some main forms as follows:

- Merit pay: Merit pay is also called performance related pay The performance– related pay is a financial reward to employees whose works have reached aset standard It is generally used where employee performance can hardly beproperly measured in terms of output or sales Though the ways to operateperformance related pay may vary from business to business, you can stillrealize the following basic scheme and features:

Figure 2.2 – Performance related pay scheme

Source: Michael Armstrong

 Individual performance is reviewed regularly (usually once ayear) against agreed/set objectives or standard

Performance measures

Performance Rating Formu

la

Perfor mance

pay

Agreed

outcomes

 After appraisal is carried out, employees performance will becategorized into groups which will then determine what theemployee reward will be

 The reward is traditionally a cash bonus and/or an increase inwage rate or salary This increase will end up when theindividual salary reaches the maximum of his/her level

Performance related pay has grown widely in recent years as the employerbeliefs in its following advantages:

 Performance objectives are clarified which helps engageemployees with the organization’s goals

 Employees will be motivated as the pay is linked with theirtarget achievements

 The overall productivity will be enhanced

However, the facts show that there are some inherent problems in all performancerelated pay scheme First of all, instead of contributing to enhance performance, thePRP leads to jealousies between staffs Secondly, the fairness in evaluating may not

be assured Since performance related pay systems are based on appraisal ofindividuals often by their line manager, bias and personal favoritism can affect theresults of pay reviews Instead of motivating workers, performance pay can

“undermine performance of both the individual and the organization byundermining team work, encouraging a short term focus and leading people tobelieve that pay is not related to performance, but to having the ‘right’ relationshipsand an ingratiating personality” (Jeffrey Pfeffer, Harvard Business Review,May/June 1998)

- Incentives: Employees will get incentives when they achieve the set target bythe employers

- Commission: is a form of incentives applied for sales staff The salesmenwill get a percentage of the sales volume they generate

- Competence – related pay: An alternative to PRP is competence-related pay, which provides for pay progression to be linked to levels of competence

that people have achieved, using a competence profile or framework

- Contribution – related pay: contribution-related pay which means paying

for results plus competence, and for past performance and future success

- Skill – based pay are applied in a way that the staff pay progression will beequivalent to the skills they have acquired and can use effectively

- Service – based: supplies fixed pay progress that are normally paid annually

to staff Such increments are based on the number of working years or thestaff grade in a pay spine structure

Among the above mentioned types of variable pay, performance related pay seems

to be in favor of most organization The e-reward 2004 Survey of variable pay inUnited Kingdom show that out of 100 respondents performance related payaccounts for 65 percent and stays at the first stand before contribution related pay(33 percent), service related pay (15 percent), competence related pay (8 percent).While base pay is paid to each staff of an organization, variable pay extends itsvarious methods of providing additional rewards to both individuals and teams

o Individual variable pay is focused on pay to individual performance,competence, contribution or skill

o Team pay refers to payment made to recognize the performance of a team Paying variables to either individuals or teams contains both advantages anddisadvantages

Table 2.1 – Advantages and Disadvantages of variable pay to individuals and

teams

Advantages - Ensure the payment in

proper and equitable pay

The staff who performs

successfully will receivehigher levels of financialrewards

- Create a good motivation

to each staff to achieve

- Enhance the teamworkand cooperativebehaviors

- Direct the teamperformance to the set

up target

higher performance,competence, contribution

or skill and thus enhanceorganizational performance

Disadvantages - Relies much on the

The organization will consider whether to pay to individuals or teams based on theirconditions, policies and the effectiveness of each type

With reference to the survey by worldatwork members, 70% of respondentsbelieved that variable pay was important to very important to the success of theirorganizations’ competitive strategy This result helps affirm evidence that variablepay succeeds in motivating people It creates a strong belief among employees thatgood performance provided by them will: (1) lead to higher pay, (2) minimize theperceived negative consequences of performing well, and (3) create conditions suchthat positive outcomes other than pay will be seen to be related to goodperformance

2.3.1.3 Employee benefits

Employee benefits are parts of the total reward package and paid to employee apartfrom cash pay

The employee benefits include benefits plans for employees coming from five types

of employer payments as follows:

Table 2.2 – Types of benefits

1 Legally required social insurance

payments

- Social Security

- Medicare

- Unemployment compensationinsurance

- Worker’s compensation insurance

- Temporary disability insurance

2 Private insurance and retirement

Generally, benefits are a part of the comprehensive compensation package offered

by the organization Employee benefits account for quite a large proportion of thetotal compensation Occupying 25% - 30% of total remuneration makes benefits ahuge influence on the employee and organizational outcome variables Besides themain purpose of the whole package, the employee benefits themselves also aim atcertain objectives First of all, they help increase the commitment of the employees.Secondly, the offered benefits by the organization demonstrate the cares for itsemployees’ needs From that point, the organization will succeed in satisfying thepersonal security and needs of the employees

2.3.2 Non financial reward

In the fierce competition of retaining employees, most small businesses cannot gainvictory against large corporation on a monetary level However, the employees’needs are changing and the non financial rewards are proving their greaterimportance in making employees happy and productive The impact of the intrinsicrewards such as recognition, personal growth and development etc is recorded toresult in a longer term

Results of a survey by development Dimensions International published in the UKTimes newspaper in 2004 showed that other factors motivate more than moneyrelated pay 1000 staff from companies employing more than 500 workers tookparticipation into this survey Many are bored, lacked of commitment and in need oflooking for a new job Pay actually came fifth in the reasons people excused forquitting their jobs

The major reasons were the inadequacy of stimulus job and no chance foradvancement – 43% left for better promotion chances, 28% for more challengingwork, 23% for a more exciting place to work; and 21% and more for varied work.Back to the understandings about the non financial rewards, they are not in forms of

any direct payment “They often arise from the work itself, for example, scope to use and develop skills, training, career development opportunities and high quality leadership” (2, p.12).

From this point of view, the author thinks that the non financial rewards, therefore,may be in different forms as its origination from the nature of work The employees

may feel be rewarded with the following kinds of non monetary benefits besidescompensation from the organization for their performance:

- Recognition: The staffs will be quite happy with the proper and timely praisefor their job fulfillment

- Growth and development: A suitable training program or a chance to assumehigher responsibilities may be goodwill motivation to employees

- Nature of work: Suitable positions where staff can make use of their ownskills and competences are also regarded as the granted commendation ofemployers to the employees

- Supervision: A support/ close guidance from Management which is carriedout regularly makes staff feel more valued to the organization

- Relations: Another benefit from work that most employees view seriously isthe good relations in the workplace

These arguments are very consistent with the two following theories

- The two factor theories by Frederick Herzberg

- The Job Characteristics Model by J Richard Hackman and Greg OldhamThe achievement, recognition, responsibility, personal growth and work itself arementioned as the factors leading to employees’ satisfaction in the two – factortheory by Herzberg Frederick Herzberg carried out studies to determine whichfactors in working environment will cause satisfaction or dissatisfaction Thefindings were published in the book “The motivation to work”

According to Herzberg, the motivating factors are

- Achievement

- Recognition for accomplishment

- Increased responsibility

- Opportunity for Growth and Development

- Creative and Challenging Work

The motivating factors themselves will create the employees’ happiness with theirjobs because the motivators meet people’s basic needs for psychological growth

Achievement includes the personal satisfaction of completing a job, solving

problems and seeing the results of one’s efforts

Recognition for accomplishment is a method of identifying either individual

employees or teams for acknowledgement Employees’ expectations are now muchhigher In this way, recognition may provide employees with something tangiblesuch as a special day out or a great meal that employees would remember.Nowadays, recognition (non cash) is varied in forms It may be a day to dayrecognition, a public recognition or a formal recognition

- Day to day recognition: This form is considered as the most effective as it isexecuted by Managers on a day to day basis A good management practicewill be settled in ways that Managers get to thoroughly know their staffs,care for their daily performance and give out positive feedback at the righttime

- Public recognition: The organization will apply this type to recognizeparticular achievement or continuous good performance by announcing theirachievement at public places such as notice boards or organization journals

- Formal recognition is provided to individuals or teams with tangible means

of recognition Employees may be granted chances to enjoy:

o retail or travel vouchers

o use of recreational facilities

o theatre or cinema tickets

o reserved car parking space

o etc

There is no standard approach to non financial recognition The recognitionschemes may differ with the size and sector of the employer and the objectives ofthe approach

Generally organizations implement recognition scheme with aiming to

- Lower cost: A report by Income data services showed that the awards givenunder the banner of non – financial recognition are only worth between $30and $180 However, if such amount of awards is paid in money, the value ofthe award seems to be less important

- Encourage strategic behaviors: Supposed that your A employee has chance to

be recognized publicly for his/her outstanding achievement and certain

behaviors This action would be quite valued as it helps create the imitationamong your staffs The rest also want to be recognized by the employers fortheir well done job In this way, a higher performance, the staff loyalty andthe creative work environment would be in the employers’ hands.

- In time reward: another benefit of recognition is the immediacy of theirapplication The traditional performance appraisal is typically done on anannual basis, which will not reward the employees timely for their specifictask achievement However, an offer by Manager to a dinner or a giftvoucher will immediately make the staff proud of their task/duty fulfillment

Opportunities for growth and development This includes actual learning of new

skills, with greater possibility of advancement within the current occupationalspecialty as well as personal growth

The creative and challenging jobs/ Work itself: The actual content of the job and its

positive or negative effect upon the employee whether the job is characterized asinteresting or boring, varied or routine, creative or stultifying, excessively easy orexcessively difficult, challenging or non – demand

Herzberg argued that job enrichment is required for these motivators According toHerzberg:

- The job should have sufficient challenge to make use of staff full range ofability

- Employees who demonstrate increasing levels of ability should be givenincreasing levels of responsibility

- The managers need to judge carefully what an appropriate task is for aworker to handle

Similar to Herzberg theory concerning the nature of work, psychologists J RichardHackman and Greg Oldham developed The Job Characteristics Model as anormative approach to job enrichment It specifies five core job dimensions thatwill lead to critical psychological states in the individual employee:

 Skill variety: the extent to which a job requires a variety of employee skillsand knowledge to perform.

 Task identity: the ability to complete the whole job from start to finish with avisible outcome

 Task significance: the impact of the job on others

 Autonomy: the empowerment and discretion provided to an employee incarrying out a task

 Feedback: the clear information about the results of the employees’performance

The first three dimensions contribute to the meaningfulness of the work The highertask variety, identity and significance, the more meaningful the work to theemployees

The autonomy builds up great sense of responsibility among staffs As they aregiven the chances to be a success or failure at their job, they will put much moreefforts in fulfilling their assigned tasks

The feedback whether from internal (line supervisors/Managers) or external(customers) are all important in terms of providing staffs with knowledge of theirworking results This will in turns enable them to learn from mistakes

Figure 2.3 – Job characteristics Model

Source: J Richard Hackman and Greg Oldham

Besides the motivating factors, some from hygiene factors such as interpersonalrelations and supervision are also in forms of indirect payment arising from workitself

Interpersonal relations are categorized into three main groups as Herzberg’s

theory:

- Interpersonal relations with superior

- Interpersonal relations with subordinate

- Interpersonal relations with peers

Good workplace relations allow staffs to exchange more variable information andideas so that solutions to problems are created and shared among them to improvework processes and outcomes The most remarkable benefit of good relations atwork is the staffs’ feelings of being valued and connected in ways to perform attheir best ability

Supervision refers to the high quality leadership The workplace is the environment

where effective leadership is extremely important It is a comprehensive

responsibility which involves inspiring and motivating, giving confidence andencouragement as well as providing authority and constructive feedback Therefore,

it is obvious that poor supervision in a workplace is among the primary obstacles toretaining and motivating staffs and then achieving potential the organization’ssuccesses

The poor supervision brings an organization quite a lot of problems

The poor supervision gives the employees common feelings of not being valued bythe organization Thus, the employees’ loyalty is hardly formed

Poor supervision also makes the employees feel as though they are being tooheavily watched and policed or they are not trusted and respected This leads to anincrease in tension in the workplace and decrease overall employee morale

Effective supervision in the workplace is therefore much more important than manypeople realize In fact, people are willing to leave a company and goodcompensations for the lack of good leadership One of the key steps to become aneffective leader in an organization is reviewing the leadership styles If a supervisorcomes to work and just sit in an executive office, stay away from the staffs by aclosed door, the employees will suppose that the supervisor is not bothered aboutthem and their work quality Conversely, if the supervisor is concerned with theemployee’s daily operations and show his/her recognition that each of them play animportant part in the overall functioning of the organization, then this sends out themessage that everyone is valued

With aim to maximize an organization’s performance and profit, a qualitysupervisory team should be employed and trained to ensure the very finest resultsfrom employees

In general, the discussion above shows that apart from elements of reward systemmodel by Michael Armstrong, there are additional factors relating to rewards such

as work itself, supervision and interpersonal relations The discussion above canlead to the extension and modification of the reward system elements by MichaelArmstrong to some scales as follows:

Figure 2.4 – The extension of reward system model by Michael Armstrong

This modified model of reward system will be applied for the author analysis of the

current reward system at VID Public Bank

Reward

Variable Pay Employee

Benefits Recognition Growth Work

itself Supervision

Reward System

Relations

2.4 The aims of reward system

Reward systems have some major objectives as follows:

- Attraction: A reward system is designed in order to support the organization

in fulfilling the set target by providing the organization with the skilled,competent, committed and well – motivated labor force However, amongthe fierce competition in labor force, reward system becomes more and moreimportant in attracting suitable employees

- A greater performance: Everyone needs an encouragement to perform better

A bonus or a pay rise is intended to push employees to motivate themselves

to gain the rewards The higher performance from employees would in turnresult in the higher added value for organization as well as the organizationcompetitive advantage

- Commitment: The reward system also works to maintain and enhance thestaff engagement and commitment

2.5 Principles of the reward system

The reward system needs to ensure the following principles

First of all, the reward system should be truly transparent Everyone in the

organization is supposed to catch up with what the components of the systems are,how the various parts of the systems operates and how those components take effect

on their benefits Moreover, it is better that employees or their representatives(Trade union) will get involved in designing the system and have chance to raisetheir comments on all relating issues

Secondly, the equity of the reward system is achieved It means that people are

rewarded properly in comparison with others in the inside and outside organizationand in accordance with what they value and contribute for the organization Thereward system will take an adverse effect if staffs believe that they are evaluatedbialy or partly People’s feelings of satisfaction with rewards are influenced bycomparisons with what happens to others There would be such jealous anduncomfortable feelings between staff that the working environment and relationsbetween them will be affected accordingly Moreover, satisfaction with reward is a

function of both how much his received and how much the individual feels should

be received When individuals receive less than they feel they should get, they aredissatisfied

Last but not the least; the system should maintain the consistency in the reward

level and the rates of pay Consistency means treating all employees equally based

on the conformity to an existing standard The manager is responsible to definerules/ regulations to their particular areas of work and the in charge managersshould monitor the implementation of reward system against them in order tomaintain the consistency In return, the employees will lay more trust in the fairnessand timeliness of the organization’s reward system

CHAPTER 3: CURRENT REWARD SYSTEM AT VID PUBLIC BANK 3.1 Overview of VID Public Bank

3.1.1 History

VID Public Bank (VPB) was established on 30 September 1991 as a 50:50 Venture Bank between the Bank for Investment and Development of Vietnam (BIDV) and Public Bank Berhad of Malaysia (PBB) The Bank started operation in May 1992 with a single Branch in Hanoi and has to date expanded its network to allmajor cities in Vietnam Today, it has presence in:

Joint-1 Ha Noi

2 Ho Chi Minh city

3 Cho Lon (District 5 Of Ho Chi Minh city)

4 Binh Duong

5 Hai Phong

6 Da Nang

7 Dong Nai

Bank for Investment and Development of Viet Nam (BIDV)

BIDV was incorporated as the Bank for Construction of Vietnam on 26 April 1957

On 21 June 1981, it was renamed Bank for Investment and Construction of Vietnamand subsequently, renamed Bank for Investment and Development of Vietnam on 14November 1990 With effect from 1 January 1995, BIDV was restructured tooperate as a full fledged commercial bank It is one of the 4 largest banks inVietnam and has active participation in mobilization of domestic and foreign capitalfor lending, financing and equity participation in development projects

Public Bank Berhad, Malaysia (PBB)

Incorporated on 30 December 1965, Public Bank commenced business on 6 August

1966 and is listed on the Kuala Lumpur Stock Exchange since April 1968 PublicBank is currently the third largest commercial bank in Malaysia in terms of total

assets and ranked second in terms of profits Public Bank Group’s corporatestructure comprises 21 subsidiaries, 4 associate companies and 2 representativeoffices located in Malaysia, Hong Kong, Cambodia, Vietnam, New Zealand, Laos,Srilanka, Labuan, Myanmar and China The Bank has diversified from its corebusiness in banking and finance to other financial services encompassing offshorebanking, trustee services, funds management, leasing and factoring, stockbroking aswell as commodities futures trading.

As testimony of PBB’s accomplishments in excellence, the Bank was rated byAsiamoney Magazine as Asia’s Third Best managed Bank for 1991 It was awardedthe Euromoney Award for Excellence in 1993 and the Services Export ExcellenceAward in 1994 in recognition of the Bank’s quality improvement and excellence inmanagement, products and services

The Joint – Venture bank – VID Public Bank

Backed by the two well reputed and financially sound partners, VPB has achievedencouraging financial performance since commencement of its business operations.VPB was rated as one of the top seven performing wholly foreign – owned or joint– venture banks in Vietnam in 1995 by the State Bank of Vietnam In line with thecorporate mission to be a successful and profitable financial institution in thecountry and arising from its own philosophy of attainment of excellence, VPBadopts a pro – active business development approach and continuously upgradesefficiencies in its systems and products to keep abreast with developments anddemands of the banking industry

Today, being recognized as one of the leading foreign – invested banks in Vietnamand with the escalating economic growth and developments, VPB is confident ofbetter achievements in the years ahead

Gross Loans and advances increased by 29.1% or USD 50.27 Mil to USD 223.16Mil in 2009 from USD 172.89 Mil in 2008, reflecting the Bank’s concerted efforts

in implementing effective marketing strategies to achieve a strong loans growth Inaddition, VPB’s net non – performing loan ratio has improved significantly from3.2% as at 31 December 2008 to 2.0% as at 31 December 2009 as a result of VPB’sprudent lending and credit activities

Profit before taxation decreased by 5.8% or USD 50.27 Mil from USD 9.73 Mil in

2008 to USD 9.16 Mil in 2009 mainly due to lower interest rate margins from thecapped ceiling lending interest rates for commercial loans vis – a – vis increasingdeposit interest rate Moreover, profitability was affected by the decrease of USDinterest income received from money market operations and lower gains fromforeign exchange

Table 3.1 – VPB Business results 2008-2009

2009 USD million

2008 USD million

Total Gross Loans and Advances 223.16 172.89

Source: VPB annual report

3.1.3 Corporate Philosophy

The corporate philosophy of the Bank is as

follows:-a) To provide the most courteous and efficient service in every aspect of ourbusiness

b) To be innovative in the development of new banking facilities

c) To promote the well being of our staff through attractive remunerationand fringe benefits

d) To promote good staff morale through proper staff training anddevelopment and provision of opportunities for career advancement.e) To assume our role as a socially responsible corporate citizen in atangible manner

f) To adhere closely to national policies and objectives thereby contributingtowards the progress and development of the nation.

g) To forge ahead and consolidate our position as a stable and progressivefinancial institution

h) To generate profits for a fair return on shareholders’ investment

In view of the above philosophies, it is highlighted that the Bank has shown itsconcerns about its reward system in terms of monetary and non monetary elements.The bank orientation is to launch an attractive compensation program with theparticipation of remuneration and benefits Besides, the non financial factors astraining and chances for advance for individuals are also regarded by the bank as amotivator to staff Also in the bank philosophy, we can realize the high need of theBank to manage the labor force in effective way so that the organization achieves itsaims To develop new banking facilities and to generate profits are demanding notonly the right directions from Management but also the high creativity, contributionand dedication of the whole staff However, it is obvious that employees do notwork for free Therefore, how the bank compensates them in return for theirperformance is the door to the Bank success in managing its labor

In the following paragraphs, besides addressing the strengths and weaknesses of theVPB current reward system, the author also took chance to find out the gap betweenthe Bank philosophy and the reward system practice, the reward system requirementand the reward practice by measuring the extent of satisfaction of VPB employeestowards reward system

3.1.4 VPB business strategy and reward strategy

As the author deep research via the Bank documentations, VPB does not announceits business strategy officially in writing and popularizes it among staffs The bankpoints out the business directions in ways of short term plans like business targetsfor 03 business indicators (including Loans, Deposits and Profits) from thebeginning of each financial year This may lead to the disorientation in the Bankdevelopment The labor force may consider the achievement in short term moreimportant than that in long term Credit processing staff may work to keep the

outstanding loans stay high but those loans may contain high ratio of nonperforming loans

The author also could not define VPB reward strategy Reasons may lie in the factthat the reward strategy has not been established yet or the reward strategy is not inform of writing The only factors relating rewards can be realized are rewardprograms/schemes So, in practice, the Bank carries out range of reward programsand activities without designing a reward strategy aligned to the Bank businessstrategy

3.2 The current reward system at VID Public Bank

3.2.1 Financial reward

3.2.1.1 Base salary

Salaries are paid in Cash on a monthly basis at month end, normally on the 26th day.The salary scales for the various categories of the staff are as follows

Table 3.2 – VPB current base salary structure

Additional salary may be paid if it is declared by the Management The decision topay, the amount to be paid and the date of payment is subject to management’s solediscretion

Annual Increment

VID Public Bank staff will be entitled to receive an annual increment on theincremental date until they reach the maximum of their salary scale unless theirincrement has been deferred or stopped due to poor performance

The annual increment is based on the staff performance and the Bank’s businessresult in the year

 Direction and controlling (for supervisory staff only)

o Conceptual related skills

 Adaptability

 Resourcefulness

 Planning and organizing (for supervisory staff only)

 Decision making (for supervisory staff only)The performance appraisal system of VID Public Bank has been designed to meetthe following objectives:

i To provide a regular and formal channel of communication between staffand superior so that staff will be aware of how they have performed duringthe period under review and the progress made since the last appraisal

ii To provide progressive information on staff’s potential for higherresponsibilities or weakness in certain areas

iii To enable systematic development of staff’s potential as well asimprovement of staff’s weakness for better performance

iv To help the management in exercising organizational control In VPB,based on the result of performance appraisal, the amount/level of annualincrement and bonus are determined This helps controlling staffs’performance through financial methods Good performance gets morerewards than bad performance In this way, the Bank can foster staff towork towards achieving its set targets and strategies

As part of the performance appraisal, a compulsory appraisal interview will also beconducted once a year by superior during annual appraisal

VID Public Bank applies a range of leaves as follows:

Table 3.3 – VPB types of leaveAnnual/Emergency

Leave

- The leave application forms for annual leave should besubmitted to immediate superior at least 7 days beforethe commencement of your leave

- In cases of emergency, staff may apply for emergencyleave stating the reason in the leave application form

Compassionate Leave VPB staffs are entitled to fully paid leaves for personal affairs

in the following circumstances:

- Marriage of son or daughter: one day

- Death of parents (including parents of spouse), death ofspouse, death of son or daughter: three days

Medical Leave The Bank shall allow medical leave with full pay on the

medical certificate of Vietnamese Government hospitalauthority The maximum period of medical leave allowed shall

be in compliance with the Vietnamese Law

Maternity Leave Female staffs are entitled to maternity leave in accordance

with the Vietnamese Law

Maternity leave shall not commence earlier than the period of

30 days immediately preceding the confinement later than theday immediately following her confinement unless otherwiserequired by a registered medical practitioner

Marriage Leave 03 working days will be granted for marriage reason for single

staff This entitlement will only be granted once in the tenure

of service

Source: VPB Staff Handbook

 Allowances