Employees’ Perception of Pay Equity: Study on Vietnam’s State-Owned Enterprises

Abstract

This article explores factors influencing the employee perceptions of pay equity during compensation reform in Vietnamese state-owned enterprises (SOEs) since economic reform (Doi moi) started. A qualitative approach by conducting 43 interviews from selected SOEs and the Vietnam government bodies was used to investigate a research question: What are the factors influencing employee perceptions of pay equity in Vietnamese SOEs? The findings show that in the case of the Vietnamese SOE reform, the perceptions are influenced by both SOEs’ compensation policies and practices and the national culture. This study extends the equity theory by adding new findings from the context of a transitional economy and a reforming process of the SOEs. The present case shows that national culture also greatly influences the perception of pay equity alongside compensation factors.

Keywords

Human resource management compensation Vietnam state-owned enterprises transition

Introduction

The perception of pay equity is the personal sense of equity when an employee compares their contribution with their reward and then compares it with others’. The exchange between employees and employers is subjective so the employees continuously check their inputs and outputs for jobs to understand whether or not the ratios of the input and output are equitable. If the ratios are not equitable, they might feel dissatisfaction or discomfort (Adams, 1963, 1965). The perception of pay equity has been linked to employees’ working behaviour and attitude. Facing the inequitable situation, the employees might decrease their input brought to work by wasting working time or even quitting their jobs to remove themselves from the inequitable situation (Adams, 1963, 1965; Walster et al., 1978). It is believed that by providing satisfactory compensation packages, an organization might retain the best talent, which is key to success for any organization today. Fairness or equity of a compensation system is a fundamental element in creating employees’ satisfaction with their reward received (Milkovich et al., 2011).

Vietnamese state-owned enterprises (SOEs) are the special interest of this study because their transformation process strongly reflects the transitional process of the Vietnamese economy in general. The transformation is a unique process in which the firms face unique challenges from the integration of management philosophy as a combination of the traditional socialist ideology and the Western ideology (Tran et al., 2016). The socialist ideology of management aims to create a harmonious working environment and to inspire the collective spirit, the feeling of equal distribution in which everyone has similar rewards regardless of differences in individual contribution. The Western management approach, meanwhile, focuses on individuals’ contributions and rewards to enhance their productivity.

This transformation has caused significant changes in SOE types, their management and compensation practices. A series of compensation policies have been issued to guide the compensation practice reform in SOEs. In addition, these companies are an economic force which is helping the Vietnamese government to control the economy and ensure a socialist orientation. However, since Doi moi, SOEs have been continuously performing inefficiently (Dao, 2000). This inefficiency seems to be a result of the fact that SOEs’ compensation policies and practices have failed to bring feelings of pay equity to the employees (Collins et al., 2021). To present insightful views of perceptions of pay equity in Vietnamese SOEs during Doi moi, this study uses a qualitative case study method to tackle a research question: What are the factors influencing employee perceptions of pay equity in Vietnamese SOEs?

Theoretical Motivation

Equity Theory

The equity theory proposed by Adams (1963, 1965) is a crucial theoretical foundation for the concept of perception of pay equity and its link to a firm’s compensation policies and practices. The theory highlights the circumstances that lead to an individual perception of equity or inequity. Accordingly, an employee brings many inputs to their job, including experience, education, intelligence, physical strength, commitment, status and social connections, and then expects to receive a just return or outputs. The outputs might be in the form of status, benefits or basic pleasures, and reimbursed monetarily (Milkovich et al., 2011). The employees will always seek fair treatment (Adams, 1963, 1965), in which notions of pay equity are based on perceptions about the justness of compensation allocation and on processes of comparison with others in which the justness of actual pay and actual pay distributions are assessed. As a natural response, a person will be motivated to eliminate a sense of discomfort caused by the perception of inequity. Employees respond to inequitable situations in different ways: to decrease their inputs brought to work; to psychologically distort their inputs and outcomes; and to quit their jobs (Adam, 1963, 1965). The reactions show a link between a sense of equity and compensation policies and practices (Collins et al., 2021).

Since the proposition of the equity theory by Adams (1965), various studies have been conducted to confirm multiple factors influencing the perceived pay equity. These studies state the linkages between the level of payment and pay satisfaction, absenteeism rates, burnout, emotional exhaustion, turnover rates and acts of theft (Carson et al., 2010; Greenberg, 1990; Heneman, 1985; McFarlin & Sweeney, 1992; Summers & DeNisi, 1990; Telly et al., 1971) or between skill, efforts and performance, benefits and perceived fairness of pay (Davis & Ward, 1995; Kumari, 2016; Martin & Bennett, 1996; Romanoff et al., 1986). Although compensation and perception of pay equity have been popular topics, there have been seen scant studies about these issues in a transitional economy such as Vietnam, where there are changes in the firm structure and governing compensation policies and practices as well as the employees’ perception of pay equity. These circumstances motivate the author to conduct this study to understand how employees in Vietnam’s SOEs perceive pay equity and what factors influence their perceptions, and whether the findings in Vietnam’s SOEs case are in line with the perception of pay equity originating from the equity theory by Adams (1965).

Methodology

This research uses a qualitative approach through a case study method to understand the complex relationships between compensation and perceptions of pay equity. To ensure its trustworthiness, this study uses a triangulation of data sources and triangulation of the participation of informants. This strategy utilizes a convergence of multiple perspectives on data to ensure that a phenomenon has been investigated in all its aspects (Krefting, 1991).

Data collection: The 12 SOEs including joint-stock SOEs (Js SOEs) and 1-member limited liability SOEs (Ltd SOEs) have been chosen for the multiple case studies in this research (see Appendix 1 for characteristics of the participants). The data collection method is semi-structured in-depth interviews. Each interview lasted from 45 minutes to 60 minutes. The interview questions were designed based on the themes related to the equity theory by Adams (1965) which include compensation fairness of salary, benefits and relational returns. The research conducted a total of 43 interviews from selected SOEs including managers, workers, trade union officers and policymakers who are directly related to issuing policies on compensation. Besides this primary data source, the study uses additional secondary data sources from the companies’ documents and the relevant government document to validate and support the interviewing information.

Data analysis: This study employs thematic analysis introduced by Braun and Clarke (2006) to analyse collected data. Accordingly, through the encoding process of qualitative information, patterns of meaning are identified and analysed to create the themes. The researcher analyses the data set to find the repeated patterns and then identifies emerging themes. NVivo 8 software is used to analyse the qualitative data set from the interviews.

Ethical issues have been carefully considered in this study to protect the privacy, rights and safety of the participants before collecting data. Participation in this study was strictly voluntary. To protect interview respondents’ privacy and safety, pseudonyms were used to provide and analyse the interview data. All interviewees were named from S1 to S36 for the SOE participants, and NS1 to NS7 for policymakers and specialists (see Tables A1 and A2 for detail).

Findings

The themes in this study have been developed inductively. The interview data has been repeatedly evaluated to find out the repetition and groups of categories. There are four themes that emerged from the interview data. They are salary determinants, benefits, socialist ideology and collectivism. Since the themes have been identified, there are two groups of category themes that emerged from the findings:

Category 1: Employee perceptions of pay equity based on compensation policies and practices which include two themes of salary determinants and benefits.

Category 2: Employee perceptions of pay equity based on national culture which is structured by the two central themes of socialist ideology and collectivism.

Category 1: Employee Perceptions of Pay Equity Based on Compensation Policies and Practices

Salary Determinants

Salary determinants have been found to significantly influence perceptions of pay equity, as it is how companies reward their employees. The majority of employee interviewees emphasized that salaries based on criteria of qualification and seniority were egalitarian because the salaries of two people having similar qualifications and working time are automatically the same regardless of their productivity. S4, a young worker from L2, said, ‘Payment based on seniority and qualifications cannot differentiate productive or less productive workers, so why do we have to work hard?’ (Interview S4). Similar to S4, another young accountant, S20, had fewer working years, thus his wage grade was the lowest level in the wage scales and appeared to stay the same over at least three years, regardless of his performance and effort. As a result, he felt dissatisfied with these determinants (Interview S20). This unsatisfied feeling was also shared by S15, who was the senior staff in J2. She had worked for 25 years continuously and, as a senior employee, had the advantages of a seniority pay base, and her salary now was at a high grade. However, she still expressed her dissatisfaction with the payment. She said, ‘It took too long for me to get that wage grade, while if the company used a performance pay base I could shorten the time by increasing my performance and efforts’ (Interview S15).

In contrast, the performance pay base was perceived as an equitable criterion because it reflected the employees’ effort and performance. S16, a finance officer in J3, was thankful for the KPI approach that his company used for measuring his performance and that it calculated for his payment. S16 said, ‘I get a salary equivalent to the level of work completed that was set out by KPIs. I believe that the salary following KPI measures is equitable’ (Interview S16). In addition, S29, a sales assistant in J4, stated that her productivity salary or business salary depended on the company’s annual revenue and her performance. She said, ‘This new payment approach is tied to my contributions to work and definitely equitable’ (Interview S29). Similarly, S31, a credit officer from J5, said, ‘My business salary is different between months because it depends on my performance. I try my best to increase my revenue to get a higher income’ (Interview S31).

Some SOEs used daily attendance records as a criterion to calculate Luong mem and other benefits. This led employees to feel that they were being compensated unfairly. According to S1, a worker in L1, ‘This does not reflect the employee’s performance. It is unfair’ (Interview S1). Interview findings explore that in almost all limited liability cases and some joint-stock cases, performance appraisal has been employed in the form of scoring the level of task completion among employees. Similarly, S29, an employee in a joint-stock company, J4, in Ho Chi Minh City, said that she was unhappy with her salary and bonuses because her company calculated individual salaries based on group performances. She said that sometimes she did not receive performance bonuses due to her team not finishing their plan: ‘In this case, we all had to have our salary and bonuses deducted, but in actuality, some of us had worked very productively, while it was the rest that did not finish their targets’ (Interview S29). These findings also show that if the performance pay base is applied improperly, this might cause the perception of pay inequity.

These findings show that both young and old employees had similar views on performance and seniority bases, even though their benefits were different due to the effects of the seniority pay base.

Benefits

The qualitative study indicates that benefits, one of the key compensation components, have influenced employee perceptions of pay equity. Benefits contain compulsory types of insurance (social insurance, medical insurance and unemployment insurance) and individual SOE benefits. Decree 959/QĐ-BHXH regulates that the cost of compulsory insurance be equal to 32.5% of the employee’s salary, in which the company contributes 22% and the employee contributes 10.5% (Vietnam Social Insurance, 2015). These components are designed by the government and are consistently applied to all organizations across the country, to secure employee retirement, and compensate in case of an accident, illness or loss of job. On the other hand, individual company benefits are optional for a firm, depending on their financial conditions and their demands.

Interview data shows that most of the participants expressed their feelings of unfairness regarding the purchasing of this insurance and the insurance itself. Interviewees indicated that the actual benefits they received from these insurances were low and would be insufficient in securing their future lives, which thus raised doubts about the fairness of these benefits. S11 said, ‘This pension is not fair when taking into account the fact that my mother had committed around 20 years of work to that company’ (Interview S11). Besides this, S1, having worked for 15 years in L1, commented that the proposed unemployment benefit was only equal to 60% of the minimum wage. The current minimum wage is already very low and can actually only support about 75% of an individual’s basic needs: ‘How can a person survive with such a small amount of money?’ (Interview S1). The inadequacy of these and other insurance benefits had made employees feel that it was inequitable compared to the actual living standard.

Moreover, most employees claimed that they were unsatisfied with medical insurance services due to the low quality of such services for members covered by this insurance. The poor quality and insufficiency of these services had brought negative feelings about these insurance schemes and, in turn, had caused employees to perceive an amount of unfairness from these insurance schemes. These findings imply that the perception of pay equity had been influenced not only by the compensation practices of these companies but also by the insufficient compensation policies of the government.

In contrast to compulsory insurances, other benefits provided by individual companies such as paid holidays and ad hoc financial support for special occasions and lunch allowances had enhanced perceptions of pay equity among employees. Interviewees expressed approval and positive feelings regarding these benefits. S13, a worker from J2, said that he had received many benefits from his company. For example, when he became sick, he received small financial support, enough to compensate for his sickness, from his company’s trade union unit. On Children’s Day, trade union officers gave gifts to his children. In addition, annually, the company organized a paid holiday for all employees. He felt satisfied with these benefits (Interview S13). Similarly, S26, a worker from L6 said, ‘Every year, the company allocates a sum of money to me as a budget for a holiday, in which I can freely organize and use the money. Additionally, if I do not go on holiday, I can use the money for other purposes’ (Interview S26). According to S26, his company provided very clear instructions on his welfare package, such as paid holidays and sickness financial support. For example, the instructions detailed levels of sickness and the amount of monetary support for each level; thus, S26 said, ‘Everyone receives similar levels of welfare. I am very satisfied with these benefits’ (Interview S26).

In summary, the study found that both salary determinants and benefits schemes had played a role in influencing the perceptions of pay equity. However, a proper appraisal of performance would be the core factor in enhancing employee perceptions of pay equity. The findings emphasize the vital role of fairness in salary procedures in creating a fair performance-based pay system and in enhancing perceptions of pay equity in SOE cases. Additionally, ineffective benefit packages and inefficient services provided by the social insurance scheme were the main causes of negative perceptions of equity among employees. The findings also indicate that individual companies that provided extra benefits beyond the insurance for their employees were able to increase perceptions of fairness of their compensation system.

Category 2: Employee Perceptions Based on National Culture

The qualitative study findings demonstrate significant impacts of socialist ideology and collectivism on the perceptions of pay equity of both leaders and employees in SOEs cases.

Socialist Ideology

First, all the four CEOs in this study expressed their awareness of political responsibilities to help the government ensure its socialist orientation of equal distribution. S32, a CEO from J5, stated that the company maintained a mixed pay system, which combined both traditional and modern criteria to help everyone feel that they were being treated equally and to keep the company operating smoothly (Interview S32). According to S32, if the company only used a performance pay base, this might not be equitable for the senior employees who had been working for the company for a long time and were in the final stage of their working life, because ‘they are too old to adapt to pressures under the new pay base’ (Interview S32). Similarly, S25, a CEO from L6, highlighted, ‘We keep a senior pay base to compensate the senior staff as they have devoted their whole life working for this company; some of them were even veterans who sacrificed their youth for the country. They deserve to receive compensation as well’ (Interview S25).

However, the findings on the effects of salary on perceptions of pay equity indicate that these parallel compensation systems had made it easier for employees to recognize the inequity of traditional pay determinants, which in turn had raised their feelings of inequity. Moreover, as mentioned before, employee perceptions of pay equity had changed towards a performance pay base; thus, maintaining traditional pay determinants in these companies had been contributing to perceptions of inequity among employees of the payment systems.

Second, benefits provided by individual companies were strongly influenced by the socialist ideology, which contributed to enhancing the employee perceptions of pay equity. NS7, a trade union officer from Ho Chi Minh General Confederation of Labour, stated, ‘As state companies, they often care for their employees on behalf of the government. Generally speaking, employees working for SOEs have been enjoying huge benefits that others in private sectors rarely do’ (Interview NS7). In addition, according to S28, a CEO of J4, a state company does not dismiss its employees easily like a private company can, because one of its compensation objectives is to care for every employee’s living aspects. S28 said, ‘We would not dismiss them (the senior and unskilled employees) because they have devoted almost their entire life to this company. Instead, we would try to arrange other suitable jobs that would allow them to work until their retirement age’ (Interview S28).

Almost all employee respondents stated that they were satisfied with the benefits provided by their companies. S29, a sales assistant from J4, explained that there was rarely any dispute in the company because the company had displayed care and attention towards the employees’ spiritual life. Benefits provided by companies such as paid holidays and birthday gifts had resulted in employees becoming closer, with some workforces even considering themselves a family (Interview S29). Similarly, S4, a technical worker from L2, said that every year, the company paid around VND7–VND8 million per employee to arrange a holiday for the staff. The paid holiday encouraged them to work harder and strongly developed the company’s collective spirit (Interview S4).

Collectivism

For the employees, the interview findings display strong influences from the traditional culture of employees’ attitudes to pay inequity. All interviewees had perceived the traditional criteria of seniority to be inequitable. However, instead of raising their voices to oppose it, they all accepted this as a part of the collective spirit. S4, a young worker from L2, said that he felt uncomfortable if he complained about the lesser productivity of the old workers in the company. This might break confidence in the collective engagement that was very good in his department. He, therefore, thought that ‘everyone should not concern themselves too much about the individual benefits. The group performance is more important than the individual performance’ (Interview S4). Likewise, S29, a sales assistant of J4, was impressed that her company strongly encouraged cooperation among employees. It therefore usually calculated bonuses based on group performance. She thus did not complain about inequity in salary between the old and the young workers. She highlighted:

I know I am working harder than the old people here, but my salary has not been as high as theirs. I am sometimes concerned about this, but if I complain about this, my department might be considered as having internal conflicts and will not get the bonuses. I do not want to be seen as the selfish one. (Interview S29)

These findings highlight the effects of Vietnamese traditional cultural values on relationships between compensation and employee perceptions of pay equity in Vietnamese SOEs. The parallel effects of the traditional culture and changes in the employee perceptions of equity have resulted in conflict between the collective spirit and a wish to be treated equitably based on performance. This conflict has not been resolved so far. This situation is silently demotivating to employees. Consequently, they may not have tried their best at work, because they have understood that these efforts would not be compensated equitably. They would always keep their performance at the average level and attempt to maintain a cooperative face in the workplace.

Discussion

This finding is similar to that of research conducted by Scott et al. (2011) about the perceptions of reward fairness around the world. These authors highlighted that the most important criterion affecting perceptions of pay equity is individual performance. The findings in the study indicate that if pay differentials within a firm are not able to be explained by the management, it will cause dissatisfaction among employees. In addition, the results of this study expand Adams’ equity theory by identifying other factors which are contextual factors significantly affecting employee perceptions of pay equity beyond the employees’ inputs and outputs. Results of this study show that the context in which the SOE cases studied are operating has strong influences on the compensation practices and, in turn, impacts employee perceptions of pay equity. The contextual factors, including social norms and socialist values, significantly influence the way the compensation system was developed and the employees’ perceptions of pay equity. The socialist ideology and collectivism have driven SOE managers to design their compensation schemes at the company level, to ensure that SOEs carry out the government’s socialist principle of equal distribution in society. Together with socialist norms, the collectivist value has made employees accept the equal distribution rules that have not been based on their performance and effort at work. Both the management approach and employees’ accepted behaviours have led to maintaining traditional compensation practices in the SOE sector, which have been found to increase employee perceptions of pay inequity.

The research findings present that the transformation of compensation policies and practices in Vietnamese SOEs contains conflicts between the two approaches: the traditional ideology of fairness and compensation system and the modern (Western) management approach. The traditional one is to bring the feeling of equal distribution in which everyone has similar rewards despite their different contributions. The Western management approach, meanwhile, focuses on individuals’ contributions and rewards to enhance their productivity. The socialist ideology is still dominant in management in Vietnamese SOEs currently. Meanwhile, the new context of Doi moi forces these firms to be more innovative by making management reforms (Collins et al., 2021; Nguyen 2003). The values of collectivism influence the conduct of human resource management practices such as performance appraisal practices in firms’ practices (Vo & Stanton, 2011). Group orientation that sees collective units over individual interests is emphasized as the priority of HRM (Cox et al., 2014). The overemphasis on collective values in Vietnamese SOEs firms makes it difficult to implement practices such as individual performance-based pay (Zhu, 2005).

In terms of the employee perception of pay equity, since Doi moi began, the perception of equity in compensation has evolved towards the new principles of distribution under market conditions. However, due to the long period of having operated under the traditional socialist system, SOE management in general and compensation in particular have been strongly based on traditional criteria such as equal distribution and seniority. The inconsistency between the new awareness of equity and the traditional compensation system has been seen as a key element in demotivating employees and leading to SOE inefficiency.

The research significantly contributes to the field of knowledge of compensation and its fairness. It argues that employee perceptions of pay equity, compensation components and contextual elements have interrelationships. As the effects of these contextual factors on both compensation practices and the perceptions of pay equity can be significant, this study, finally, includes these additional factors to develop a model examining the relationships between compensation components and the perceptions of pay equity in the context of Vietnamese SOEs.

In practice, this study suggests some key solutions to improve the employee perceptions of pay equity in SOEs. For policymakers, the government can help increase the perception of pay equity by improving the social welfare system to be sufficient and more convenient for employees. If the social welfare system is sufficient for employees, they would not be required to spend extra on the health services that already are contributed to by themselves and employers through the social insurance scheme. These actions might significantly improve employee satisfaction with the benefits of compulsory insurance and their salary.

For SOEs, it should be focused on the fairness of the compensation procedure, especially the salary determinants, to improve the perception of pay equity. The performance pay base should be a key determinant in calculating salary. Besides this, SOE management should continuously maintain the company’s benefits such as paid holidays and occasional financial support. These activities can help to strengthen perceptions of equity regarding compensation procedures.

Conclusion

The marketization process in Vietnam has brought major changes in government policies, especially in terms of SOE management. The government has been trying to establish a legal framework to ensure fair competition for all types of enterprises. This means that SOEs will gradually lose their monopolistic advantage and operate under the conditions of competition with other enterprises in other sectors, following market rules. This is an unavoidable trend that all SOEs have been facing. Improving performance and efficiency are most important to them to exist in such a competitive market. This study confirms that Vietnamese SOEs need to be concerned with creating positive feelings for employees about their compensation practices to improve performance and efficiency. It argues that paying more attention to the fairness of salary and its procedures will positively influence employee perceptions of compensation and thus improve their performance. SOEs should also learn and adopt modern management methods, especially in compensation, to improve fairness in their decision-making processes, as employee perceptions of equity have changed towards the modern ideology of distribution and management. The study extends the equity theory by providing evidence for the influences of national culture on the perception of pay equity besides the compensation factors in Adams (1965).

Footnotes

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The author disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The author gratefully acknowledges the financial support from Project 165 of Vietnam’s Government for funding the research that this article is based on.

Appendix 1: Characteristics of Interviewees

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