Salary Increases: Don't Let Revenue Hold You Back!

Salary increases play an important role in treating employees well and motivating performance. Companies should annually evaluate employees' work achievements and adjust their compensation, regardless of profitability. This encourages effective performance management within organizations.

Not raising salaries over long periods can lead to losing high-quality talent as they feel undervalued. This creates a "bad money drives out good money" effect that harms workplace spirit and productivity.

Even in difficult or unprofitable times, salary increases still make sense. Recognizing individual performance through fixed salary adjustments maintains motivation and productivity as a reward for contributions rather than just linking pay to profits. It's also an effective management strategy.

Determining Salary Levels Based on Capability and Performance

Capability and Job Position

• Ensure salaries reflect ability to perform job duties.

• Conduct skills and capability assessments to determine appropriate salary grades.

Monitor Job Capabilities and Personal Skills

• Set job targets and expectations based on individual capability and skills.

• Evaluate performance against targets/expectations, adjusting salary up or down within salary range for the specific position.

• Annual bonuses or profit-sharing can be applied to address compensation mismatches from initial hiring.

Note

• Consider market salary benchmarks to ensure competitiveness. Exp: average salary in Indonesia, average salary in Vietnam, etc.

• Avoid large pay discrepancies among employees in same roles and tenure to prevent unfairness and dissatisfaction.

Performance Plays a Key Role in Salary Increase Decisions

Exceeding Expectations

• Increase salary while raising next year's job targets.

• Promote high performers by position upon achieving annual targets, adjusting salary accordingly.

Meeting Expectations

• No raise unless cost-of-living adjustments required.

• Targets may adjust slightly to ensure continuous development.

Below Expectations

• Consider salary decrease and termination, especially after three consecutive missed targets.

• Long-tenured but stagnant performers pose opportunity cost risks to ambitious younger hires' career advancement. 

• Question: decision to stay without recognition despite diligent work. However, low external competitiveness impacts exit decisions impacting talent attraction.

Profitability Should Not Dictate Pay Adjustments

Many businesses not only do not conduct performance evaluations but also do not adjust salaries due to lack of profit. This raises questions about the logic, making salary increases or decreases not fully reflect the business situation. If the company is making a profit and employees are achieving high performance, the salary increase should be highly valued. Conversely, in the case of a company not making a profit, the decision to increase or decrease salaries should be based on individual performance.

In cases where the company is facing financial difficulties, not only employees with poor performance but also those with outstanding performance may face low or even no salary increases.

This raises the issue of how to retain outstanding employees when profits are low. Two aspects need to be considered: one is to reevaluate the business strategy to improve overall performance, and the other is to adjust salary and bonus costs based on individual performance to encourage efforts and enhance the company's competitiveness in the long run. This will not only keep high-performing employees stable but also help the company achieve profitability, strengthen overall competitiveness, and maintain a quality workforce."