Government proposes performance-based wages for SOE leaders

Deputy chairman of the National Assembly Committee for Social Affairs Bui Sy Loi

Wages of executives at state-owned enterprises (SOEs) were reported in the range of VND50-70 million ($2,380-$3,330) per month. Is this reasonable?

In my view, that level is high for businesses with reasonable growth, but extremely high for businesses with poor performance.

In contrast, that level is low or extremely low for firms whose management is capable of leading the business to new landmarks, high growth and tens of millions of dollars in annual profits while also bolstering state coffers with tax payments and providing high and stable incomes to their workers.

Under a mechanism that sets a strict pay scale for all executives, regardless of ability, high talent individuals are not likely to be attracted to working at SOEs.

So pay levels currently being set by the Ministry of Labour, Invalids and Social Affairs is the major cause behind SOEs finding it so difficult to find capable leaders?

Basically, pay levels should be set according to a worker’s contribution.

Under the current mechanism, executives at firms failing to reach their development plans still receive several thousand dollars a month. If other payments are included, this may in fact reach tens of thousands of dollars a month.

Contrary to this, business leaders who deliver remarkable improvements to a firm’s operations and make major contributions to the state budget every year are not posting salaries higher than those who are ineffective. This does not encourage and has even dispirited some executives.

This issue is expected to be tackled by Instruction 06/CT-TTg, which requires the Ministry of Home Affairs to submit plans and mechanisms on holding exams and signing term contracts for management positions at SOEs in the second quarter this year, right?

Recently a number of ministries, state agencies and localities have held exams for management positions, and the results were encouraging.

Most recently, the Ministry of Transport successfully held exams to select a chief of the Directorate for Roads of Vietnam.

In my view, management positions at SOEs should be treated as standard employment by the state, which should sign contracts with successful applicants and link their remunerations with actual performance of the firm.

How can talented people be attracted to SOEs?

The complete remuneration of an executive selected by exam should be directly tied to performance.

It is not difficult to appraise a firm’s efficiency, as the business plans of SOEs in which the state holds a major stake are approved each year by an appropriate management authority. The firm’s efficiency can also be compared against similar businesses in the same area.

Throughout the world, many CEOs at multinationals receive a standard salary of only $1 or $10 per year, while their actual incomes are based on the firm’s actual business results. Therefore, doing the same in Vietnam could lead to highly capable SOE leaders.