Salary gaps must be addressed through upskilling

July 06, 2023 | 09:16
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Addressing income disparities between domestic and foreign workers in Vietnam requires collaboration and learning from international cases. Christopher Lee, director of Management Consulting and Workforce Transformation at PwC Vietnam, told VIR’s Linh Le about the focus on developing capabilities and upskilling the local workforce.

Is there an income disparity between domestic and foreign workers in Vietnam’s high-quality labour market, and how does this compare to other markets in the region?

Salary gaps must be addressed through upskilling
Christopher Lee, director of Management Consulting and Workforce Transformation at PwC Vietnam

From an absolute amount perspective, there is a clear total income disparity between expatriates and locals. However, we need to take a different perspective to consider what it takes in terms of total pay and benefits required to draw and retain the critical skills – especially if attracting them from overseas.

When considering expatriate rewards, given that the skills required would usually come from very mature markets and the need to get the people overseas to come to Vietnam, employers would commonly offer slightly higher or equivalent pay packages to these expats, as they already have higher pay packages.

In comparison to adjacent markets, on average expatriate pay may be lower. However, the variations in pay are more significant in Vietnam compared to other countries.

The variation is due to the origin of expats as well as the type of expertise and experiences they bring. Given the speed of growth in the Vietnam market, depending on the availability of the skills/expertise in question, the range of offered pay may significantly vary.

I would not say there is an income disparity especially if you consider the skills, expertise and experience being recruited for, as well as the initial benefits that local employers need to match when attracting talent from overseas.

Some of the highest-paid expats are Vietnamese people who may have begun their careers here but have since left and worked in relevant positions and have obtained the critical skills overseas, and then returned. As they have both the local cultural understanding, local language skills and the prerequisite technical skills/experiences, they are often considered equal or more valuable than foreign expats.

What factors contribute to this income disparity?

As standard recruitment policy has a “no worse off” principle, meaning any pay offered should be equivalent or higher than the last pay/benefits, hiring expats commonly costs higher than local hires. However, the same can be observed for local Vietnamese who went overseas and returned locally to take on local roles.

The willingness of organisations to pay more lucratively for specific skill sets usually depends on the opportunities the business leaders observe. Financial services and insurance is a fast-growing area with rapidly increasing pay for specific skills sets; digital banking, data and analytics also offer significant opportunities for growth, as do technology and e-organisations.

National benefits or common benefits of expatriate home countries also contribute to this, as most potential recruits will only consider the opportunities if the pay conditions are equivalent. Australia and European countries may offer free education for children, which costs significantly more in Vietnam for equivalent standard education, and some countries have a higher bonus percentage of annual pay or other common benefits such as better social insurance benefits.

Taxation rules and rates are another key factor, as Vietnam taxation applied to the full global earned amount and depending on the country of origin for expat, this may saddle employers with higher total costs of employment due to tax equalisation practices.

How do multinationals operating in Vietnam approach this issue internally, and are there any best practices or strategies that can promote equity and fairness?

In the past, there may have been different pay scales applied. However, over the last decade, this practice is being moderated to balance both external competitiveness with internal equity (between expat and local).

Most companies in Vietnam are embracing a more fixed concept, where a similar fixed pay scale is applied to both locals and foreigners, with variations in the structure of benefits to account for competitiveness of pay, as well as accounting for expat country of origin benefits.

However, there are some variable practices applied for foreign secondees, people sent to Vietnam from the foreign parent entity to take on local roles for a specific period of time.

How can collaboration address income disparities for domestic and foreign workers in Vietnam?

Having worked in skilled migration in Australia before my current role, I have observed the Australian government’s focus on ensuring overseas hires are targeted to specific skill areas or high-growth industries, through preferential arrangements, among others.

Almost always, mandate organisations hiring foreigners contribute or develop the local workforce, either through providing evidence of internal capability development programmes or succession planning programmes focusing on bridging the skills and experience gap.

Also, Vietnam can develop more public-private partnerships, moderated by civil society organisations focused on developing workforce capabilities and bringing new skills here.

Vietnam Salary Guide 2023 introduced Vietnam Salary Guide 2023 introduced

The Vietnam Salary Guide 2023 was officially introduced on December 12, providing practical insights and data on key industries, allowing organisations and individuals to make better preparations for next year.

Base salary for civil servants, public employees rises to 1.8 million VND from July 1 Base salary for civil servants, public employees rises to 1.8 million VND from July 1

The Government has issued a decree regulating the base salary for civil servants, public employees, and members of the armed forces, stipulating that it will increase from 1.49 million VND (63.5 USD) to 1.8 million VND per month from July 1, 2023.

By Linh Le

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