News & Column
Part 4 | Is the Head Office aligned with local expectations?
Part 4 of the Executive Series: “Compensation strategy in Vietnam: Essential insights for business leaders”
Why is there such a wide gap in expectations between head office and Vietnamese managers when it comes to salary increases?
In Vietnam’s rapidly evolving labor market, what feels "reasonable" from a local perspective may seem "excessive" to stakeholders based outside the country. Bridging this gap is not just a matter of policy — it requires strategic alignment, data-driven communication, and localized execution.
A common scenario:
Your Vietnamese HR manager says, “This employee should receive an increase of 2 million VND this year.”
From a head office perspective, that may sound high — particularly if coming from a market accustomed to 2–3% annual raises. But in Vietnam, such proposals are often grounded in economic realities and workforce expectations.
The Gap isn't cultural — It’s structural
The difference in raise expectations between Head Office and local HR is often mischaracterized as a cultural issue. In practice, it reflects fundamentally different labor market conditions:
In Vietnam:
- Annual salary increases of 5–10% remain standard in many industries
- Raise expectations are closely linked to CPI and minimum wage increases
- Employees view raises as a basic form of acknowledgement and cost-of-living support
※The trend of salary increase rates in Vietnam over the past 10 years is also covered in the "Vietnam Salary Survey Report 2024"
In Japan:
- Long-standing expectations are guided by low inflation and economic stability
- Salary increases remained stagnant (around 2%) for over a decade
- Recent wage increases of 3.2% in 2023 and 4.1% for 2024 were considered historically high
As a result, salary proposals that feel appropriate to Vietnamese managers may be seen as excessive by headquarters - simply because expectations are anchored in very different market frameworks.
Closing the gap: Practical actions for HR leaders
1. Localize your reference points — explain expectations using real market data
In Vietnam, salary expectations are built around local economic indicators. CPI growth, frequent minimum wage hikes, and a dynamic labor market directly influence what employees perceive as reasonable raises.
To gain understanding and support from head office, country managers and HR leaders must clearly communicate this market context. Prepare negotiation materials that include:
- CPI data and minimum wage trends
- Benchmark salary increases across peer companies
- Historical compensation movement by level and job function
It’s essential for headquarter to recognize that salary planning in an inflationary economy must follow a different logic — and that managing expectations with market-based data is far more effective than applying default assumptions.
2. Build flexible raise models — avoid flat, fixed-point assumptions
A good number of organizations still operate with static raise guidelines: for example, B grade = 5%, A = 7.5%, S = 10%. But this approach limits adaptability and creates long-term financial risk when market conditions or business performance fluctuate.
A more resilient framework uses a variable model:
Set a baseline raise factor (X), then define raise rates relative to that figure:
| Performance Tier | Raise Formula (example) |
|---|---|
| S | 2.0 × X |
| A | 1.5 × X |
| B | 1.0 × X (Base Raise) |
| C | 0.5 × X |
| D | 0 × X (No Increase) |
This approach enables consistency in how decisions are made — but allows the organization to update the “X” based on affordability, priorities, and market performance each year.
When managed transparently, this model also supports performance differentiation while reducing budget planning stress.
3. Consider not just raise % — But post-raise market position
Even a market-average raise doesn’t guarantee market-competitive pay.
- If your base salary is already well below the competitive range, a 6% raise only widens the pay gap
- If your salaries are already well above market, applying high percentage increases may result in wage overhang — which becomes difficult to reverse
And under Vietnamese labor law (Articles 102 & 127), base salaries cannot be reduced without employee consent. Every raise becomes a permanent cost.
That’s why it’s essential to evaluate the market positioning of the post-increase salary vs. latest market rates.
This approach ensures your compensation strategy remains both competitive and fiscally responsible — helping you manage retention and cost escalation over time.
Action: Align strategy with market data
Compensation decisions require more than alignment between head office and local management - they require a shared view of the labor market.
Participate in the 2025 Vietnam Salary Survey to receive a complimentary Executive Summary featuring:
- Market raise trends across sectors and job levels
- Post-raise competitiveness analysis
- Benchmarks to support transparent, data-backed communication with senior stakeholders
This allows regional HR and leadership teams to translate local expectations into concrete, credible evidence that head office can support.
📍 Coming Up in Part 5:
Should every employee always receive a raise?
In the next article, we explore how to handle employees who have reached the MAX of their salary band — and how organizations can preserve motivation without relying on further salary increases in such a case.
Stay informed. Lead with context. Drive strategic alignment.