News
Vol. 6 | Designing Total Rewards for Local Executives: The Strategic Gap in FDI Compensation
In Vol 5 - Pay Mix Structure: The Art of Allocation to Optimize Cost and Motivation, ICONIC analyzed the core essence of Pay Mix—and how this structure shapes an organization's ability to attract talent, boost employee engagement, and optimize HR Cost Control.
This week, we invite business leaders to explore a "gray area" often overlooked in Total Rewards Strategy: Designing compensation for Local Executives. This is a demographic playing an increasingly critical role in determining the success or failure of Foreign Direct Investment (FDI) companies in Vietnam, yet they are frequently disadvantaged by the lack of a standardized and systematic compensation framework.
Compensation for Local Executives: Strategically Designed or Mechanically Extended?
Most FDI enterprises in Vietnam currently possess a relatively standardized Salary Structure for general employees and Middle Management. However, when local talent is promoted to senior executive roles such as C-suite, Director, or Deputy General Director, a major governance question arises: Is the compensation policy for this group truly designed with intent (By Design), or is it merely a mechanical extension (By Default) of the legacy system?
Field observations reveal that most businesses operate under one of two scenarios:
- Extending the bandwidth of current salary bands to higher levels without restructuring the Pay Mix ratio.
- Determining compensation through one-off, ad-hoc negotiations, leading to emotionally driven, fixed structures over time.
Neither of these approaches reflects a strategic design mindset.
The Shift in Pressure: Why is This Issue Becoming Urgent?
The trend of Localization of Executive Leadership within FDI companies in Vietnam is accelerating faster than ever. No longer confined to pure operational or production management, today's local leaders are entrusted with strategic decision-making, market development, managing strategic partnerships, and shaping organizational culture - responsibilities that previously belonged to Expatriates.
These are core personnel who are incredibly difficult to replace. They deeply understand the local market context, possess valuable networks, and demonstrate high organizational commitment.
However, when the Scope of Work and operational pressure increase exponentially, but the compensation mechanism remains stagnant as a "stretched version" of mid-level management, cracks begin to show. The prolonged imbalance between "Contribution" and "Rewards" will silently erode Employee Engagement - an HR risk no enterprise wants to face.
Executive Compensation Management: Distinct Structural Characteristics
Designing an income structure for senior executives requires HR planners to grasp two core characteristics:
1. The Challenge of Single Incumbent Roles and Data Benchmarking
Positions such as CFO, National Sales Director, or Deputy General Director typically have only one headcount in the organization. Unlike the general workforce with abundant market data, this senior group has a very small sample size, making Market Benchmarking highly challenging.
For Single Incumbent roles, besides the industry axis, referencing based on organizational size (Revenue, Total Assets, Headcount Managed) is mandatory. Enterprises may even need to conduct Cross-industry Benchmarking to ensure the objectivity and accuracy of the data.
2. Pay Mix Optimization and Long-Term Incentive (LTI) Integration
The higher the level, the larger the proportion of Variable Pay must be to tightly align the executive's interests with the organization's business results. For the C-suite, alongside Short-Term Incentive (STI) programs, integrating Long-Term Incentive (LTI) structures is a standard international governance practice.
In Vietnam, the trend of implementing ESOP (Employee Stock Ownership Plan) as an LTI solution for senior executives and core personnel is becoming increasingly popular. This mechanism applies to both domestic public companies granting their own shares to employees and FDI enterprises. Notably for the FDI sector, Circular 23/2024/TT-NHNN (effective June 2024) has cleared legal corridors, significantly simplifying the administrative procedures for Vietnamese employees to officially participate in the stock award programs of their overseas listed parent companies.
For unlisted companies (Private/FDI) unable to implement ESOP, cash-based LTI structures are the optimal alternative. Companies can apply Deferred Bonus Programs tied to retention conditions or Multi-year Performance Cash based on cumulative business results over 2–3 years. This approach shifts the executive's mindset toward sustainable, long-term growth, rather than taking extreme measures for short-term gains.
"Title" Does Not Equal "Scope of Impact"
A common pitfall when designing Total Rewards for this group is equating similar job titles.
A "Director in an FDI Company" can mean two different roles. In Scenario A, the role is execution-focused with limited authority, requiring a "safe" Pay Mix with a high base salary. In Scenario B, the Director is a true P&L Owner with full strategic autonomy, demanding an "aggressive" Pay Mix heavily weighted toward variable pay.
These two positions represent entirely different levels of risk and contribution, thus requiring two separate compensation frameworks. The starting point for policy designers is not the job title, but the question: "What is the actual Bottom-line Impact of this position on the business?"
Once the variable income (STI/LTI) is designed, a prerequisite is to transparently define the Key Performance Indicators/Objectives and Key Results (KPIs/OKRs). Financial metrics and strategic goals must be directly linked to income via a clear formula that the leader understands and trusts. This is the foundation for the compensation policy to truly act as a motivational lever, rather than just contractual numbers.
Executive Perquisites: The Subtle Art of Retention
Beyond Cash Compensation, the executive remuneration package always requires the presence of Executive Benefits/Perks, especially when excessively raising the base salary hits Personal Income Tax (PIT) ceilings and increases mandatory insurance costs for the company.
- Company Car/Car Allowance: A classic perk for Director and Deputy General Director levels, optimizing work efficiency while serving as a status symbol.
- Executive Healthcare: Premium insurance packages with high claim limits, extended coverage for families, and access to premium private/international healthcare facilities.
- Corporate Credit Card for Networking: Empowering executives with financial autonomy to establish and nurture strategic relationships.
- Tuition Assistance: A perk commonly seen in large multinational corporations, supporting international school tuition fees for the children of local executives.
These perquisites rarely appear in standard salary reports but are decisive "weapons" at the executive talent negotiation table. Institutionalizing these perks into Corporate Policy rather than leaving them to emotional, ad-hoc negotiations helps businesses maintain Internal Equity.
A Roadmap for Comprehensive Executive Compensation Design
To build a robust compensation system for Local Executives, organizations should follow a 3-step roadmap:
- Job Evaluation: Clarify the authority, responsibilities, and actual impact of the position to accurately identify the benchmarking segment in the market.
- Multi-dimensional Benchmarking: Flexibly combine industry-specific data with company size metrics to eliminate errors caused by small sample sizes.
- Synchronized Total Rewards Design: Integrate Base Salary, STI/LTI, and Executive Perquisites into a cohesive package, formalized in writing to ensure transparency and consistency.
Make Data-Driven Decisions with the Vietnam Salary Survey 2026
The Vietnam Salary Survey 2026 report by ICONIC provides a system of Actual Compensation data specifically segmented for senior personnel (Director & C-suite) - allowing businesses to conduct multi-dimensional comparisons by industry, business model, and organizational size.
- Experience: This marks the 17th year ICONIC has conducted this survey in the Vietnamese market.
- Scale: Attracted 392 industry-leading enterprises in Salary Survey 2025.
- Privileges: Companies completing the survey will receive the comprehensive summary report completely free of charge, along with exclusive in-depth analytical perks.
📍 Next Issue (Vol. 7) "From Cost to Investment — Redefining Compensation Budgeting"
"Raising salaries is an expensive cost" - This is the conventional mindset of many administrators. However, when making a full quantitative calculation of the hidden Turnover Costs: replacement recruitment costs, productivity losses during the handover phase, opportunity costs during the vacancy, and the "trial and error" period of new hires—investing in the competitiveness of your compensation package is actually a far more cost-optimized strategy.
In our next issue, we will guide you on how to calculate the actual cost of employee turnover and how to shift the perspective to "Compensation is a profitable investment."
