What is KPI salary? How to calculate and apply effectively

What is KPI salary that many businesses are currently applying to optimize employee performance? This is a salary system that combines fixed salary and performance-based rewards, helping to promote work motivation. In this article, 1C Vietnam will explain in detail the concept, calculation method, as well as how to apply it effectively in businesses. From practical examples to legal regulations in Vietnam, all necessary information will be clearly presented.

1. What is KPI salary?

1.1 Concept of KPI salary

KPI (Key Performance Indicator) compensation is a form of compensation based on key performance indicators (KPIs), which are specifically designed for each job position. The main role of this system is to motivate employees while optimizing business performance. When employees achieve or exceed targets, they receive appropriate rewards, thereby boosting work morale and organizational commitment.

1.2 Factors that make up KPI salary

To better understand what KPI salary is , it is necessary to clearly understand its components:

• Fixed Salary : The basic salary is paid monthly, regardless of performance.
• Variable pay : Bonus based on KPI achievement, usually as a percentage or a specific dollar amount.

These two factors are flexibly combined, depending on each business's policy.

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2. Salary classification according to KPI

What is the KPI salary system when applied in practice? Depending on the field, KPI salaries are classified differently to suit the specific job.

2.1 Business KPI salary

KPIs in business focus on metrics that measure commercial performance. Common metrics include:

• Monthly/quarterly revenue.
• Number of contracts signed.
• New customer rate.

For example : A sales employee has a basic salary of 10 million VND, KPI is to achieve revenue of 100 million VND/month. If completing 120%, the bonus can be 5 million VND, total salary received is 15 million VND.

2.2 Financial KPI Salary

In finance, KPI salaries are based on metrics such as:

• Profit margin.
• Reduce operating costs.
• Stable cash flow.

Example illustrated in the table :

Total salary = Basic salary + 5 million VND bonus.

2.3 Marketing KPI Salary

KPI salaries in marketing are based on metrics such as:

• Lead conversion rate.
• Advertising campaign effectiveness.
• Website traffic.

For example : A marketer achieves 150% of the KPI for website traffic (from 10,000 to 15,000 visits), receives a bonus of 4 million VND plus basic salary.

2.4 Sales KPI Salary

Sales KPI salary system focuses on:

• Personal income.
• Order closing rate.
• Number of products sold.

Example through table :

2.5 Project Management KPI Salary

KPI salary in project management is based on:

• Schedule Variance.
• Cost Variance.
• Goal completion rate.

For example : A project manager completes 95% of the target on time, receives a bonus of 5 million VND based on progress and quality assessment.

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3. How to calculate KPI salary in detail

Understanding how to calculate KPI salary helps businesses and employees apply it effectively. This process is often based on specific models, combined with illustrative tables for transparency.

3.1 KPI salary calculation method according to 2P model

The 2P (Position and Performance) model calculates salary based on position and performance.

• Step 1 : Determine basic salary by position.
• Step 2 : Evaluate performance through KPIs (e.g. sales, completion rate).

For example : Sales staff has a basic salary of 8 million VND, achieves 90% of sales KPI, receives a bonus of 3 million VND, total salary is 11 million VND.

3.2 KPI salary calculation method according to 3P model

The 3P model (Position, Person, Performance) combines position, personal capacity and performance.

• Step 1 : Determine basic salary by position.
• Step 2 : Assess personal capacity (skills, experience).
• Step 3 : Calculate bonus based on KPI.

Example through table :

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4. KPI salary regulations in Vietnam

What are the legal regulations that affect how KPI salary is applied in Vietnam? Here are the factors to note:

• Comply with Labor Law 2019.
• Transparency in salary policy.
• Ensure workers' rights.

4.1 Does KPI salary have to pay social insurance?

According to Article 89 of the Social Insurance Law 2014, fixed salary is subject to insurance, but KPI bonuses (non-regular income) are usually not required. However, businesses need to consult the insurance agency to ensure compliance.

4.2 Is KPI salary subject to personal income tax?

According to the Personal Income Tax Law 2007 (amended in 2012), KPI salary is taxable income if it exceeds the tax-free threshold (VND 11 million/month from 2023). Note:

• Tax is calculated based on total income.
• Businesses need to deduct before paying salaries.

5. Benefits of applying KPI salary system

What is a KPI salary system in terms of benefits? Here are the values it brings:

5.1 For businesses

• Increase work efficiency and achieve business goals with clear direction through KPIs.
• Create fairness and transparency in salary payment, minimize internal conflicts.

5.2 For employees

• Encourage personal capacity building to achieve higher KPIs.
• Increase work motivation through clear rewards that accurately reflect effort.

6. Challenges when applying KPI salary system

Implementing KPI compensation is not always easy. Common challenges need to be addressed to ensure effectiveness.

6.1 Build appropriate KPI index

Setting the right KPIs is a big deal.

• Step 1 : Determine the specific goals of the position.
• Step 2 : Measure with actionable data.
  For example : KPI sales of 200 million VND/month may be too high for new employees.

6.2 Regular performance management and evaluation

Tracking KPIs requires consistency.

• Use tools like ACheckin, Base.vn for effective management.
• Periodic evaluation avoids erroneous results.

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7. Detailed illustration of how to calculate KPI salary

Below are specific examples to understand what KPI salary is in practice.

7.1 Sample salary calculation table based on KPI for sales industry

Total salary = 10 million (basic) + 6 million = 16 million VND.

7.2 Sample salary calculation table based on KPI for project management industry

Total salary = 12 million (basic) + 4 million = 16 million VND.

What is KPI salary has been explained in detail through concepts, calculation and practical applications. This system not only helps businesses optimize performance but also motivates employees. With illustrative examples and analysis of benefits and challenges, the article provides a comprehensive view. 1C Vietnam provides solutions to support businesses in effective application, ensuring transparency and fairness in salary payment.