Competency-based pay under Vietnam’s 2019 Labour Code: Legal gaps and recommendations for improvement

The 3P pay system is increasingly adopted by Vietnamese enterprises, with its P2 component linking remuneration to employees’ individual competencies. However, the current labour-law framework is primarily structured around wages based on jobs or positions. Using normative legal analysis, comparative law, and an interdisciplinary approach, this article evaluates the compatibility of competency-based pay with the 2019 Labour Code and related regulations. The findings identify five legal gaps: the position of competency-based pay within the wage structure; the extent of transparency required for wage scales; the basis for social insurance contributions; mechanisms for adjusting competency levels; and safeguards for equality in competency assessment. Combined with survey evidence indicating that competency-based pay primarily motivates employees through the belief that higher competency will be rewarded, the study recommends requiring disclosure of competency criteria, providing guidance on the classification of competency-based pay, and establishing a controlled mechanism for adjusting competency levels.