In a distribution joint venture in Ho Chi Minh City, the general director nominated by the majority partner receives a package worth four times the market rate for a comparable role, plus an “efficiency bonus” calculated on revenue rather than profit. The more the company sells, the more the bonus grows, even though after-tax profit leaves almost nothing to distribute. The foreign minority asks a simple question: who decided this pay, was the decision within authority, and if the money cannot be clawed back, can the structure at least be stopped for future years?
Who has authority over executive pay in a joint venture
Two layers must be separated. The first is governance: in a joint stock company, Article 141 of Enterprise Law No. 59/2020/QH14 gives the General Meeting of Shareholders authority to decide the budget or total remuneration, bonuses and other benefits for the Board of Directors and the Supervisory Board, and Article 163 details that remuneration regime. The salary and bonus of the director or general director are decided by the board within the approved budget and financial regulations, unless the charter provides otherwise. In a limited liability company the corresponding authority sits with the Members’ Council under the charter.
The second layer is employment: the director or general director is usually also an employee under a labour contract with the company, paid according to that contract and the internal salary scale. The systemic weakness is that the two layers can be circumvented: the salary on the labour contract stays moderate, while most of the income flows through a consulting contract with an affiliate of the majority partner, or through a bonus proposed by the beneficiary himself and waved through in minutes by a majority-controlled board. At that point the issue is no longer high or low pay; it is a disguised related-party transaction.
Does the minority have a veto over management pay?
Under the statute alone, the minority has no itemised veto over each pay package, because this is General Meeting business decided by ordinary majority, or board business. But the minority holds three indirect yet effective tools. First, the vote on the remuneration budget at the General Meeting: a shareholder above 35 percent can block the resolution if the charter places the pay budget in the 65 percent class, and even where it cannot block, a minuted objection builds the file for the next step. Second, the right to require the Supervisory Board to examine specific management and operational issues under Clause 2 of Article 115, including the basis and approval process of the executive pay package. Third, recharacterisation as a related-party transaction: if part of the income runs through a majority affiliate, Article 167 (or Article 67 for an LLC) is triggered and the interested side loses its vote on that part.
Can unreasonable pay be sued on? What “unreasonable” means to a tribunal
Vietnamese courts and tribunals will not price a management role for the company; a claim based merely on pay being above market almost certainly fails. A claim has prospects where it proves one of three structural defects: the pay decision exceeded authority or breached the charter or financial regulations; the beneficiary voted on his own package as an interested board member; or the package forms part of a systematic profit-extraction pattern alongside transfer pricing and zero dividends, breaching the managers’ duties of honesty and prudence under Articles 165 and 166 of the Enterprise Law.
On evidence, market benchmarking data from HR consultancies for the same sector and scale does not decide the case, but it is needed to quantify unreasonableness when damages are computed. Claims usually target the extracted excess, plus annulment of the improperly approved bonus mechanism for future periods. In practice most matters settle: once the file is tight, the majority side typically accepts a two-tier approval mechanism for the pay budget rather than letting litigation expose the entire executive income structure.
Questions a minority should ask at the pay budget approval meeting
- What percentage of pre-tax profit do total board and executive remuneration and bonuses represent, compared with three years ago?
- On what metric is the general director’s bonus calculated: revenue, gross profit, or audited after-tax profit?
- Is any executive income paid through contracts with related parties; if so, was Article 67/167 approval obtained?
- Is there independent market benchmarking for the key management roles, and who provided it?
- Does the financial regulation contain a bonus clawback if financial statements are later restated?
Frequently Asked Questions
Who controls an overpaid general director appointed by the partner?
On governance, the General Meeting decides total remuneration and bonuses for the board and Supervisory Board under Article 141 of the Enterprise Law, while the director’s pay is set by the board within the approved budget. On supervision, the Supervisory Board must check the reasonableness of management costs, and a shareholder holding 5 percent or more may require it to examine specific issues under Clause 2 of Article 115.
Can the minority veto management pay?
There is no standalone statutory veto for this item. The minority’s strength lies in the remuneration budget vote at the General Meeting (especially where the charter puts it in the 65 percent class and the minority holds over 35 percent), in the right to require a Supervisory Board examination, and in triggering the related-party mechanism of Articles 67 and 167 where income is routed through a majority affiliate, which removes the beneficiary’s vote.
Can unreasonable management pay be sued on?
Yes, but not on the sole ground that it exceeds market rates. Viable grounds are: the pay decision breached authority or the charter; an interested person voted on his own package; or the package is a link in a profit-extraction chain breaching managers’ duties under Articles 165 and 166, sued on under Article 161 of the Enterprise Law. Damages are quantified by the excess over a reasonable level using independent market benchmarking.
How should JV executive pay be designed from the start?
Lock three layers at incorporation: the total remuneration and bonus budget for management must be approved by the General Meeting or Members’ Council, so the board cannot approve pay for its own appointees alone; variable bonuses must be calculated on audited after-tax profit, never on revenue; and every payment to management through third parties must be declared as a related-party transaction. Add a clawback clause for bonuses if financial statements are restated.
This article has been quality-reviewed by the FLAW AI Legal Council