What is 3P salary? Benefits and how to deploy the 3P salary model

What is 3P salary?

3P salary is a salary system built according to 3 factors:

P1: Position – Pay according to the job position.

P2: Person – Pay according to individual capacity.

P3: Performance – Pay according to work results.

For example:

Apply 3P salary to pay for Marketing position with the following parameters:

- P1 = 5000$ is the basic salary for the position of Marketing staff.

- P2 = 2500$ is the salary for this employee's ability.

- P3 = 4000$ is the salary paid due to the marketing staff's performance exceeding the set target.

From 3P on the salary that the business has to pay for this Marketing staff is:

P= P1+ P2+ P3= 11500$

3P salary concept 

Pay for Position - Pay according to the job position

The Pay for Position model is a form of payment based on the employee's job position. That is, each job position will be assigned a fixed salary corresponding to the level of expertise, experience and responsibility of that job. This is a common method of payment in large organizations and is widely adopted.

• Purpose: The purpose of Pay for Position is to ensure fair pay for employees based on job roles and market standards. Pay for Position aims to attract and retain talent by offering competitive salaries for specific positions.
• How it's measured:  Salary is determined based on the general market salary, job complexity, skills required, and responsibilities associated with each position.
• Best suited for:  Pay for Position is often applied in businesses where job roles and responsibilities are clearly defined and there is a clear market standard for each position. Pay for Position is often used in businesses with a traditional hierarchical structure.

Pay for Person - Pay according to individual ability

The Pay for Person model is a way of paying salaries that are determined based on the skills, abilities and performance of each employee rather than based on their title or position in the company. Talented and capable people will receive better remuneration, while limited employees need to cultivate more to be paid by businesses with high salaries. 

• Purpose:  The purpose of Pay for Person is to recognize and reward employees for their individual competence and contributions. At the same time, this factor encourages employees to develop skills, improve performance.
• How it's measured:  Pay for People emphasizes individual competencies and skills. Salary is determined based on an individual's qualifications, experience, expertise and unique contributions to the organization.
• Best suited for:   Usually applied in organizations that value individual expertise and want to encourage employees to continuously improve their skills. 

Pay for Performance - Pay according to work results

The Pay for Performance model is a form of pay based on the results achieved at work. This model is a way for businesses to reward employees who work effectively, meet targets and bring benefits to the business.

• Purpose:  Pay for Performance motivates employees to do their best and achieve business goals. This factor fosters a performance-oriented culture and pays and rewards employees based on their measurable contributions to the company.

• How it's measured:   Focus on employee performance and achievement. Key performance indicators (KPIs) or performance metrics are established to evaluate employee performance, and salary increases or bonuses are associated with achieving these metrics.

• Best for:  Pay for Performance is widely used in different industries and businesses and is especially effective in businesses where individual performance can be easily measured and quantified.

Pay for Performance models include:

• Personal: Increase salary, bonus, discount commission, pay by product. 
• Group, department: Bonus for group and department achievements.
• Enterprises: Bonus shares, the right to buy shares of enterprises.
  
  In addition, to develop this model successfully, the company needs to ensure regulations on performance evaluation, transparency, and job satisfaction. In addition, the company should invest in training and developing employees to enhance the company's capacity and competitive strength in the market.​

Advantages and disadvantages of applying the 3P salary system

Here are some benefits as well as disadvantages when applying the 3P salary system of enterprises:​

Benefits of applying 3P salary system

• Ensure internal fairness: Working in the same position but with different salary. This is probably a question that many employees still wonder about. The 3P salary system will help employees understand that working effectively, with results will be paid well, good income. This also helps employees achieve their goals and contribute to the achievement of the company's overall goals. ​
• Ensuring external fairness: In order to have suitable salaries for each position and size, businesses often use market survey methods to be able to grasp the salary that is appropriate to reality. This survey also helps businesses offer competitive salaries to attract talent without being devalued compared to the common ground. 
• Creating motivation for business development: When applying the 3P salary system, employees will understand the most clear salary structure. From there, employees will be motivated, voluntarily complete the work to achieve the best results. This will help businesses review their business situation and adjust the salary accordingly.

Disadvantages of the 3P . salary method

• Relatively complex and time-consuming:  Building and implementing a 3P payroll system can be a complex and time-consuming process. This method requires a thorough job analysis, developing a competency framework, and on-going evaluation and requires large resources.
• Subjectivity in evaluation: Although the 3P salary system aims to increase objectivity, subjectivity is unavoidable in assessing individual performance and setting performance indicators.
• Loss of Motivation: If performance indicators and KPIs are not clearly defined or communicated properly, employees may feel unmotivated or treated unfairly. A poorly implemented 3P salary system can create a sense of inequality, especially if the evaluation criteria are not transparent or if employees believe the system is biased towards certain positions or individuals.
• Encountering Opposition: The introduction of a new salary system may encounter resistance from employees who are used to traditional pay structures. 

Specific process how to build 3P salary table

The 3P Payroll is an important tool for managing a company's costs and staffing volume. To build a 3P payroll, businesses can follow these steps:

Step 1: Develop job description, organizational structure and functions

This is the first step, also the most important and difficult step when applying 3P payroll construction . This step corresponds to the first letter P - Position in the 3P salary system . Standardization of organizational structure and functions starts with the enterprise's strategy, and businesses need to grasp the following factors to carry out standardization:

- Business direction or strategy.

- The value chain created by the enterprise.

• System title, job description (JD), job value (JE).
• The salary levels according to each job position of the enterprise.

Step 2: Build and evaluate personal capacity based on competency framework

Next is to identify and evaluate capacity according to Person - the second P. Each business will have different ways of assessing the capacity of its employees. Normally, businesses will evaluate employees every quarter / period to check their capacity, thereby making changes in salary for employees.

Assessment based on competency framework is a popular assessment method and is applied by many enterprises.

To build a framework for employee evaluation, it is necessary to follow the following points:

• Enterprises need to build a dictionary of competencies for the company.
• There should be a competency framework for each position and department.
• The employees will be evaluated according to the competency framework of the position they are holding.
• Finally, aggregate worthwhile results, plan training and pay employees.

Step 3: Build and evaluate work results based on KPI

The construction of the KPI system is also the third P - Performance. This is a value that is not fixed but will change over a certain period of time and directly affect the employee's monthly salary range. Each business will have regulations on KPIs such as completing 90% - 95% of the salary will be multiplied by a factor of 1.0, or exceeding the salary KPI will be multiplied by a factor of 1.2.

Building KPIs is also an important thing for businesses. Having a clear KPI in each position helps to measure effectiveness, monitor the progress of the goal, thereby making appropriate development plans. To apply the 3p salary system according to KPI, enterprises need:

• Set goals for strategic plans and projects.
• Build and allocate each goal, KPI for departments and departments.
• Build a bonus formula based on KPI completion percentage.
• Establish rules and conditions for evaluating results.

Step 4: Define and build a salary system and regulations

After standardizing according to the above 3 steps, the enterprise will come to the step of designing a salary model according to the 3P method as follows:

• Establish criteria for assessing the value of work. This criterion can be set according to the Mercer or HAY criteria.

• Evaluate work value.
• Design framework system, structure, salary level.
• Summary of salary regulations.

Step 5: Apply and edit the appropriate 3P payroll

After completing the above 4 steps, enterprises begin to apply the 3P salary model and regulations for employees. During the application process, enterprises should implement and monitor the following points:

- Classification and salary level for individuals and employees.

- Prepare a spreadsheet that illustrates the use of the salary fund and the payment regulations.

- Completing salary regulations.

- Plan the transition to the new system (if needed).

- Note when applying the 3P salary method

When applying the 3P salary method , businesses need to pay attention to some important points to ensure fairness and achieve the highest efficiency. Evaluation criteria and salary calculation should be open and transparent so that employees understand and agree to the application process.

During implementation, monitor payroll on a regular basis to ensure that the new pay versions are up to the task. If the salary design is not suitable, this will affect employee motivation.