What is 3P Salary? Applying an Effective Compensation Method

3P Salary is a compensation mechanism that is being increasingly adopted by businesses today. It aims to ensure internal and market fairness in pay, thereby securing the ability to attract, retain, and motivate employees. So, what is 3P Salary and what benefits does it bring to businesses? Let’s find out with 1Office in the following article!

I. What is 3P Salary?

3P Salary is a salary system that determines an employee’s income based on 3 fundamental factors:

• Pay for Position – Based on the evaluation of the job’s value and the market salary range for that type of position and job value. Typically, the position determines the salary range for the person holding it.
• Pay for Person – Based on the employee’s competency and their scarcity in the market. Typically, competency determines the employee’s salary level.
• Pay for Performance – Based on individual achievements and business performance. Many businesses now use KPIs to evaluate the achievements or work results of their employees.

The simultaneous combination of these 3 factors aims to ensure that the business pays employees according to the abilities and value they bring, creating fairness and objectivity for each employee within the company.

Read more: The latest basic salary calculation formulas for businesses

II. Benefits of implementing the 3P salary system in a business

1. Competency-based salary ensures internal fairness

By applying the 3P salary system, business owners can clearly understand and evaluate the work performance of each employee through an effective KPI evaluation index. This helps the business manage salary payments, raises, bonuses, and identify training needs transparently and fairly.

When the employee salary sheet is determined by specific and individual criteria, it will motivate employees to strive harder. Employees will understand that to earn a high income, they must work productively and effectively.

Based on a clear payment mechanism, employees working together in a company will not complain or compare salary levels. This will foster fair and healthy competition within the business, thereby increasing labor productivity and work efficiency many times over.

2. Ensuring fairness with the external market

Imagine if the entire job market followed a predetermined salary level based on value; employees would no longer need to job-hop or compare one company to another.

By applying the 3P salary model, businesses can create a fair, reasonable, and deserving salary standard for employees’ contributions, aligned with the general market economy.

This increases employee loyalty to the company because their rights to salary and bonuses are guaranteed, helping the business retain talent and attract labor.

For employees, their rights are secured through such a salary policy. For the business, this is also an opportunity to retain talent and attract human resources.

You will no longer have to worry about labor shortages due to a competitor offering a more attractive salary policy than your company.

Read more: Differentiating Gross and Net salary, how to convert Net to Gross salary

3. 3P Salary is a lever for motivation and development

With the 3P salary calculation model, businesses can encourage employees to focus more on work results and motivate them to actively contribute ideas to the company.

Therefore, the business can mitigate many risks and undesirable consequences that could affect the company’s overall development.

When employees consciously strive to reach a higher salary tier under the 3P system, they will exert greater effort, become more proactive, and focus on planning and achieving their required work outcomes. This, in turn, increases productivity and the quality of products/services.

Additionally, by implementing the 3P salary system, managers can grasp the actual capabilities of each employee through competency frameworks and profiles for each position – or based on performance evaluation results. This provides the business with a basis for paying according to competency and retaining talent.

III. How to Build a 3P Salary System in a Business

1. P1 – Pay for Position

Paying for a job position means the company spends a monthly amount to pay for that title, regardless of who holds the position or their capabilities.

To determine the salary range for a position, the HR department must base it on the salary level paid in the general labor market, which is often similar across most businesses. The higher the job position, the higher the salary.

Criteria for evaluating P1:

• The nature & content of the work in that position
• Qualifications and experience
• Work pressure & responsibility
• Working conditions
• Communication and negotiation skills

2. P2 – Pay for Person

This is a method of paying based on the competency of the person holding the job position, using the results of a personnel competency framework assessment to determine a corresponding salary.

Talented individuals will be well-compensated, while employees with limited abilities will naturally need to strive to improve to earn a higher salary from the company.

This method motivates employees to cultivate their skills and learn more to achieve the best possible competency foundation.

Criteria for evaluating P2:

• Professional competency: The necessary professional knowledge and skills corresponding to each specific job title in the company.
• Core competency: The key abilities required for the person in charge of this title.
• Role-based competency: The minimum abilities required for each job position.

3. P3 – Pay for Performance

Paying for the results achieved by the person holding the job position is how a company financially rewards employees when their work performance is good, meets set targets, and benefits the business.

Criteria for evaluating P3:

• Individual: bonuses, commissions, piece-rate pay, salary increases
• Organizational (team, department): team/department performance bonuses or gainsharing
• Company-wide: stock awards, stock options, or profit sharing

However, not every company can implement the 3P salary system smoothly. Once the 3P salary system is applied, the business will have to re-evaluate employee competencies to set appropriate salaries.

Any plan needs a trial period to test its suitability for practical application in the business. For large enterprises that have been operating for many years, replacing the old salary system with 3P salary calculation must be done with extreme caution as it can easily put the company in a “precarious situation.”

Large enterprises often have complex organizational structures, numerous departments, many job positions, and specific pay methods. Introducing the 3P system can easily cause disruptions, leading to confusion in payment amounts and endangering the business. Therefore, you need to think carefully before applying the 3P salary system to your company.

IV. Difficulties in Building a 3P Salary Formula in a Business

Besides the benefits of the competency-based salary method, applying the 3P salary system in a business can sometimes be challenging due to the following reasons:

The 3P Salary Calculation Disrupts Old Income Levels

A new salary model will bring two distinct extremes to the business. On one hand, it can motivate employees; on the other, it can make your staff feel discouraged and more likely to quit. As a form of payment based on competency and work results, an employee’s income under the 3P salary system will depend on their KPI completion and job outcomes.

Competency Assessment

Employee evaluation is one of the key factors in calculating 3P salary. However, many organizations still assess competency based on subjective feelings, which leads to inaccurate income calculations for employees. Sometimes, failing to assess competency correctly can make employees feel resentful and treated unfairly.

“Special” Allowances

Sometimes, members who are relatives or family work in the same company and receive additional allowances such as seniority, family relationship, education allowances, etc., compared to regular employees. This factor limits the effectiveness of implementing competency-based salary.

Achievements

Each department in a business undertakes different functions or tasks. Therefore, the evaluation of work results also has certain differences. Applying the 3P salary system mechanically can reduce the organization’s creativity. Thus, it is necessary to carefully study the operations of each department to apply appropriate evaluation criteria.

Salary System Management

Building a salary system requires fairness and transparency, and when paying salaries, it must achieve the consensus of employees. For this reason, the organization needs to implement internal communication activities and help employees recognize the value that the 3P salary system brings.

V. Building an Effective Salary System with 1Office Software

Understanding the knowledge of building a 3P salary system does not guarantee 100% success when applying this payroll system to your business. The construction of a payroll system is heavily influenced by factors such as: a very large number of personnel, inability to manage on Excel software, a lack of perspective in competency assessment, inaccurate work performance evaluation, the KPI system, etc. Therefore, choosing a salary management software is an effective solution.

1Office Payroll Management Software offers flexibility that can be effectively applied in any business. With unified data linkage, the system will automatically calculate salaries and pay them via bank accounts. This helps businesses eliminate manual processes, improving accuracy and efficiency in operating the business management system.

1Office hopes this article has helped you better understand the 3P salary system and provided you with more information and knowledge to apply in your future work. Additionally, if you are facing difficulties in business management, please register for a trial to receive a consultation at 1office.vn. Our consulting experts will help you resolve your difficulties quickly!

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