What is the 3P Salary? Benefits and Implementation of the 3P Salary Model

What is 3P salary?

3P salary is a salary payment system designed to reflect three factors in each individual's income: Position, Person, Performance

• Position (P1) - Salary based on the job position.
• Person (P2) - Salary based on individual capabilities.
• Performance (P3) - Salary based on job performance.

Example

Applying 3P salary for the Marketing position with the following parameters:

• P1 = $5,000 is the basic salary for the Marketing position.
• P2 = $2,500 is the income based on the employee's capabilities.
• P3 = $4,000 is the additional salary paid due to the employee's work effectiveness exceeding the target.

The total salary that the company needs to pay to this Marketing employee based on the 3P components is:

P = P1 + P2 + P3 = $11,500

What is 3P Salary?

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Pay for Position

Pay for Position (P1) is salary based on the job position.

• Objectives: The objective of Pay for Position is to ensure fair compensation for employees based on their job roles and market standards. It aims to attract and retain talent by offering competitive salaries for specific positions.
• Key measures: Pay for Position focuses on the specific job positions within the organization. The salary is determined based on the market value, job complexity, required skills, and responsibilities associated with each position.
  
• Best for: Pay for Position is commonly applied in organizations where job roles and responsibilities are well-defined, and there is a clear market benchmark for each position. It is commonly used in traditional hierarchical structures.

Pay for People

Pay for People (P2) is salary based on individual capabilities.

• Objectives: The objective of Pay for People is to recognize and reward employees for their individual competencies and contributions. It encourages skill development, performance improvement, and helps recognize the value of specialized knowledge.
• Key measures: Pay for People emphasizes individual capabilities and skills. The salary is determined based on an individual's qualifications, experience, expertise, and unique contributions to the organization.
  
• Best for: Pay for People is often applied in organizations that value individual expertise and want to incentivize employees to continuously enhance their skills. It is commonly used in knowledge-based industries or organizations with flatter organizational structures.

Pay for Performance

Pay for Performance (P3) is salary based on job performance.

• Objectives: The objective of Pay for Performance is to motivate employees to perform at their best and achieve organizational goals. It encourages a performance-driven culture and rewards employees based on their measurable contributions to the company.

• Key measures: Pay for Performance focuses on an employee's performance and achievements. Key Performance Indicators (KPIs) or performance metrics are established to evaluate employee performance, and salary increases or bonuses are linked to the achievement of these metrics.
  

• Best for: Pay for Performance is widely used in various industries and organizations. It is particularly effective in sales-driven environments or roles where individual performance can be easily measured and quantified.

Pay for Performance models include:

• Individual: Increase salary, bonus, discount commission, Piece-rate pay.
• Group, department: Bonus for group and department achievements.
• Enterprise: Bonus shares, the right to buy shares of the enterprise.

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Pros and cons of 3p salary implementation

3P salary is a salary payment system designed to reflect three factors in each individual's income:

Pros of 3p salary implementation

• Ensuring fairness internally: Employees in the same position but with different salaries can raise questions. The 3P salary system helps employees understand that working efficiently and achieving results will lead to higher salaries and better income. This also helps employees achieve their own goals and contribute to the company's overall objectives.
• Ensuring fairness externally: To determine appropriate salaries for each position and scale, businesses often conduct market surveys to grasp the appropriate salary levels based on reality. This survey also helps businesses offer competitive salaries to attract talent without devaluing them compared to the general market.
• Creating motivation for business development: When implementing the 3P salary system, employees will have a clear understanding of the salary structure. As a result, employees will be motivated and self-driven to accomplish their tasks to achieve the best results. This will prompt the business to reevaluate its operations and adjust salaries accordingly for each individual.

Cons of 3p salary implementation

• Complexity and Time-consuming: Building and implementing a 3P salary system can be a complex and time-consuming process. It requires thorough job analysis, competency framework development, and continuous evaluation of performance results. This may require additional resources and expertise, especially for larger organizations.
• Subjectivity in Evaluation: While the 3P salary system aims to introduce objectivity, there is still room for subjectivity in evaluating individual capabilities and setting performance metrics. Different evaluators may have different interpretations, leading to potential discrepancies and disputes in salary determination.
• Potential Demotivation: If the performance metrics and KPIs are not properly defined or communicated, employees may feel demotivated or unfairly treated. A poorly implemented 3P salary system can create a sense of inequality, especially if the evaluation criteria are not transparent or if employees perceive the system as favoring certain positions or individuals.
• Resistance to Change: Introducing a new salary system may face resistance from employees who are accustomed to traditional salary structures. Change management efforts, effective communication, and training programs are essential to overcome resistance and ensure a smooth transition.

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How to implement the 3P salary model?

The 3P salary structure is an important tool for managing the costs and workforce of a company. To build a 3P salary structure, businesses can follow the steps below:

Step 1: Build job descriptions, organizational structure, and functions

This is the first and most important step when applying the 3P salary structure. This step corresponds to the first P - Position in the 3P salary system. Standardizing the organizational structure and functions starts with the business's strategy, and the following factors need to be considered to carry out standardization:

• Business orientation or business strategy.
• The value chain created by the business

Organizational structure by departments

Step 2: Build and evaluate individual capabilities based on the competency framework

Next is determining and evaluating capabilities based on the second P - Person. Each business will have different methods of evaluating employee capabilities. Typically, businesses evaluate employees on a quarterly/periodic basis to assess their capabilities and make salary adjustments accordingly.

Evaluating based on a competency framework is a common and widely applied evaluation method in businesses.

To build an employee competency assessment framework, the following points should be considered:

• The business needs to establish a competency dictionary for the company.
• There should be a competency framework for each position and department.
• Employees will be evaluated based on the competency framework for their respective positions.
• Finally, the evaluated results are consolidated, and plans for training and salary payment are made.

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Step 3: Build and evaluate job performance results based on KPIs

Building a Key Performance Indicator (KPI) system is also the third P - Performance. This is a value that is not fixed but will change within a certain time frame and directly affects employees' monthly salaries. Each business will have its own regulations regarding KPIs, such as achieving 90%-95% completion, which will be multiplied by a coefficient of 1.0, or exceeding KPIs, which will be multiplied by a coefficient of 1.2.

Building KPIs is also important for businesses. Having clear KPIs for each position helps measure effectiveness, monitor goal progress, and develop appropriate plans. To apply the 3P salary system based on KPIs, businesses need to:

• Set goals for strategic plans and projects.
• Develop and allocate goals and KPIs to departments
• Design a bonus calculation formula based on the percentage of KPI completion.
• Establish rules and conditions for evaluating results.

Step 4: Build salary structures and rules

The indicators have been developed in the previous steps, from which the company proceeds to build a salary structure using formulas:

• Details salary structure with components such as basic salary, allowances, bonuses, and other benefits

• Define Salary Structure Details by Jobs or Positions
• Build Formulas for Salary Structure
• Automate Salary Process

Businesses can use the 3P Excel payroll template for easy tracking. However, a more optimal option is to use automatic and fast payroll software such as Viindoo Payroll to automatically gather data on salary factors for all employees, supporting accurate salary calculation. , scientific, fast, and save time.,...

Notes when applying the 3P salary method

When applying 3P salary method, businesses need to note a number of important points to ensure fairness and achieve the highest efficiency. Evaluation criteria and salary calculations 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.

FAQs

Therefore, businesses can see that the 3P salary method is not only a form of remuneration for each employee but also a tool that allows businesses to focus on the value that each employee brings to the development of the company. It is hoped that the information shared by Viindoo in this article will be helpful to businesses.

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