The 3P compensation system is a system based on employee contribution and performance, thereby creating fairness and encouraging each employee to maximize their potential in their work, contributing to the company's development.
The 3P compensation system is a method currently being applied in many companies in Vietnam. The goal of 3P is to ensure internal and market fairness in compensation, thereby ensuring the ability to attract, retain, and motivate employees.
What is 3P salary?
3P compensation refers to a salary calculation and payment system based on a 3P structure, whereby the total salary of an employee is divided into three parts:
1. Pay for Position – Salary based on job position. (Part 1)
Salary assessment and determination based on job position – through job evaluation (position/job assessment).
Paying a salary for a job position means that the company spends a fixed amount of money to pay for a specific functional position. Often referred to by the more common term "fixed salary" or "basic salary," this salary is only affected by attendance records and not by other factors; under any circumstances, the employee will still receive that salary.
2. Pay for Person – Paying salaries based on individual performance. (Part 2)
Assess and determine salaries based on individual performance.
Performance-based pay means using the results of an employee's performance evaluation to determine a salary commensurate with their abilities. This salary is usually determined during the salary negotiation. This P2 salary is typically stable until the employee's performance review; if there are changes in individual capabilities, this P2 level is usually adjusted.
3. Pay for Performance – Compensation based on performance and job completion results. (Part 3)
Salary assessment and determination are based on evaluating employee performance.
There are many ways to refer to performance-based compensation, such as: commission, performance-based pay, KPI bonuses, etc. It can even take the form of quarterly or annual reward plans.
Benefits of using the 3P compensation mechanism
1. Ensure internal fairness.
This addresses previously unanswered questions from employees about why salaries should vary between different positions and types of staff.
This helps workers understand how to earn higher wages and better income, so they can strive and compete to bring about positive results for themselves and the company.
2. Ensuring fairness both inside and outside the business.
If creating internal fairness involves constructing a P1 and P2 scoring system, then external fairness is about determining the market salary for various positions, across different company sizes, based on market research to identify a salary level that matches market needs. This allows companies to attract talent through their compensation policies.
3. Creating motivation for employee and business development.
Through the 3P compensation model, it encourages employees to pay more attention to the final results and make greater contributions to mitigate potential risks, leading to higher employee productivity, greater efficiency, and the company paying salaries that are more appropriate to its business situation at any given time.
In short, regardless of the criteria used, as a Human Resources Manager, you need to balance the essential needs of employees with the interests of the employer so that the business can develop sustainably and prosper.
Given the benefits that the 3P compensation system offers, businesses should adopt it in their compensation mechanisms to better manage their operations.
Guide to building a salary structure using the 3P method.
To build a salary structure using the 3P method, you need to build each part of the 3Ps. Here are the detailed instructions:
Step 1: Building a salary scale based on position – Part 1
To establish a position-based salary system, businesses need to develop the following:
- The organizational structure of the enterprise must be established.
- Develop a table of job title regulations.
- Salary structure options
| See the article "What is a Salary Structure? (Understanding and How to Build It)" |
After gathering the basic elements mentioned above, the company proceeds to develop a salary scale for each position (P1 for each position).
Step 2: Building a performance-based salary system – Part 2
To have the most accurate and transparent P2 salary scale, each company needs to develop a detailed competency framework and competency assessment system. Specifically:
- Establish a competency framework and corresponding salary levels: clarify the specific competencies and responsibilities required for each position.
- Develop and implement a competency assessment system: This includes guidelines and regulations on how to conduct personnel assessments within the organization and mechanisms for making decisions regarding promotions and salary increases.
Tips:
- An employee's pay per person depends on their performance across three competency groups: Knowledge, Skill, and Attitude.
- Their abilities must be directly related to the job requirements, meaning they must deliver work results.
Step 3: Building a performance-based compensation system – Part 3
To determine P3, businesses need to perform the following tasks:
- Defining the strategic objectives of the business.
- Allocate targets to each department.
- Allocate targets to each job position (independent or part-time employees).
- Develop a salary and bonus calculation formula based on KPIs, work performance, and work results.
- Conduct periodic performance reviews (typically monthly/quarterly/annually).
Performance evaluation can be conducted in various forms, such as self-assessment, peer review, or direct evaluation from management, partners, or customers.
Simultaneously, performance can be assessed through the work results of an individual or the department/project that the individual is involved in, or a combination of both with appropriate weighting.
3P Payroll Template
The 3P payroll template comes in many forms depending on the characteristics of each business.
You can find a sample 3P payroll form here.
