3P Salary: The Most Standard Way Of Calculating Salary For Employees

What factors are businesses based on when paying salaries for employees? Nowadays, Instead of paying employees based on seniority or qualification, businesses are gradually applying a new salary system - 3P Salary (3P Compensation). This is considered to be the most standard way of calculating wages for employees. So we will find out 3P Salary through this article:

What is 3P Salary?

3P Salary is a system designed to pay salaries for employees based on three basic factors: 

• Pay for position (P1): Pay for the job position.
• Pay for person (P2): Pay for the capacity of the person holding the job position
• Pay for performance (P3): Pay for the results achieved by the person holding the job position.

The salary is the result of assessing employee’s ability based on these above factors. Therefore, the more excellent is employee‘s merit and performance, the higher is his/her salary. Meanwhile P1 is the just a fixed salary for a certain job position.

The purpose of 3P Salary

Salary is important for employees as individuals because the amount of salary reflects the size of the value of their work among the employees themselves, their families, and society. Therefore, It is an important factor to attract and retain employees, create motivation for personal development and help to increase productivity of companies. So with the 3P salary formula, the company can:

a. Ensure internal fairness

3P Salary means different job positions will have different salaries. Or though employees working in the same positions, they may have different amount of salaries. This will be easy to understand because the 3P salary is a remuneration model for employees based on a combination of salary payment according to 3 basic factors: job position, personal capacity and work results. Each individual will be assessed by these factors to determine the suitable amount of salary. This ensures that employees will not feel their ability is underestimated in the working environment.

b. Create competitiveness in the market

The feature of 3P salary is exact assessment of employee's ability to take on a job position, so it will create a trend and a common standard for fair and commensurate salary.

This is one of the important elements that create the image, reputation and professionalism of the business. This also is an ideal condition for a company to attract and retain talented workers compared to other companies in the market.

c. Motivate personal development and organizational capacity improvement

The combination of these three factors at the same time is aimed at the purpose of businesses paying employees according to their capabilities and values, not one-sided and somewhat bureaucratic like the traditional salary calculation method. According to this, the better ability employee has, the higher chance to increase the amount of their salaries.

Because of the flexibility of 3P salary associated with quality, work achievement, employees are encouraged to be enthusiastic in working and avoiding mistakes. That's why businesses rarely suffer damage, which is the main factor that increases business’s productivity.

How effective is the 3P salary system?

Applying the 3P salary formula is considered a beneficial wage policy for both parties in the labor relationship, it not only removes the old opinion about criteria of salary calculation as a degree or seniority but also provides employees with opportunities to change promptly the amount of salary in accordance with the employee’s capacity and effort.

For businesses, 3P salary system helps:

• Attract and retain talented workers by salary commensurate with their ability
• Promote and improve work efficiency by meeting the needs of employees through a salary commensurate with the employee's contribution to the company.
• For employees, 3P salary system helps: Receive income commensurate with the individual's contribution to the company's overall results, ensuring their interests.

The basic factors of 3P salary system

a. Pay for position

It is defined as the level of payment that is adjusted to the level of position of each employee. Similarly, a compensation system that automatically determines the level of wages evaluated from each job is implemented into hourly, daily, weekly or monthly wage rates

Three main factors that can be compensated, namely: 

• Mental and physical loss: The degree and frequency of heavy work.
• Problem-solving ability and creativity: The ability to analyze, implement and handle tasks arising in the working process.
• Capacity of responsibility: The ability to solve and overcome when mistakes happen to businesses and customers.

Working environment: The level of risk, toxicity or external influence for each job position.

For each criterion, there will be a specified standard process of evaluating and synthesizing for each position, job title.

b. Pay for Person

Its structure link to the depth of the skills, abilities, competences and knowleges a person acquires and applies to the work. The principle of Persin focused pay namely:

Professional competence: All knowledge about professional expertise include understanding and potential action corresponding with each specific job title in the enterprise.

Core Competency: The ability to perform the job in the best way that employees in each position can achieve.

Competency by role: The minimum level that an employee must be able to do when taking on a certain job position.

The salary pay for person also includes some allowances and will be more accurate when attached to the competitive environment of the business.

c. Pay for Performance

It is financial reward system for employees where some or all their monetary compensation is related to how their performance is assessed relative to stated criteria or the value they bring to their company. 

Normally, the process of calculating salary according to work results will be follows the below stages:

Assign work goals -> Evaluate work performance (complete or not complete) -> Incentive bonus -> Personal development -> Organizational development.

Performance related pay is presented in several forms:

• For individuals: bonus, discount commission, salary by product, salary increase
• Organization (group, department): reward or benefit sharing
• Enterprise-wide: bonus shares, right to buy shares or share profits.

Caution when salary 3P is applied

In order to convert to 3P salary method, an enterprise may face many difficulties, especially in setting criteria and re-scoring the capacity of all employees to determine the appropriate salary regulation. .

The inability to reach consensus or being affected by other factors when evaluating capacity and work results of employee is inevitable. 3P salary system can cause controversy and result in disunity and internal division.

In case businesses fail in the transition to 3P salary system, the reason is that they cannot completely give up benefits that are not in line with the principles and objectives of 3P in salary regulations such as seniority allowances, important allowances, etc. generation….

3P salary consulting at Talentnet

If a company choose Talentnet's 3P salary consulting service, it will have extreme convenient condition to transfer from the traditional paying method to 3P salary form. Because, they are consulted by a team of experienced personnel in human resource management, restructuring the salary regulation. Our consultant team have successfully attracted and retained talented employees for many companies by giving advice about applying 3P salary. Therefore, it helps many businesses to be in the top ranks of the market.

Contact Talentnet now for the most dedicated support!