When recruitment begins for each position in a business, a corresponding salary is established for that position.
So how is that salary established? What calculations or processes are used to determine an appropriate salary? Is the salary based on the importance of the role within the business, or is it appropriate for the capabilities of the candidate or employee performing the work?
Understanding 3P salary, which is commonly used to build corporate salary structures.
I. 3P Salary
The 3P compensation system is built on three factors. These factors help establish salary levels based on both the company’s capabilities and the employee’s competence, as well as on the results produced by combining these two factors.
- First, Pay for Position: Pay for the job position.
- Pay for Person: Pay for the capabilities of the person performing the job.
- Pay for Performance: Pay for the results generated by the person performing the job for the business.
1. Pay for Position: Pay for the job position.
A business establishes a specific budget for each position and the number of employees assigned to it. This may change depending on business conditions and emerging needs at each stage.
The base salary for a position is generally the same for the same position. It is also called fixed salary. Fixed salary is usually difficult to change and may be adjusted when the government changes the minimum wage. Alternatively, the business may revise it after surveying the market base salary for that position.
For example, the base salary for a kitchen staff position at a five-star hotel is VND 7 million. Candidates applying for this position will therefore start at this minimum salary. Differences among employees depend on the next “P” below.
2. Pay for Person: Pay for the capabilities of the person performing the job.
Employee capabilities are difficult to assess without an effective method.
During recruitment, candidates are assessed based on their qualifications, degrees, and experience. Someone who negotiates their salary well may receive a higher salary than others. But is paying these people more reasonable and effective in relation to their potential contribution to the business? Is this salary fair to current employees?
Does the business have a plan to adjust salaries periodically after assessing employee capabilities? If not, salary differences between individuals may become a cause of internal problems.
Assessing work capabilities; work performance; and evaluating how well the job suits the employee are methods of measuring workforce capabilities. This provides appropriate and deserved benefits.
Workforce measurement is not something that should be done only after a period of time, once results have already been produced. If delayed, the business may waste time and training and salary costs on someone who is not a good fit. Measurement should be continuous, beginning during recruitment and continuing throughout employment. It is also necessary when considering transfers or promotions.
After each person has been assessed, their salary may be changed or kept the same.
3. Pay for Performance: pay for the results produced by the person performing the job.
Pay for results is usually made after a project, month, or quarter, depending on the timeframe planned for completing the work. Today, paying based on the KPIs employees achieve is relatively effective and transparent. However, KPIs also place significant pressure on employees. At the same time, they encourage employees to work and contribute in order to achieve better results and higher income. A business can also achieve better results when it motivates employees to meet or exceed their KPIs.
Pay for Performance may apply to individuals or teams, or be distributed equally among all employees in the business.
Example: The monthly service charge at a hotel may be distributed equally among all hotel employees, including operations staff (front desk, housekeeping, and kitchen) and back-of-house staff (accounting, sales, human resources, and so on). Other hotels may handle this differently if they separate benefits for operations and back-of-house departments.
Thus, pay for achieved results also depends on each business’s situation and employee-motivation policies.
II. Advantages of building a 3P salary system
- Avoiding a shortfall in the business’s employee salary budget.
- Transparency.
Avoiding comparisons, suspicion, and a lack of transparency, because the system is not based on subjective feelings. Building salaries according to the 3P system means that proposed salaries have been calculated using multiple factors and perspectives.
- Fairness.
3P salary is based on both the base salary and payment according to employee capabilities, together with the business’s overall performance. Employees can see the fairness in the salary and bonus calculations made by the business.
- Creating motivation for employees to work effectively and be paid according to their actual capabilities.
The level of salary they receive is determined by the capabilities and performance they produce. This motivates them to strive for what they deserve. A healthy environment of growth and competition, driven by personal development, creates greater value for the business.
Avoiding negative thoughts or discussions such as bonuses being awarded subjectively, salary increases being based solely on length of service, and so on.
III. Conclusion
Salary and bonuses are always sensitive issues, from recruitment through the entire employment journey. The 3P salary system is one of the effective and reasonable compensation methods widely used today. Businesses should apply the 3P salary system appropriately according to their circumstances, thereby achieving positive results for employees and business operations.
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