3P payroll implementation process and information to note

The 3P salary calculation method is considered a comprehensive salary solution for businesses. While the traditional salary payment method focuses on qualifications and seniority, and is unclear about the implementation capacity and contribution of each employee, the 3P salary method will create internal fairness. 3P salary helps eliminate emotional factors and creates motivation for employees to try their best to complete the assigned work. 

What is 3P salary calculation? 

Today, 3P salary is widely applied and popular in many countries around the world such as Germany, USA, UK, Australia,... and was introduced to Vietnam by multinational companies for more than 20 years. Large businesses and corporations in Vietnam have applied this method in recent years, especially organizations with 100 employees or more.

The 3P salary calculation method is based on 3 basic factors:

• P1 (Pay for Position): Pay according to job position
• P2 (Pay for Person): Pay according to personal capacity
• P3 (Pay for Performance): Pay based on performance and job completion results

3P salary calculation implementation process

The following is the 3P payroll application process that can be applied to businesses in Vietnam.

Step 1: Standardization of job titles:

• Identify the value chain of the business.
• Build a standard system of personnel diagrams and departments.
• Determine the title system and job descriptions based on the Enterprise's title allocation.

Step 2: Standardize job descriptions and standards.

• Standardize job descriptions:
• Build a job description table
• Identify factors to evaluate job positions
• Work evaluating
• Summary of evaluation table for each position
• Standardize work standards:
• Build a system of job standards/expectations for each position
• Evaluate the actual capabilities of employees
• Summary of capabilities

Step 3: Build salary scale according to employee's position and capacity.

• Step 2 is the basis for building step 3.
• Build a salary schedule for each position.
• Summary and salary calculation.

Step 4: Build a payroll system for positions (basic salary, bonus, etc.)

• Determine the strategic goals of the Enterprise.
• Identify key factors leading to success and achieving set goals.
• Build a KPI system for all organizational levels.
• Apply KPIs to departments and divisions.
• Build a system of payroll, bonuses, penalties... according to work performance.

Step 5: Deploy and apply the table salary calculation 3P and correct if there are any errors.

Enterprises begin implementing the 3P salary calculation system and making adjustments when necessary. At this stage, leaders need to clearly announce salary calculations, bonuses and penalties, etc. to avoid causing controversy and causing mixed opinions from employees.

Most importantly, leaders must be public and private, and fairly evaluate the capacity of each department and individual. Otherwise, businesses will not be able to evaluate capacity and standardize salaries for businesses.

To build a salary structure according to the 3P method, you need to build each part of those 3Ps, detailed instructions are as follows:

Step 1: Building salary framework by position - P1

To create a position-based salary system, businesses need to develop the following contents:

• Must build the organizational structure of the enterprise
• Build a Table of Title Regulations
• Choose salary structure

After having the basic elements mentioned above, the enterprise proceeds to build a salary scale for each position (P1 for each position).

Step 2: Build a salary system based on capacity - P2 

To have the most accurate and transparent P2 salary frame, each business needs to build a detailed capacity framework and capacity assessment system. Specifically:

• Build a competency framework and corresponding salary: clarify how each position requires specific competencies and responsibilities
• Building and promulgating a capacity assessment system: Including instructions and regulations on how to conduct personnel assessment in the organization and the mechanism for making decisions on promotions and salary increases

Tip:

• An employee's pay for person salary is high or low depending on what they achieve in the three competency groups Knowledge, Skill and Attitude.
• Their abilities must be associated with job requirements, that is, bring work results.

Step 3: Build a performance-based salary system – P3 

To determine P3, businesses need to perform the following tasks:

• Determine the strategic goals of the business
• Allocate goals to each department
• Allocate goals to each job position (independent or part-time employee)
• Build a salary and bonus calculation formula based on KPI, work efficiency, and work results
• Conduct periodic performance reviews (usually monthly/quarterly/yearly)

Performance assessment can be done in many forms such as: self-assessment, cross-assessment, direct assessment from management or partners, customers.

At the same time, performance can be evaluated through the individual's work results or the department/project in which the individual participates, or a combination of both with appropriate weighting.

DON'T MISS: Building a 3P salary system, what role does KPI play?

Some frequently asked questions when applying 3P salary calculation

• What kind of business is suitable to apply 3P salary calculation?

No matter what industry or size your business belongs to, if your business aims to build a transparent recognition environment, fair pay, and positive competition, applying 3P payroll will be suitable for your company.

However, it should be noted that when implementing 3P or any management method, you need to carefully consider the business problem, grasp the method and apply it flexibly according to organizational needs. If possible, testing a small-scale project first is also a way to evaluate the suitability of the idea.

• Is it necessary to have highly specialized personnel to implement the 3P salary system?

If your organization has a C&B position or equivalent professional capacity, you do not need to worry because you will have enough ability to deploy an effective 3P system. As mentioned above, when an enterprise's basic salary system has not been standardized, it is necessary to re-evaluate employee capacity.

In the initial steps of standardizing the salary framework, functional department heads will be required to participate in coordination with C&B personnel. After building a stable system, businesses can easily deploy it without needing a large team, especially when supported by technology software.

• Where is What is the most common mistake when making a 3P salary system?

One of the most common mistakes when we build P1. The P1 basic salary system seems simple and easy to implement, but in reality, we tend to build it based on personal feelings and observations, without an authentic database. At that time, salary P1 acts as a foundation for the development of P2 and P3, and is the first factor candidates look at when considering a job.

Therefore, P1 salary must be accurate for the 3P system to be fully effective.

• Which department will be responsible for building the P3 salary?

P3 salary will be implemented by the Human Resources department and coordinated by department heads to evaluate. In addition, supervision by the Finance department is also required to ensure compliance with the company's salary budget.

For small businesses that are not deeply specialized in each operation, the P3 salary assessment is often directly performed by the Board of Directors to ensure fairness and comprehensiveness.

• Does insurance salary include salary P1, P2 or all 3P?

This issue is regulated by law. Insurance premiums for employees are calculated based on a fixed salary. Therefore, we need to consider which item is a fixed salary and must pay insurance for that item, regardless of P1, P2, P3, as long as the fixed salary is not lower than the minimum wage. region.

• How to shorten the time to build a 3P salary system?

In fact, there are construction companies that work hard for a year and don't finish, there are companies that need 4-6 months to complete. Often the difference lies in the way each company works, especially in building P2 salaries.

The P2 capacity building phase is often the phase that takes the most time in 3P implementation. The main reason is that historical data on personnel contributions and capacity development is very difficult to synthesize if the business does not have a suitable management system from the beginning. Without enough data, businesses cannot make accurate and fair decisions on personnel evaluation.