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Source GameMastery Guide pg. 102
Experience points are the lifeblood of the Pathfinder rewards system. They determine the rate at which the PCs progress, and form the currency with which the most spectacular and reliable abilities are acquired. By deciding when and how to give out XP, you’re establishing the expectations the players will bring to the rest of the game’s reward system.

Backgrounded Experience

Source GameMastery Guide pg. 102
Track experience points throughout the session, without mentioning it to your players. Announce awarded XP at the end of each session, after the evening’s narrative has concluded. Players may level up only between sessions, even if they pass the level mark during a game session. They're expected to arrive at the next session ready to go with all of their character changes. Players who don’t own the rules set should show up early to update their character sheets.

This timing scheme suits groups at the bundled (left) end of the rewards continuum. It preserves session time and keeps participants focused on the fictional proceedings. Backgrounded awards remove the temptation for players to undertake ridiculous, tangential, or out-of-character actions just to acquire the last few XP they need to level up.

Downtime Experience

Source GameMastery Guide pg. 103
Track experience points as they accrue. Whenever the party stops in a safe haven, or the story leaps forward in time and place, announce a period of downtime. All of the XP accumulated since the last period of downtime is awarded and characters may level up. When the PCs leave downtime, the normal story resumes. Again track experience points while they are accrued, and hold off awarding it until the next downtime phase.

Downtime experience suits groups falling in the middle of the rewards continuum. It compromises between players who live for rewards and those who view them as an occasion for homework. Downtime awards make leveling up seem like something that happens in the world. The characters only become visibly better at their tasks after taking some time to rest, reflect, contemplate, and train. One danger with downtime awards is that they can tempt players to take otherwise poorly motivated rest stops just to gain their XP awards and level up. Depending on the pacing of a given session, a break for downtime might completely deflate the game’s momentum and make it hard to recapture your players’ attention. On the other hand, it might give you a much-needed break to work out an upcoming encounter, dream up fresh story events, or simply let your brain idle for a few minutes.

If players seek out downtime at an ill-placed moment, you can always deter them with a plot development requiring immediate action. This interruption might range from a simple wandering monster attack to an elaborate new wrinkle in the campaign’s ongoing storyline.

Immediate Experience

Source GameMastery Guide pg. 103
Award players experience points as soon as they earn them. Allow the characters to level up at the end of any scene, as soon as they have accumulated enough XP.

Immediate experience suits a group at the frequent (right) end of the rewards continuum. It focuses the game more obviously, for good and for ill, on the acquisition and expenditure of experience points. As the name suggests, this system gives the players immediate gratification when they succeed.

When using this timing scheme, be prepared for the game to stop at a moment’s notice, shifting into rules-scanning mode while the players level up. Characters also risk becoming unsympathetic or unbelievable as they chase the biggest XP results at the lowest risks.

Handwaved Experience

Source GameMastery Guide pg. 103
Ignore XP altogether. Decide how many sessions you want the group to spend at each level. Allow your players to level up each time they hit that milestone. This option suits groups at the far left side of the rewards continuum.

Ad Hoc Experience

Source GameMastery Guide pg. 103
Many players recall with great fondness sessions where the dice were never rolled. When a game spends considerable time developing plot and character and places fighting monsters and accumulating XP in the background, however, some players may feel that they’re being penalized. In these situations, reward out-of-combat successes with ad hoc experience awards.

When the group takes part in an entertaining scene that takes 15 minutes or more, consider awarding ad hoc XP. Ask yourself the following questions:
  • Did the scene move the group toward an important, identifiable objective?
  • Did the group face significant negative consequences if the events portrayed in the scene went against them?
  • Did the players take an active role in the scene, as opposed to listening to your descriptions or NPC dialogue?
  • Did most of the players make a noteworthy contribution to the scene?
  • Did all of the players appear attentive and entertained? If you can answer at least four of these questions in the affirmative, you should award ad hoc XP. The following steps can be used to determine a baseline figure for ad hoc awards:
  • Roughly determine the amount of real time it takes you, on average, to run a challenging encounter.
  • Divide this into 15-minute increments. So if it takes you an hour, more or less, to run a challenging fight, you have four increments.
  • Take the XP award the group would normally get for a challenging encounter (usually APL+1) and divide it by the number of increments. This is your baseline ad hoc award.
Once you have decided to award ad hoc experience for a scene, roughly estimate the amount of real time the sequence took. Award your baseline amount multiplied by the number of 15-minute increments as ad hoc XP.

Revise the baseline as the group increases in level. Take into account any increases in the average length of encounters, as well as the experience awards the characters garner. Additional individual ad hoc experience points can also be awarded to players for particularly good roleplaying. If you decide to use individual awards, be careful not to show favoritism. All of the characters should have opportunities to receive such rewards at some point.

Players on the right side of the rewards continuum probably prefer heavily action-oriented games. If your game consists mostly of exciting combat sequences with a minimum of plot to connect them, it’s probably not worth bothering with ad hoc awards.