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Two leaders share how blending skills-based premiums with performance pay ensures fairness, transparency, and business impact – affirming why organisations can’t afford to fall behind in the skills race.
As the future of work evolves, so too must the way organisations think about pay. Should companies reward employees for the skills they bring, or for the results they deliver? This debate was front and centre during a fireside chat at the Total Rewards Asia Summit Malaysia, 2025, two trailblazers took the stage:
- Mohd Ifran Md Nor, former Head of Rewards and Organisational Development, Boost Holdings
- M Nazrul Effendy M Isa, General Manager, Total Rewards, PETRONAS
Together, they affirmed that skills and performance are not opposing forces – they can and must coexist.
Conversation excerpts follow.
Beyond the either/or debate
When asked whether it was possible to pay for both skills and performance, the audience agreed it was. Nazrul noted:
“At the end of the day as a business entity, you want to drive performance, and the only way to do that is to have the right people with the right skills.”
PETRONAS has adopted a blended approach, where job-based pay remains the foundation, but skills are layered on through mechanisms such as pay segmentation, market premiums, competency-based progression, and incentives for certifications.
What defines a skills premium?
Ifran explained that determining a skills premium involves two considerations: factors and equity.
Factors
- Market scarcity – how rare the skills are in the industry. For Boost and a lot of other digital companies, software development, AI, machine learning, and analytics are highly valued.
“If you can imagine a logistics company or FMCG company, the core skill sets would be very, very different, right? So the first thing is actually to see how rare is it that these particular skills are in the market,” he said. - Business criticality – rarity alone does not justify a premium; the skill must also be core to the business.
“Just because a skill set is rare doesn't mean that you should pay premium for it. It must be relevant and critical to the business and not a one-size-fits-all.” - Time-bound needs – some skill might not be rare or business-critical in the long term — but it is urgently needed now. The time constraint creates the premium, for example if you urgently need to meet a regulatory deadline.
Equity
Paying for skills often raises questions of fairness. Both leaders stressed that equity does not mean uniformity; transparency and clear pathways are essential. Employees must understand why certain skills command premiums, whether the premium is temporary or permanent, and how they can acquire those skills themselves.
Internal equity is often perceived as either/or: you either pay equitably or pay for performance. Ifran emphasised:
“The shift needs to happen here.”
He broke it down further:
- Pay transparency – “Being able to reward equitably does not mean that you pay everyone just within the same range. It is more towards: How do you address the merits of the differentiation?”
- Explain differentiation – “For instance, when business needs call for paying employees differently based on skills, organisations must be ready to explain why certain skills command a premium. The important question then becomes: Is it a permanent premium, or a temporary one attached to immediate market demands?”
- Anchor your framework – ensure the rewards framework is consistent and clearly communicated.
- Provide a clear pathway – “If you are here now, and these are the skills that you need to acquire, the end stage may come with a certain kind of premium.
Ultimately, the goal is not to flatten pay but to create clarity and maintain equity even when differentiation is necessary.
How to design a skills premium that is relevant but not too lavish or inflationary
Nazrul explained that designing a fair and effective skills premium begins with a structured framework: identifying which skills are truly critical and assessing whether employees are not only acquiring but also applying those skills.
“There is always the argument around: Do I pay people because they have acquired the skill, or do I pay people because they have acquired and they are applying those skills? And more often than not, people are considering the latter, which is acquisition and applying,” he said.
A solid understanding of both the skills market and the talent market helps organisations identify current and future critical skills, while considering how external marketability shapes retention strategies.
Nazrul illustrated this with an example:
“Say, in your company, you have a rewards professional who is highly specialised in sales incentive plans. When your company does not have sales incentive plans , of course you will argue: ‘Why would I pay premium for this person just because he has the skill?’ But the other perspective to look at is that by having that skill, the person is more marketable outside, especially by the companies that have sales incentive plans.”
Temporary versus permanent challenges also influence pay. Short-term workforce pressures are often addressed with retention bonuses or market premium allowances, which can be “switched on or off” depending on evolving needs. Permanent challenges, however, require embedding adjustments into the compensation structure, such as tiered salary frameworks, to maintain stability.
Competency-based progression works well in roles with measurable outcomes. For example, in the trading organisation, traders’ performance is evaluated through the P&L they generate, with progression contingent on consistently meeting expected targets. Nazrul noted that this provides transparency and fairness, while ensuring that only those with the necessary competencies are promoted to positions carrying higher P&L responsibilities, though it is harder to apply in enabling roles.
He added:
“You don't want the cost to get inflated. That's why a time-bound approach is going to be one of the options, because it enables flexibility for you to switch on and switch off.”
Balancing pay for new hires and existing employees
Ifran stated that in attracting new joiners, you may need to sometimes stretch especially for scarce skills.
However, it is typically not feasible to do this for all talents and stretching the wallet should be selective. “If it’s a no-brainer that you really need this talent, sometimes you would need to stretch your wallet a little bit — but you must be very clear on the reason why.”
For non-scarce skills, Nazrul recommends caution: “I would look at the candidate’s profile and be conservative.”
Salary growth within organisations often lags behind market jumps. To address this, he emphasised a dual approach:
- Be selective about stretching pay for new hires.
- Ensure meaningful salary growth for existing employees, particularly in critical skill sets, while referencing the right market benchmarks.
Nazrul added: “It is important to do annual calibration of pay because we don’t want to maintain that disparity for long.”
Fairness at the entry point is also key: “We train our recruiters to really ensure equity in the overall offering, so the gaps don’t widen unnecessarily.”
When premium pay is unavoidable, it must be linked to clear expectations: “If we have to pay a very premium package, it has to be tailored to specific deliverables that we expect from that talent.”
This three-pronged approach – regular pay calibration, recruiter training for equity, and linking premium pay to measurable outcomes – helps balance the attraction of new hires with retention of existing employees.
Pricing skills beyond role-based benchmarks
When market benchmarks are largely tied to roles, pricing skills requires a nuanced approach. Nazrul explained: “I think the typical benchmark is still based on roles, but if you deep dive into the numbers, you’ll see how certain skills or job families are paid compared to others.”
Understanding the “why” behind the data is critical. For instance, engineering pay varies between subsurface and surface roles, indicating which jobs truly command a premium. Regional and global realities must also be considered:
“You cannot hire a drilling specialist and pay them Malaysia standard rates. Certain roles have to be priced globally depending on the talent market that you are competing in, so you need to broaden your benchmark.”
Recruiter insights provide additional context: “Yes, sometimes it can be inflated, but in our experience, it reflects market reality much more closely.”
Ifran noted that most reports remain role-based, and new tools measuring skills are only as reliable as their data sources. In the absence of specific market data, his team uses a triangulated approach: “For us, it’s really a mesh between external data and internal data. By combining both sources, we are able to operate within a range that reflects a more accurate market premium for the skill.”
In short, both rewards-for-performance and pay-for-skills can – and should – coexist. Performance rewards recognise immediate results, while skill-based pay invest in capabilities needed today and for the future. Importantly, a skills-based approach goes beyond pay, linking to competency assessment, talent data, and career progression.
As Nazrul emphasised, if you don’t recognise and reward critical skills, someone else will. Borrowing from a Star Wars analogy, Ifran emphasised that organisations risk overlooking their own “Qui-Gon Jinns”– employees with rare and valuable skills who may not hold a flashy title but play a pivotal role.
If left unrecognised, these employees may be tempted by the “dark side” – competitors eager to offer the rewards you didn’t.
The takeaway: identify critical skill sets, design rewards that reflect both roles and skills, and strike the balance between recognising performance and nurturing future capability.
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