Decoding the skills-first pay model: Why skills and performance must coexist
Summary
This article summarises a fireside chat from the Total Rewards Asia Summit Malaysia, 2025, where two rewards leaders — Mohd Ifran Md Nor (Boost Holdings) and M Nazrul Effendy M Isa (PETRONAS) — argue that pay-for-skills and pay-for-performance must coexist. They outline how to define a skills premium, balance equity and transparency, design time-bound versus permanent premiums, and align hiring and internal salary progression to market realities. Practical approaches include competency-based progression, pay segmentation, market premiums, and clear communication about pathways to earn skill-based pay.
Key Points
- Skills and performance are complementary: pay frameworks should recognise both capabilities and results.
- Three factors that justify a skills premium: market scarcity, business criticality, and time-bound needs.
- Equity requires transparency — explain why premiums exist, whether they’re temporary or permanent, and how employees can earn them.
- Design premiums around application of skills (not just acquisition), using time-bound allowances or embedded salary tiers where appropriate.
- Balance recruitment and retention by selectively stretching offers for scarce hires while calibrating pay growth for existing staff.
- Price skills beyond role-based benchmarks using a mix of external market data, internal data, and recruiter insights.
- Competency-based progression works best where outcomes are measurable; other roles may need clearer linking of skills to expected deliverables.
- If critical skills aren’t recognised, organisations risk losing talent to competitors offering targeted premiums.
Context and relevance
Organisations are wrestling with rapid skills shifts (AI, data, digital) and inflationary labour markets. The article is relevant to HR, rewards and talent leaders designing modern compensation models that retain critical expertise without inflating costs. It ties into broader trends: skills-based hiring, pay transparency, and strategic workforce planning — all vital as companies compete for scarce, business-critical capabilities across regions.
Why should I read this?
Because if you’re fiddling with pay strategy, this is the practical, no-nonsense briefing you need. It cuts the waffle: when to pay extra, how to explain it, and how to avoid blowing your budget or demotivating the team. Short, sensible playbook from people actually doing it.
