Why Traditional Salary Models Work Better than the Famed Variable Pay System – My Raysut Experience
Why Traditional Salary Models Work Better than the Famed Variable Pay System – My Raysut Experience
Introduction: Setting the Context
In the mid-2000s, Raysut Cement Company (RCC) was looking for ways to modernize its pay practices. Initially, we experimented with a variable pay system that was supposed to motivate performance through incentives and targets. But the system quickly collapsed—it was too advanced for our largely Omani workforce, had no structured performance management backbone, and created more confusion than clarity.
Realizing this, we turned to external expertise. In 2007, Raysut Cement Company (RCC) introduced the Total Compensation Package (TCP) with much fanfare. At that time, the idea of moving away from a traditional salary system into a modern, performance-driven model sounded exciting, even revolutionary. We had external consultants, including Hay Group, lending credibility to the design. The promise was clear: employees would be paid not just for being present but for delivering results.
Why the Variable Pay System Failed
When we first tried variable pay, the intention was good: link extra earnings to performance, encourage higher productivity, and create a culture of accountability. But in practice, it simply didn’t work.
Too Advanced for the Context
The Omani workforce, at that time, was not ready for a sophisticated incentive-linked system. Many employees expected certainty and stability in their paychecks, not fluctuating amounts that depended on targets they didn’t fully understand.No Supporting Systems
Variable pay requires a solid performance management system (PMS)—with clear goals, measurement criteria, and fair appraisals. None of this was in place. Without transparent KPIs or structured reviews, the link between effort and reward felt arbitrary.Confusion and Frustration
Instead of motivating, it created resentment. Employees compared their pay, felt unfairly treated, and questioned management’s decisions. The system, instead of fostering trust, eroded it.
I still remember conversations with department heads who admitted that staff were spending more time questioning their pay slips than focusing on their jobs. This was the first sign that the model was collapsing.
TCP with Hay Group: A Structured Step Forward
Unlike the earlier variable pay experiment, TCP was carefully crafted and supported by Hay Group’s methodology. It was not just about dangling incentives—it was a complete framework.
Linked to PMS – Performance Management System (PMS) was introduced alongside TCP to ensure fairness and objectivity. Employees had clear goals, measurable KPIs, and structured appraisals. Pay was tied to results in a transparent way.
Balanced Structure – TCP broke compensation into fixed pay, allowances, benefits, and performance-linked elements. Employees had stability in their monthly earnings while still seeing a visible connection between their performance and rewards.
Global Benchmarking – With Hay Group’s expertise, pay structures were aligned with international standards. This gave RCC a competitive edge in attracting and retaining talent, especially against regional competitors.
Professional Credibility – Employees respected the system more because it was backed by a reputed consulting group. It felt scientific and systematic, not arbitrary.
Why TCP Worked Better Than Variable Pay
The success of TCP lay in its design and support systems:
Fairness and Transparency – PMS ensured everyone understood how performance was measured and linked to pay.
Clarity in Pay Components – Employees could clearly see what was fixed and what was variable. No hidden surprises in their salary slips.
Cultural Fit – While Omanis valued stability, TCP gave them that stability while gradually introducing performance linkage. It was an evolution, not a shock.
Employee Motivation – With proper increments, bonuses, and recognition tied to PMS outcomes, employees felt rewarded for genuine effort.
I recall discussions in review meetings where staff openly said they could now “see the connection between their hard work and their rewards.” That was a major cultural shift from the earlier chaos of variable pay.
Personal Reflection: A Balanced Future
TCP was not a failure—it was, in fact, a significant improvement over the unstructured variable pay idea. But even with its success, my experience taught me that no compensation system can be one-size-fits-all.
The most effective model was a hybrid approach:
A strong fixed pay structure (for stability).
Clear allowances and facilities (for fairness).
A transparent PMS-linked component (for performance motivation).
And a profit-based annual bonus (to align employees with company success).
This mix worked because it respected local culture, met employee expectations, and still encouraged high performance.
Key Takeaways for HR Leaders
Don’t throw employees into advanced systems without preparation. Build support mechanisms like PMS before linking pay to performance.
Consultants can add structure, but local adaptation is key. Hay Group gave us a strong framework, but success came from tailoring it to RCC’s people.
Hybrid is stronger than extremes. Pure variable pay failed, but a balanced TCP worked.
Compensation is about trust. Employees must see fairness and predictability before they will embrace performance linkage.
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