DW - I know that there compensation "cafeteria-style" plans are always asked about at event where people like us get together.  Does your, or any company you are familiar with, have this type of plan?  If so, how is it working out?

Pay, Your Own Way:

Firm Lets Workers Pick Salary

Mark Trento and Adam Chelini had a rare opportunity
last year. They got to pick their own salaries, in a range between
$125,000 and $150,000. The catch: Choosing a lower salary meant a shot
at a larger bonus.

Adam Chelini

Mr. Trento, a vice president for San Francisco-based
Skyline Construction Inc., chose the safety of $150,000. Mr. Chelini, a
Skyline senior project manager, opted for $125,000, and wound up with a
larger bonus than he would have received otherwise. While neither would
say what their bonuses were, both say they were happy with their
choices.

Messrs. Trento and Chelini are among 15 participants
in Skyline's unusual management-compensation system, which lets
employees put a portion of their pay at risk. Compensation experts say
the approach is rare and potentially risky, but Skyline employees say
it offers flexibility and motivates them to succeed.

Executives at Skyline, which specializes in building
and renovating commercial interiors, introduced the plan in 2005 when
employees bought the company from its former owners. During a
brainstorming session on cutting costs, a project manager proposed the
idea to encourage Skyline's biggest earners to take lower upfront
salaries, says Chief Executive David Hayes.

Mark Trento

The idea proved popular. Twelve of the 15 eligible
managers this year chose lower salaries and higher potential bonuses.
"It's their way of throwing a little skin in the game," Mr. Hayes says.
Compensation experts say giving employees a choice in designing their
compensation is unusual but not unheard of. In the 1980s, Semco SA of
Brazil, a company known for unusual management practices, began
allowing some employees to set their own pay and hours and to hire and
fire their managers.

Myrna Hellerman, a pay specialist at Sibson Consulting
in Chicago, says Skyline's plan is reminiscent of "cafeteria-style"
compensation programs that gained popularity in the 1980s and allowed
workers to choose from a mix of pay and benefit options. The approach
lost steam as such programs proved administratively unwieldy, Ms.
Hellerman and others say. "Employers want better control of their
compensation dollars," she says.

Flexible-compensation plans made a comeback in the
late 1990s when employers fought for talent in a tight labor market,
says Ravin Jesuthasan, a practice leader at Towers Perrin, a Stamford,
Conn., consulting firm.

Among a few companies experimenting with such programs
today to cater to more diverse work forces, he says, is a European
bank, which he declines to name. It is testing a program like Skyline's
that allows managers to swap some base pay for higher target bonuses.
Flexible health-care benefits are a more popular remnant of the
cafeteria-style movement. Some employers also offer flexible incentive
packages that let executives mix cash, stock options or restricted
stock. But nearly all companies offer fixed salaries, Ms. Hellerman
says.

That promotes fairness, especially in volatile times
when bonuses may shrink or disappear. Frank Glassner, head of
Compensation Design Group, San Francisco, offers another concern:
Employees with a high salary and lower potential bonus may not push
themselves as hard. "What really works well are very easily understood
pay-for-performance programs," he says.

Skyline's plan works by adjusting managers' commission
targets; those who take lower salaries get lower commission targets,
allowing them to accrue bigger bonuses for exceeding their targets.
Other bonus factors include nonfinancial measures such as customer
satisfaction and timely project completion. No bonuses are paid if
Skyline doesn't generate an operating profit.

Only top managers were included in the plan, because
they have the biggest influence on profits, says Mr. Hayes, the CEO. As
an employee-owned company, Skyline shares profits with its 82 employees
through a separate long-term equity plan.

Mr. Hayes says the pick-your-salary plan has been a
success, noting that Skyline's revenue grew to $76 million last year,
from $42 million in 2004. When profits rise, he says, the company may
spend more on compensation than it would under a traditional pay plan.

Mr. Trento, who has been with Skyline for more than
three years, says he prefers the security of a higher salary. "I can
bank on that, and I don't have to take the risk," says the 47-year-old,
who has a wife, two children and a home in suburban Alamo, Calif.

But Mr. Chelini, 38, says he is comfortable taking on
the added risk. The seven-year veteran of Skyline says switching from a
traditional pay system was "scary" at first.

All four senior executives at Skyline regularly opt
for lower salaries and higher potential bonuses. Mr. Hayes, 44, says
the plan fits well with Skyline's culture, which focuses on open-book
management and employee ownership.

"Owners get more reward for taking risk," he says.
"That's business, and that's the entrepreneurial spirit that we are
seeking to capture."

Write to Cari Tuna at cari.tuna@wsj.com