Pay, Your Own Way: Firm Lets Workers Pick Salary discusses how an employee-owned company allows its top managers to choose between a higher base salary and a lower base salary with a higher potential bonus:

Compensation experts say the approach is rare and potentially risky, but Skyline employees say it offers flexibility and motivates them to succeed... The idea proved popular. Twelve of the 15 eligible managers this year chose lower salaries and higher potential bonuses... 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.

The article highlights the risks and benefits of allowing employees to choose their mix of salary and potential bonus:

Pros:

• Employees can cater to their personal needs.

• Employees can adjust the mix to market factors.

• Motivates those who choose bigger potential bonuses; others may feel the need to "earn their keep."

Cons:

• Can lead to unequal compensation and foster resentment.

• Can leave some employees vulnerable to market downturns.

• May sap motivation of employees with high salaries and smaller potential bonuses.

The article also discusses how the company's culture focuses on open-book management and employee ownership, and how the company shares its profits through a separate long-term equity plan:

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