How people are compensated could change dramatically over the next decade as more companies seek to link pay to performance.

Such plans are expanding to include a wide range of workers -- not just managers and the highly paid. What you earn -- in bonuses, raises, or even contributions to retirement and health plans -- is expected to become more intertwined with how you perform, as an individual or as part of a unit. Strong performers can expect to earn more under this system; everyone else will earn the same or less as they would have under a traditional compensation program.

More U.S. employers are adopting some sort of pay-for-performance program. Roughly 43% of employers surveyed in 2005 reported that their reward system was linked to their business strategy, up from 35% who said the same in 1996, according to a recent study by consulting firm Watson Wyatt Worldwide, a unit of Watson Wyatt & Co. Holding.

The trend, driven by a need for companies to cut costs while remaining competitive in hiring, is already evident in some unexpected places. In a move rare for the retail industry, Home Depot Inc. recently launched a program providing bonuses to store workers based on a store's profitability.

Pay for performance will be adopted in some form in a majority of industries in the coming years, predicts Ravin Jesuthasan, a consultant with the rewards practice at Towers Perrin in Chicago.

"The long-term trend is much more of that transference of risk" to the employee, says Mr. Jesuthasan. "The risk is on you to ensure the reward you're earning is competitive."

Home Depot, like most U.S. companies, had long had a bonus program limited to managers and executives; workers in its stores had little financial incentive to go the extra mile. Several years ago, the company decided to change that. In 2003, it launched a program that gives store associates the opportunity to earn a bonus if their stores meet certain financial goals. Last year, Home Depot paid out $90 million under this plan.

The idea was to "incent the people who are the highest performing," says Dennis Donovan, executive vice president of human resources at the Atlanta-based company.

Many pay-for-performance programs are bonus-based, but this is expected to change as companies seek to link all aspects of pay to performance metrics. More companies are looking to increase the importance of merit-based raises, consultants say. And more companies may also seek to link performance to benefits such as retirement savings and health care.

Verizon Communications Inc. last week said it will add a performance-based component to its 401(k) plan for managers. In addition to matching contributions of 100% up to the first 6% of contributions, Verizon also plans to match an additional 50 cents on the dollar depending on company performance. The performance metrics have yet to be determined.

Among the criticisms of pay-for-performance models is that they're great in theory but don't translate well in reality. Workers must understand the new program for it to work, says Laury Sejen, a consultant with Watson Wyatt. Yet only 23% of employees said they understand their company's reward system in 2005, down from 25% in 1996, according to Watson Wyatt's research.