Risk-sharing plans include a provision for cuts in base pay that are only recaptured in years when an organization meets performance objectives.

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This statement describes a form of risk-sharing plan known as a performance-based salary or pay-for-performance system. In this system, employees receive a lower base pay but have the opportunity to earn additional compensation based on meeting specific performance objectives or goals. If the organization fails to meet these objectives, employees may not receive their full potential compensation, resulting in a cut in their base pay. Conversely, if the organization meets or exceeds the performance objectives, employees can recapture their lost pay and potentially earn additional compensation on top of their base salary.

Risk-Sharing Plans Include a Provision for Cuts in Base Pay