Performance Unit Plan (PUP)

A Performance Unit Plan (PUP) allows the sponsoring company to select two or more financial metrics to be used to value units that are awarded to employees. The units will be converted to cash payments at a future time (commonly three or four years). For example, a company establishes a unit price of $100 (the determination of the starting value is completely arbitrary). Next, the company creates a table that illustrates targeted improvements in two important metrics—such as margin improvement and sales growth (any metrics will do—even department level ones). The table will show the employees how much the value of the PUPs would grow to assuming achievement of the specified metrics. The employees are rewarded for achieving the targets outlined. Commonly, the company will award new PUPs each year with either the same or different targets. Alternatively, new PUPs may be issued at the end of the first payment, thus beginning a new cycle.