This paper reports on a study designed to assist in the development of an incentive pay system at Kentucky's Sue Bennett College that would be utilized to recognize merit and performance through increases in faculty salaries. Study procedures to determine the system's elements involved a literature search, a solicitation of input from the Faculty Development Committee, an analysis of merit pay models, and input from outside sources. Guidelines for the development of the incentive pay system stated that: (1) the faculty be involved in the planning; (2) the objectives be specific, known, and measurable; (3) everyone who qualifies be rewarded; (4) the Board of Trustees (BOT) and the administration support the system; (5) the faculty members be responsible for documentation; and (6) a tenure system and a faculty ranking system be in existence as pre-conditions for the incentive pay system. Recommendations were that the system should be adopted by the BOT for a probationary period of 1 year, after which an evaluation would be conducted, the results of the evaluation and the review would be disseminated, and the feasibility of other nonmonetary reward systems would be investigated by the faculty. Appendices describe the faculty evaluation system, the faculty ranking and promotion system, and the incentive pay system. Contains a 38-item bibliography. (GLR)