As year-end approaches, many companies are awarding bonuses and mulling over next year's compensation policies.

The transportation industry is not Wall Street - it has never been considered an avenue to fabulous wealth. But the recent consolidation of the railroad industry has rewarded an entire generation of railroad employees. Over a five-year period, starting with Chicago and North Western and ending with Conrail, merger premiums have made a lot of railroaders rich beyond their wildest dreams.Payouts have been in the form of instantly vested stock options, change of control agreements and, in some cases, employment contracts. Some individuals have even collected more than once (lucky enough to have multiple railroads merged out from under them.) A few payouts from the Conrail transaction were astonishing.

As industry consolidation continues, buyouts occur frequently. But while resulting windfalls may appear large, they should be understood in context. In many cases they represent an exit strategy for an entrepreneur whose company is an attractive target, but who is selling his life's work.

Amid all the financial maneuvering are people who go to work every day and make things happen. At a time in this country when the economy is booming and unemployment is almost nonexistent, many individuals in the transportation industry feel that they are not enjoying the full bounty of the current job market.

Meanwhile, a number of people who have initiated start-ups are hoping for a future payoff in the form of an initial public offering. An interesting phenomenon has, however, overtaken the Internet IPO market, which is the business model for most start-ups. A small percentage of start-ups used to go public. Today, more companies are acquired before doing so. Still, there is a major payoff on invested sweat equity.

Stock options are major currency in this economy. Even major industrial transportation companies have recognized this. Union Pacific Railroad has given every employee 200 stock options - an effective way to uplift its work force while engaged in the largest hiring attempt in its history.

But stock options are a mixed blessing. Although the amount granted to individuals may be somewhat discretionary and relative, everyone benefits equally. When the stock goes up, wealth is created. When the stock performs poorly, no wealth is created.

The current job market makes it even more difficult to evaluate and award compensation, such as salary, bonus and benefits (which would include such items as enhanced insurance).

The basis for remuneration has been shifting. Once it was solely reflective of seniority and position. Promotion was the only way to earn more. But new corporate practices - such as de-layering and the virtual corporation - value and reward knowledge. This usually manifests itself in a company's information technology group. Employees with specific skills and knowledge are able to command an immediate salary premium.

Still, some executives approach salary issues in a rather feudal fashion, rewarding personal loyalty over performance. In some cases, managers are excluded from related discussions. The resulting dynamic is either an estrangement between top and middle management, or an artificially harmonious patriarchy between them.

In either case, the lack of communication harms the morale and effectiveness of the company. (Some senior executives solve this problem by denying that morale is an issue - and parading a series of sycophants to ''prove'' their case.)

Compensation problems are even more acute with U.S. companies that are subsidiaries of foreign companies. Many foreigners think American salaries are too high, neglecting to consider all the items paid for directly by the average foreign company in lieu of salary (e.g., housing, commuting, vacations.)

Some companies like to pay for performance. Those that apply this policy uniformly and consistently have been very successful. Often, however, this is difficult to accomplish if the internal measurement system used to determine performance is suspect, and employees do not trust the calculation of reward. It is even harder if the employees don't understand the system. Such confusion is common.

Problems with pay for performance also occur when established goals are nebulous or unrealistic. For many foreign companies, a budget is a desired goal. Rather than being a sober and realistic target, this is instead a best-case scenario. Incentive plans based on these goals will fail to materialize - and senior management will often resort to its old habit of awarding arbitrary rewards.

Additionally, employee distrust exists at some companies where pay for performance has been implemented. It is viewed cynically as just another management trick, such as reengineering, that will ultimately hurt them.

Transportation and logistics are service industries. No matter how much automation is introduced, companies ultimately depend upon their employees. The successful companies will be those that have introduced compensation plans that attract and retain qualified and motivated employees.