<PAGE>

                                                                    EXHIBIT 10.5

                         PENN VIRGINIA RESOURCE GP, LLC
                            SHORT-TERM INCENTIVE PLAN

1.   INTENT.
     ------

     The purpose of this Short-Term Incentive Plan (the "Plan") is to promote
the interests of the Penn Virginia Resource Partners, L.P. (the "Partnership")
and its partners by motivating the key employees of Penn Virginia Resource GP,
LLC (the "Company") and its affiliates to produce outstanding results,
encouraging superior performance, increasing productivity, and aiding in the
ability to attract and retain such key employees through annual cash bonus
opportunities.

2.   PLAN GUIDELINES.
     ---------------

     The administration of the Plan and any potential financial remuneration to
come as a result of its implementation is subject to the determination by the
Compensation Committee of the Company's Board of Directors that the performance
goals for the applicable periods have been achieved. The Plan is an additional
compensation program designed to encourage Plan participants (designated by the
Company's Compensation Committee) to exceed specified objective performance
targets for the designated period. Payments under the Plan will be made upon
approval by the Company's Compensation Committee after it reviews the
performance results for the designated period.

3.   PERFORMANCE TARGETS.
     -------------------

     3.1 Designation of Performance Targets. The Compensation Committee shall
         ----------------------------------
determine the performance target or targets to be used for each calendar year (a
"Plan Year") for determining the bonuses to be paid as a result of this Plan.
Performance targets may be based on Partnership, business units and/or
individual achievements, or any combination of the same or on such other factors
as the Compensation Committee may determine. Different performance targets may
be established for different participants for any Plan Year. Except as provided
in Section 3.3, satisfactory results as determined by the Compensation
Committee, in its sole discretion, must be achieved in order for a performance
payment to occur under the Plan.

     3.2 Equitable Adjustment to Performance Targets. The performance targets
         -------------------------------------------
applicable to any participant for a Plan Year shall be subject to equitable
adjustment at the sole discretion of the Compensation Committee to reflect the
occurrence of any significant events during the Plan Year.

     3.3 Waiver of Performance Targets. The Compensation Committee may waive, in
         -----------------------------
whole or in part, the requirement that performance targets be achieved in order
to pay a bonus under this Plan whenever the Compensation Committee determines
such a bonus payment will be in the best interests of the Partnership.
<PAGE>

4.   PARTICIPANTS.
     ------------

     Employees of the Company and its affiliates eligible to participate in the
Plan shall be designated by the Compensation Committee.

5.   PERFORMANCE PAY.
     ---------------

     A participant's designated target bonus for a Plan Year will be determined
under criteria established or approved by the Compensation Committee for that
Plan Year. Care will be used in communicating to any participant his performance
targets and potential performance amount for a Plan Year. The amount of target
bonus a participant may receive for any Plan Year, if any, will depend upon the
performance level achieved (unless waived) for that Plan Year, as determined by
the Compensation Committee.

6.   TERMINATION OF EMPLOYMENT.
     -------------------------

     A participant's termination of employment for any reason prior to a
performance payment will result in the participant's forfeiture of any right,
title or interest in a performance payment under the Plan, unless and to the
extent waived by the Compensation Committee, in its sole discretion.

7.   AMENDMENT AND TERMINATION.
     -------------------------

     The Company's Compensation Committee, at its sole discretion, reserves the
right to amend the Plan and to terminate the Plan at any time.

8.   ADMINISTRATION OF PLAN.
     ----------------------

     8.1 Administration. The Compensation Committee may delegate the
         --------------
responsibility for the administration and operation of the Plan to the President
(or his designee(s)) of the Company or any participating affiliate. The
Compensation Committee (or the person(s) to which administrative authority has
been delegated) shall have the authority to interpret and construe any and all
provisions of the Plan, including all performance targets and whether and to
what extent achieved. Any determination made by the Compensation Committee (or
the person(s) to which administrative authority has been delegated) shall be
final and conclusive and binding on all persons.

     8.2 Indemnification. Neither the Company, any participating affiliate, the
         ---------------
Board of Directors, any member or any committee thereof, nor any employee of the
Company or any participating affiliate shall be liable for any act, omission,
interpretation, construction or determination made in connection with the Plan
in good faith; and the members of the Company's Board of Directors, the
Compensation Committee and/or the employees of the Company and any participating
affiliate shall be entitled to indemnification and reimbursement by the Company
to the maximum extent permitted by law in respect of any claim, loss, damage or
expense (including counsel's fees) arising from their acts, omission and conduct
in their official capacity with respect to the Plan.

                                      -2-
<PAGE>

9.   GENERAL PROVISIONS.
     ------------------

     9.1 Non-Guarantee of Employment. Nothing contained in this Plan shall be
         ---------------------------
construed as a contract of employment between the Company and/or a participating
affiliate and a participant, and nothing in this Plan shall confer upon any
participant any right to continued employment with the Company or a
participating affiliate, or to interfere with the right of the Company or a
participating affiliate to discharge a participant, with or without cause.

     9.2 Interests Not Transferable. No benefits under the Plan shall be subject
         --------------------------
in any manner to alienation, sale, transfer, assignment, pledge, attachment or
other legal process, or encumbrance of any kind, and any attempt to do so shall
be void.

     9.3 Facility Payment. Any amounts payable hereunder to any person under
         ----------------
legal disability or who, in the judgment of the Compensation Committee or its
designee, is unable to properly manage his financial affairs, may be paid to the
legal representative of such person, or may be applied for the benefit of such
person in any manner which the Compensation Committee or its designee may
select, and each participating affiliate shall be relieved of any further
liability for payment of such amounts.

     9.4 Tax Withholding. The Company and/or any participating affiliate may
         ---------------
deduct from any payments otherwise due under this Plan to a participant (or
beneficiary) amounts required by law to be withheld for purposes of federal,
state or local taxes.

     9.5 Gender and Number. Words in the masculine gender shall include the
         -----------------
feminine gender, the plural shall include the singular and the singular shall
include the plural.

     9.6 Controlling Law. The law of the State of Delaware, without regard to
         ---------------
its conflict of laws principles, shall be controlling in all matters relating to
the Plan.

     9.7 No Rights to Award. No person shall have any claim to be granted any
         ------------------
award under the Plan, and there is no obligation for uniformity of treatment of
participants. The terms and conditions of awards need not be the same with
respect to each recipient.

     9.8 Severability. If any provision of the Plan or any award is or becomes
         ------------
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any person or award, or would disqualify the Plan or any award under the law
deemed applicable by the Compensation Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, or if it cannot
be construed or deemed amended without, in the determination of the Compensation
Committee, materially altering the intent of the Plan or the award, such
provision shall be stricken as to such jurisdiction, person or award and the
remainder of the Plan and any such award shall remain in full force and effect.

     9.9 No Trust or Fund Created. Neither the Plan nor any award shall create
         ------------------------
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any participating affiliate and a
participant or any other person. To the extent that any person acquires a right
to receive payments from the Company or any participating affiliate pursuant

                                      -3-
<PAGE>

to an award, such right shall be no greater than the right of any general
unsecured creditor of the Company or any participating affiliate.

     9.10 Headings. Headings are given to the Sections of the Plan solely as a
          --------
convenience to facilitate reference. Such headings shall not be deemed in any
way material or relevant to the construction or interpretation of the Plan or
any provision thereof.

                                      -4-