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                                                                    EXHIBIT 10.5


                      P.A.M. TRANSPORTATION SERVICES, INC.
                           INCENTIVE COMPENSATION PLAN
                              (YEARS 1998 AND 1999)


        THIS IS THE INCENTIVE COMPENSATION PLAN of P.A.M. Transportation
Services, Inc., a Delaware corporation (the "Company"), under which bonuses may
be granted to certain employees of the Company and its subsidiaries subject to
the limitations, provisions and requirements hereinafter stated.
The Plan is as follows:

        1.      PURPOSES.  The purposes of the P.A.M. Transportation Services,
Inc. Incentive Compensation Plan (the "Plan") are as follows:

                (a) To encourage each participant in the Plan to make
exceptional contributions to further the growth, success and profits of the
Company.

                (b) To foster teamwork and personal involvement in the Company's
success.

                (c) To provide the Company with an objective method of
recognizing and rewarding certain employees who have been or will be given
substantial responsibility for the direction and management of the Company.

        2. ADMINISTRATION OF PLAN. This Plan shall be administered by the
Compensation and Stock Option Committee of the Company's Board of Directors (the
"Committee"). This Committee shall interpret the Plan in a manner consistent
with its purposes; and, subject to the terms of the Plan, will have discretion
to determine who shall participate in the Plan and the amounts of any incentive
compensation to be awarded pursuant to the Plan. All actions and determinations
of the Committee taken in connection with the Plan, including the awarding of
any incentive compensation, shall be final and conclusive. The Committee may
adopt rules from time to time for carrying out the Plan.

        3. ELIGIBLE EMPLOYEES. Upon the adoption of the Plan and at or near the
start of each succeeding calendar year, all full-time employees of the Company
and its subsidiaries, excluding those employees who are eligible to participate
in any other cash bonus plan of the Company or any subsidiary, shall be eligible
to participate in the Plan during such calendar year. Additionally, the
Committee may, in its discretion, allow a recently promoted or hired officer or
employee to participate in the Plan commencing with the date of his promotion or
his employment, as the case may be.

        In order to be considered an "Eligible Employee" for purposes of the
Plan and except as provided in Section 4(d), each participant must be employed
without interruption during the applicable calendar year from January 1 through
December 31 and furthermore must be employed at the time that the bonus is
actually paid pursuant to Section 4(c). In the event that the participant's
employment is terminated, by reason of (i) discharge with or without cause or
(ii) voluntary termination by the participant, at any time during the calendar
year, such terminated participant shall not be entitled to any bonus for such
calendar year.

        There shall be two classes of Eligible Employees as follows:

        (a) Class I shall include the chief executive officer, the chief
operating officer and the chief financial officer, respectively, of the Company,
and such additional officers and other key employees of the Company or its
subsidiaries as may be selected by the Committee or by the Board of Directors to
be

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eligible for participation in the Plan under the Class I category at the
beginning of any applicable calendar year.

        (b)     Class II shall include all Eligible Employees under the Plan
other than those employees included in Class I.

        4.      MECHANICS OF THE PLAN.  The Plan will award participants for
above-average performance, measured by the Company's operating ratio, subject to
the following rules:

                (a) Annual Plan.  This Plan is an "annual plan" and incentive
awards shall be based on audited results of operations for each respective
fiscal year ending December 31.

                (b) Incentive Awards. The Board of Directors or Committee shall
establish the targeted operating ratios and corresponding bonus percentages for
each calendar year at or near the completion of the audit of the Company's
financial statements for the previous calendar year; provided, however, that the
targeted operating ratios and bonus percentages for the 1994 calendar year shall
be established by the Board of Directors upon the adoption of this Plan. Upon
adoption by the Board of Directors or Committee, the targeted operating ratio
and bonus percentages for the current calendar year shall be set forth on a
schedule and attached hereto as an exhibit. Under the Plan, each participant may
be awarded a bonus equal to the percentage of his annual base compensation which
corresponds to the Company's operating ratio for that calendar year. For
example, assume a participant has annual base compensation of $50,000 and the
Committee established the following targeted operating ratios and corresponding
bonus percentages for that calendar year:

<TABLE>
<CAPTION>

                Operating Ratios                  Bonus Percentage
                ----------------                  ----------------
                <S>                               <C>
                85.1% and over                                 0%
                84.1% to 85.0%                                 5%
                83.1% to 84.0%                                10%
                82.1% to 83.0%                                20%
                81.1% to 82.0%                                25%
                80.1% to 81.0%                                30%
                80.0% or less                                 40%
</TABLE>

If the operating ratio of the Company for the calendar year was 85.5%, the
participant would not be entitled to a bonus. If the operating ratio of the
Company for the calendar year was 80.5%, the participant would be entitled to a
bonus equal to $50,000 x 30% or $15,000.

                (c) Payment of Awards. Any bonus awarded hereunder shall be paid
by the Company upon the determination of the operating ratio for such calendar
year by the Company's independent accountants; provided, however, the bonuses
shall be paid no later than ninety (90) days after the end of each calendar
year.

                (d) Death or Disability. Notwithstanding anything contained
herein to the contrary, if a participant's employment ceases on account of death
or total disability, as defined in ss. 105(d)(4) of the Internal Revenue Code,
such participant shall be entitled to receive a pro-rata portion of any bonus he
otherwise would be awarded. In either event, the participant shall be entitled
to an amount equal to a normal bonus award under Section 4(b) multiplied by a
fraction the numerator of which shall be the number of days in the year during
which the participant was participating in the Plan and the denominator of
which shall be 365 days. For example, a participant with annual base
compensation of $50,000 dies on

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July 1 of a calendar year. The Company has an operating ratio of 80.5% for that
calendar year which otherwise would entitle the participant to a bonus of 30% of
his annual base compensation or $15,000. Such participant would be entitled to a
bonus equal to $15,000 x 182/365 or $7,479. All bonus amounts payable to a
deceased or disabled participant shall be paid to such participant or his
personal representative, as the case may be.

           (e)    Recently Promoted or Hired Employees. In the event the
Committee allows a recently promoted or hired employee to participate in the
Plan, such participant shall be entitled to receive a pro-rata portion of any
bonus he otherwise would be awarded. Such pro-rata bonus shall be the amount
equal to a normal bonus award under Section 4(b) multiplied by a fraction the
numerator of which shall be the number of days in the year during which the
participant was participating in the Plan and the denominator of which shall be
365 days. For example, a participant commences participation in the Plan on July
1 of a calendar year at annual base compensation of $60,000. The Company has an
operating ratio of 80.0% for that calendar year which otherwise would entitle
the participant to a bonus of 40% of his annual base compensation or $24,000.
Such participant would be entitled to a bonus equal to $24,000 x 183/365 or
$12,033.

           (f)    Applicable Base Annual Compensation.  For purposes of
calculating all bonus awards hereunder, whenever the term "annual base
compensation" of a participant is referred to in this Plan it shall mean the
following:

                  i)    With respect to any eligible employee who is
compensated  on the basis of a fixed salary, annual base compensation shall be
the amount of such base salary determined at December 31 of each calendar year.

                  ii)   With respect to any eligible employee who is
compensated  on the basis of hourly wages, the annual base compensation shall
be equal to the base wage of such eligible employee at December 31 of each
calendar year and then annualized.

           (g)    Operating Ratio. The "operating ratio" for any calendar year
means operating expenses as a percentage of operating revenues. For purposes of
this Plan, operating revenues shall not include interest income, other
non-operating income or extraordinary items, and operating expenses shall not
include any incentive compensation awarded hereunder, interest expense or income
taxes but shall include loss (gain) on sale of equipment. For purposes of this
Plan, the operating ratio shall be determined to the nearest one-hundredth of
one percent (.01%).

        5. NOTICES. The Board of Directors or the Committee shall notify all
employees selected to participate in the Plan as soon as practicable after such
determination has been made. The participants shall be notified of the targeted
operating ratios and corresponding bonus percentages for each calendar year, and
any subsequent modifications thereto, as soon as practicable after such
determinations have been made by the Committee.

        6. OTHER BENEFITS. This Plan is intended to provide a method of
rewarding employees for exceptional contributions made by such employees and any
awards hereunder are intended to be in addition to any other benefits which the
Company provides to the participants. The Board of Directors or the Committee
may, but is not obligated to, award one or more of the participants additional
bonuses in such amounts and at such times as the Board of Directors or the
Committee, in its sole discretion, shall determine.


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        7. AMENDMENTS TO PLAN. The Board of Directors or the Committee may from
time to time make such amendments to the Plan as the Board or the Committee, in
its sole discretion, shall deem desirable, including modifying the targeted
operating ratios and the corresponding bonus percentages established pursuant to
Section 4(b) at any time during a calendar year.

        8. TERMINATION OF THE PLAN. The Board of Directors may at any time
terminate the Plan. In the event the Plan is terminated, the Company shall not
have any obligation to the participants under the Plan unless the Board of
Directors states that the Company has assumed an obligation. For example, assume
the Plan is terminated on December 15 of a calendar year. No participant shall
have a right to receive, and the Company shall not have any obligation to pay,
any bonus amount under the Plan for that calendar year unless the Board of
Directors expressly states the Company shall pay such bonus amount.

        9. NONASSIGNABILITY. No participant shall have the right to assign or
transfer any of his benefits or expected benefits under the Plan except by will
or by the laws of descent and distribution.

        This Plan has been adopted and approved at a meeting of the Board of
Directors of the Company on the 17th day of October, 1997, and shall be
effective for calendar years 1998 and 1999, unless otherwise amended by the
Board of Directors.


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                                    EXHIBIT A

                      P.A.M. TRANSPORTATION SERVICES, INC.
                           INCENTIVE COMPENSATION PLAN

                          TARGETED OPERATING RATIOS AND
                         CORRESPONDING BONUS PERCENTAGES
                        FOR 1998 AND 1999 CALENDAR YEARS


                           CLASS I ELIGIBLE EMPLOYEES


<TABLE>
<CAPTION>
               Operating Ratio                  Bonus Percentage
               ------------------               ----------------
               <S>                              <C>
               90.0% and Above                         0%

               89.0% to 89.9%                         10%

               88.0% to 88.9%                         15%

               87.0% to 87.9%                         20%

               86.0% to 86.9%                         25%

               85.0% to 85.9%                         30%

               84.0% to 84.9%                         35%

               83.0% to 83.9%                         40%

               82.0% to 82.9%                         45%

               81.0% and Below                        50%

</TABLE>




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                                    EXHIBIT A

                      P.A.M. TRANSPORTATION SERVICES, INC.
                           INCENTIVE COMPENSATION PLAN

                          TARGETED OPERATING RATIOS AND
                         CORRESPONDING BONUS PERCENTAGES
                        FOR 1998 AND 1999 CALENDAR YEARS

                           CLASS II ELIGIBLE EMPLOYEES


<TABLE>
<CAPTION>
                Operating Ratio                 Bonus Percentage
               -----------------                ----------------
               <S>                              <C>
               90.0% and Above                         0.0%

               89.0% to 89.9%                          5.0%

               88.0% to 88.9%                          7.5%

               87.0% to 87.9%                         10.0%

               86.0% to 86.9%                         12.5%

               85.0% to 85.9%                         15.0%

               84.0% to 84.9%                         17.5%

               83.0% to 83.9%                         20.0%

               82.0% to 82.9%                         22.5%

               81.0% to 81.9%                         25.0%

               80.0% to 80.9%                         27.5%

               Under 80%                              40.0%

</TABLE>

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