Chelsea have started to offer performance-related contracts to a number of their older squad members in the club.

According to the Times, Michael Ballack has been offered an extension of his contract and it includes an option to extend for another year that both sides would like to take up.

Ballack’s contract is worth US$181,500 a week irrespective of his contribution on the pitch, but such is the determination to control costs at Stamford Bridge that any extension is likely to include a significant performance-based component.

Ballack's contract ends at the end of this season.

It is understood that initial talks between the club and Ballack’s advisers have focused on a much lower basic salary, but with large bonuses based on the 32-year-old’s number of appearances, goals and the performance of the team.

Ballack is believed to be happy with such a deal, because he received a significant signing-on fee when he arrived on a free transfer from Bayern Munich 2½ years ago and is confident of continuing to deliver match-winning displays.

In addition to sorting out the fine detail, the main sticking point is the length of the proposed contract, with Ballack keen to sign a two-year extension that would keep him at the club until 2011.

Negotiations began in earnest before Christmas and should be concluded by the start of next month.