"We want this to be his decision," Irsay told ESPN on Tuesday. "We want him back if he wants to come back. We can work out the contract if he wants to work it out. It's going to be Peyton's call."
The Colts owe the 35-year-old Manning a $28 million bonus by March 8 that will activate the final four years of his contract. However, there are concerns over Manning's readiness to play in the NFL again. Manning has undergone three neck surgeries and is still trying to regenerate the nerve in his neck and regain strength in his right triceps muscle and throwing arm.
If the Colts decline to pay Manning his bonus, he becomes an unrestricted free agent.
"It's a two-pronged thing," Irsay said. "The first is if and when the nerve regenerates and whether it allows him to play at a high level. But I always want Peyton to understand the risk-rewards about playing. We want to make sure he understands the long-term aspects of his health in trying to play."
The four-time league MVP missed the entire 2011 season after having his third neck surgery in 19 months, a fusion of two vertebrae. His doctors have medically cleared him to resume his career and Manning has been throwing and working out at Duke University. Manning has said he is regaining strength, but Irsay said recently that Manning has not yet passed the team's physical.
Irsay has set up an environment in which Manning could return. Former Colts quarterback coach Bruce Arians, who was liked by Manning during Arians' time in Indianapolis, was hired by new head coach Chuck Pagano as offensive coordinator. Also, Pagano retained quarterbacks coach Clyde Christensen, who also has a good relationship with Manning.
If Manning wants to stay, Irsay said they could find a financial way to make it work.
"We can work out the contract if he wants to come back," Irsay said. "We want him to make the call. He's earned that. We want him to have the chance of finishing his career here if that's what he wants to do."
Manning knows the Colts plan to draft a quarterback with the first pick in the draft, either Andrew Luck or Robert Griffin III, and sources have told ESPN NFL Insider Adam Schefter that he is open to an incentive-laden contract in which he would be paid little or no guaranteed money up front and he would have to earn every cent he makes strictly through performance.
Irsay said Tuesday that he would strongly consider such a deal if Manning wants to stay.
"It's going to be Peyton's call," Irsay said.
Manning has broken all of Indianapolis' career records for quarterbacks and had never missed a start before last season. He's taken the Colts to the playoffs 11 times, captured seven AFC South titles in eight years, won two AFC championships, one Super Bowl title and a Super Bowl MVP Award.
John Clayton is a senior NFL writer for ESPN.com. Information from The Associated Press contributed to this report.