Piecework Plans

Piecework or piece-rate plans are among the simplest forms of compensation, and they can act as an incentive to produce at a higher level because the more workers produce, the more they get paid. In a “straight piece-rate” compensation system, the employee gets paid for every “piece” that they complete. If they are faster than the average, they can make more money than other employees.
A “differential piece-rate” system provides the employee with a base wage to complete a certain amount of work. If they produce more than the standard, a differential wage is paid for the extra pieces produced. In either case, the employee is being paid for increased speed. If we pay employees “by the piece,” they may make lots of pieces with lots of quality problems because they are trying to work too fast and not paying attention to how well they are doing the work.
There may also be a problem in determining where the standard is going to be set for a differential piece-rate system, and there are other potential problems. However, in some situations, a piecework plan can be an incentive to produce at a faster rate. The obvious answer to potential quality problems is to set clear standards that each piece must meet to be accepted and paid for. Thus, if the employees don’t do a quality job, they don’t get paid.
Clear standards tell the employee what they need to do in order to benefit from the piecework pay schedule. The other key to effective piecework plans is feedback. Employees need to know how they are doing as they go through the workweek. If they will not be given credit for items that don’t meet quality standards, they need to know this up front.
Many people expect that once the employee reaches a level of production that provides them with an acceptable wage, they will slow down, but there is very little evidence that this occurs in more than isolated cases. Feedback gives the employees information about the “significant reward” that they seek and can motivate continued performance.