Piece Rate Systems

Individual incentive systems tie personal effort to additional rewards for the individual employee. The most basic individual incentive systems are piece-rate systems.

Under a straight piece-rate system, wages are determined by multiplying the number of units produced (such as garments sewn or service calls handled) by the piece rate for one unit. Piece rate systems determine employee pay based on the level of output produced or work completed.

A differential piece-rate system pays employees one piece-rate wage for units produced up to a standard level of output and a higher piece-rate wage for units produced over the standard. Managers can determine the quotas or standards by using time and motion studies.

Despite their incentive value, piece-rate systems can be difficult to apply because determining appropriate standards can be a complex and costly process for some types of jobs. In some instances, the cost of determining and maintaining the standards may be greater than the benefits derived.