Several incentive plans are particularly suited for use with individual employees.
Piecework is the oldest individual incentive plan and is still the most widely used. Here you pay the worker a sum (called a piece rate) for each unit he or she produces. Thus, if Tom the Web surfer gets $40 for each e-mail sales lead he finds for the firm, he would make $40 for bringing in 100 a day and $80 for 200.
In a perfect world developing a workable piece rate plan requires industrial engineering (thatâ€™s how Frederick Taylor got his start).The crucial issue is the production standard, and industrial engineers usually set this for instance, in terms of a standard number of e-mail leads per hour or a standard number of minutes per e-mail lead. In Tomâ€™s case, a job evaluation indicated that his Web surfing job was worth $8 an hour. The Industrial engineer determined that 20 good leads per hour was the standard production rate. Therefore, the piece rate (for each lead) was $8 divided by 20, or $40 per sales lead. Of course, we need to ensure that Tom makes at least the minimum wage, so weâ€™d probably pay him $5.15 per hourâ€”the minimum wage â€“ whether or not he brought in 13 leads and then pay him $40 per lead for each over 13.
Piecework generally implies straight piecework, which entails a strict proportionality between results and rewards regardless of output. However, some piecework plans allow for sharing productivity gains between employer and worker, such that the worker receives extra income for some above normal production. So of Tom starts bringing in 30 leads per hour instead of the â€œstandardâ€ 20, his piece rate for leads above 25 might bump to $.45 each.
Piecework plans have pros and cons. They are understandable, appear equitable in principle, and can be powerful incentives, since rewards are proportionate to performance. However, workers on piecework may resist attempts to revise production standards, even if the change is justified. Indeed, these plans may promote rigidity: Employees concentrate on output and are less willing to concern themselves with meeting quality standards or switching from job to job (since doing so could reduce their productivity). Attempts to introduce new technology or process may trigger resistance, for much the same reason. Options in such an event include team-based incentives and gain sharing programs, both discussed below.
The standard hour plan is like the piece rate plan, with one difference. Instead of getting a rate per piece, the worker gets a premium equal to the percent by which his or her performance exceeds the standard. So, if Tomâ€™s standard is 160 leads per day (and thus $64 per day), and he brings in 200 leads, heâ€™d get an extra 25%,or $80 for the day. Some firms find that expressing the incentive in percentages reduces the workersâ€™ tendency to link their production standard to pay thus making the standard easier to change. It also eliminates the need to recomputed piece rates whenever hourly wage rates are changed.
In some industries, the term piecework has a poor reputation, and not just because managers have a history of changing the production standards. For example, some garment manufacturers had operators assemble items (like shirts) in their homes, and paid them for each piece they completed. Unfortunately the hourly pay for this work didnâ€™t always fulfill the minimum wage requirements of the Wage and Hour Act. The problem continues today, in a more modern form. For example, an electronics firm had a woman who assembled cables for the firm during the day take home parts to assemble at night. Working with her sister, the two reportedly assembled cables in their downtown apartment allegedly averaging only $2 to $2.50 an hour for the piecework less than half the minimum wage.
While still widely used, even industries that traditionally stressed piecework incentive plans, such as textiles, are reportedly moving to other plans. People did work harder under these programs, but they posed problems. For one thing, they created quality problems,â€ says one expert. Firms also tend to be more interested in incentive plans â€œthat focus on profitability and profitability related accomplishmentsâ€, rather than just production volume. More firms are therefore moving to the team incentive plans, gain sharing plans, and organization wide incentive pay program.