Piecework Incentive Plans
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Merit pay increases and lump-sum bonuses reward employees based on their past performance efforts. In contrast, piecework incentive plans are more forward looking because they reward employees for their future performance levels.
Under a straight piecework plan, employees receive a certain rate of pay for each unit they produce. Calculating a straight piecework plan is very simple. Under a differential piecework plan, the pay employees receive per unit produced or delivered changes at certain levels of output.
A key advantage of piecework plans is that they focus employees’ efforts directly on tasks that are valuable for company success. Piecework plans also very clearly tell employees what types of behaviors they need to exhibit. They know that if they perform well, they will receiv...
