Compensating the Modern Worker: Is the Piece Rate System a Good Idea!

In today's world, skilled and unskilled labour alike are hired on competitive terms. Whether you are using a first come first hire basis, academic credentials or experience in the field, there is a high likelihood of leaving out some people just because they didn't make the cut. After investing much in finding the right people for your manufacturing firm, you need to remunerate or pay them well to ensure that they are well motivated for optimal production. This will depend on the system of remuneration that you'll select. Here is a look at the piece rate system to help you gain insight:

The Piece Rate System is Cost Effective

The piece rate is a system that requires you to pay your employees based on the number of good units that they produce without due consideration of the time they took to produce them. This is cost effective for you, as you will only be paying for work that has been completed effectively. An employee who works slowly or fails to allocate their time appropriately during production will certainly be paid lesser than the one who is fast and allocates their working hours well. If you go with a standard wage per hour, you would be paying these employees similarly, which doesn't make sense in all production contexts.

There is Little Need for Micromanagement

If you are looking for a way of reducing micromanagement in your firm, the piece rate system is the way to go. Ideally, employees know that they can maximise their pay by producing as many good units as they can. Employees will be self-driven and willing to produce so much within the hours availed to them. This means that there will be minimal need for divisional supervision unlike a case where workers are assured of a standard wage regardless of what they can effectively produce.


One of the drawbacks of the piece rate system is the fact you will have a one-dimensional perspective of evaluating efficiency in your firm. You will only be looking at productivity according to the number of units that your employees can produce. Moreover, you will be working with the primary assumption that employees are only motivated by their pay. This isn't true considering that other factors like promotions and working conditions also affect productivity.

The pay rate system is a good tool for determining the remuneration accorded to your employees. However, it is important to use other techniques for rewarding your employees alongside the piece rate system. For instance, you can give an additional fifty percent to those employees who attain a certain target of units. For more information, see a website such as