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Piece rate is a form of compensation in which a person is paid a given rate per item made . Let's say that for every widget made, a person will receive $1. If person A makes 100 widgets per day and person B makes 50 widgets per day, person A will make twice as much money. If quality is equal, piece rate rewards the efficient and ambitious worker and penalizes the slow and lazy. It is the most capatilistic pay program. If everyone is paid the same regardless of output, there is little motivation to produce at a high level beyond the natural work ethic of that individual. It is also a way for a company to guarantee its costs. If 10 people are assembling a widget, they will all assemble at a different pace if they are not working on an automated assembly line. The average pace can be discovered in any moment, but if faster employees leave, or a company must ramp up for a large order and bring in more inexperienced workers, the costs will rise if based purely on an hourly pay. The problem is that though these costs rise, the selling price published in a catalog cannot be increased so profits will be losses. |
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