HRM textbook

396 PART 4 COMPENSATION
2 Discuss the main incentives
for individual employees.
INDIVIDUAL EMPLOYEE INCENTIVE AND
RECOGNITION PROGRAMS
Several incentive plans are particularly suited for use with individual employees.
Piecework Plans
Piecework is the oldest and still most popular individual incentive plan. Here you pay
the worker a sum (called a piece rate) for each unit he or she produces. Thus, if Tom the
Web surfer receives $0.40 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.
The crucial issue is the production standard, and industrial engineers often
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 Tom 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 $0.40 per sales lead. (Of course, we need
to ensure that Tom makes at least the minimum wage, so we d probably pay him $7.25
per hour the federal minimum wage as of 2011 whether or not he brought in 18
leads, and then pay him $0.40 per lead for each over 18.) But in practice, most
employers set the piece rates more informally. Thus, at Safelite Glass Corp., workers
earn an hourly wage plus a bonus based on how many windshields they install.
STRAIGHT PIECEWORK 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; here the worker receives extra income for some above-normal
production. 19 So, if Tom starts bringing in 30 leads per hour instead of the engineered
standard 20, his piece rate for leads above 25 might bump to $.45 each.
STANDARD HOUR PLANS 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 Tom s
standard is 160 leads per day (and thus $64 per day), and he brings in 200 leads, he d
get an extra 25% (40/160), or $80 total for the day. Some firms find that expressing
the incentive in percentages may reduce somewhat the workers tendency to link their
production standard to pay (thus making the standard easier to change). It also eliminates
the need to recalculate piece rates whenever hourly wage rates are changed.
PROS AND CONS Piecework plans are understandable, appear equitable in principle,
and can be powerful incentives, since rewards are proportionate to performance.
But from the time of Taylor, managers have seen piecework s disadvantages. Workers
on piecework may resist even justified attempts to raise production standards.
Because piecework plans usually tie incentive pay to quantity produced, employees
may well downplay quality, or resist switching from job to job (since doing so could
reduce productivity). 20 Attempts to introduce new technology or processes may trigger
resistance, for much the same reason.
In some industries, the term piecework has a dreadful reputation. In one case, an
electronics firm had a woman who assembled cables for the firm during the day
take home parts to assemble at night. Working at home, she allegedly averaged only
$2 to $2.50 an hour for the piecework. 21
For these and other reasons, more employers are moving to other plans. 22 We ll
look at these on the following pages.
Merit Pay as an Incentive
Merit pay or a merit raise is any salary increase the firm awards to an individual
employee based on his or her individual performance. It is different from a bonus in