Piecework Compensation: Understanding Its Function, Benefits, and Drawbacks
In a groundbreaking move, Ford Motor Company, a leading automobile manufacturer, has implemented the piece-rate wage system in its production facilities. This system, which pays workers based on the output produced rather than hours worked, aims to directly relate worker productivity to wages paid.
The piece-rate system offers several advantages. For one, it incentivizes workers to produce more, leading to increased productivity and potential cost savings for the company. Additionally, with workers focusing on total output rather than total hours worked, companies need fewer supervisors.
However, this system is not without its drawbacks. A potential disadvantage is the possibility of unfair pay, as skilled and fast workers may earn more than less skilled workers. Furthermore, pay received by workers under piece-rate wages can be affected by machine errors, leading to lower earnings even when it is not their fault.
The piece-rate system can also lead to a monotonous work environment, potentially lowering employee morale and productivity. Moreover, there may be a sacrifice in quality, as workers prioritize quantity over quality. To mitigate this, companies may need to invest in a quality control system, which can be expensive.
It's important to note that the piece-rate system is suitable for businesses where output is standardized and quality is not a significant factor. These businesses often focus on quantity over quality, sell products at low prices to attract demand, and aim for higher economies of scale through increased production.
Interestingly, piece-rate wages offer extra pay for outputs exceeding a target. For example, if a worker produces 110 units when the target is 100, they would earn $560 ($5 x 100 + $6 x 10). This motivates workers to develop more efficient production methods.
However, the piece-rate system is not commonly used in the service sector or for jobs where output is difficult to measure. Service businesses may not find this system suitable due to the difficulty in quantifying output per worker.
New workers may also be paid less under piece-rate wages due to their lack of skills and experience. As they gain expertise, their wages can increase to reflect their increased output.
In conclusion, the piece-rate wage system, as implemented by Ford Motor Company, offers both advantages and disadvantages. While it incentivizes workers to produce more and potentially save costs, it also risks creating an unfair pay structure and sacrificing quality. Companies must carefully consider these factors when deciding whether to adopt this system.
