In a BLR webinar entitled ‘Incentive Pay: Best Practices for Designing and Managing Pay-for-Performance Plans’, Dan Kleinman explains that there are different types of incentive pay found within an organization and one of these incentive pay types is known as the piece rate incentive. The piece rate incentive is described below:
- Employees are paid a set amount for each unit (‘piece’) of production. Higher rates of production lead to additional (incentive) compensation
- In straight piece rate pay, compensation is set entirely per piece. So, the more pieces produced, the greater the pay. For example, if the standard pay rate is 25 cents per piece, then workers producing 60 pieces per hour will earn $15, while those producing 80 pieces per hour will earn $20
- Some employers mix a base rate with the piece rate as an incentive. For example, workers may earn $10 per hour guaranteed plus 5 cents per piece as a bonus, so those producing 60 pieces per hour will earn $13 and those producing 80 pieces will earn $14
- Other variations include piece rates with differentials (two or more different rates) and standard hour plans (in which the piece rate is determined by units of time instead of pieces produced)
Dan Kleinman is the principal of Dan Kleinman Consulting, a California-based compensation and human resource consulting firm. He can be reached at firstname.lastname@example.org.