Question

Contrast the differences between straight piecework, differential piece rate, and standard hour plans. Explain where each plan might be best used.

Answer 1

The three incentive plans or methods are differentiated below:

Straight piecework is an incentive method where the worker or employee gets paid a fixed sum for a unit of output. The wages are calculated based on the rate of output. Therefore if a unit of output costs $1 and a worker produces 10 units then the payment would be $10. This method is particularly effective when payment is made out based on performance and craftmanship however it does not guarantee a minimum wage for the workers. An example of this payment method is a furniture maker who is paid per piece.

Differential piece rate is an incentive method where the worker is paid more if they exceed the expected rate of output and paid less if the worker does not complete the set limit in time. In most cases, the workers are guaranteed a base pay rate. This method reduces the overhead cost of production and focuses on the efficiency of the workers. An example of this method is assembly lines.

A standard hour plan is an incentive method where a worker or employee is paid a minimum hourly pay. In certain cases, a worker could be paid extra if their production exceeds the quota set for that hour. Workers are paid even though work is not completed in an hour. This method is great for ensuring minimum pay and is used in places where there is huge flexibility in the type of work and specialized skill is required. An example of this method would be an office worker or a service specialist like a plumber or automobile service personnel.

The differences are tabulated below so that its easier to understand:

	STRAIGHT PIECEWORK	DIFFERENTIAL PIECE RATE	STANDARD HOUR PLANS
PURPOSE	Designed to maintain the proportion between result and reward. The worker is paid a fixed amount for a unit for a fixed amount of time.	Designed to pay more if the employee exceeds expectations, usually the number of units processed in relation to time	Designed to pay a standard basic pay per hour of work.
ADVANTAGES	Performance-based and cost-effective.	The method reduces the overhead costs per unit and rewards efficiency.	Ensures a basic minimum pay for the workers. Can be used in organizations where specialized skill is required.
DISADVANTAGES	Workers are not protected against low earnings.	Undefined minimum wages can lead to feelings of insecurity among workers and could affect the health of workers since they have to exert more effort to get higher pay.	The worker needs to be paid even if the work is not completed on time.
EXAMPLE	A Furniture maker paid per piece.	Assembly line worker.	Service jobs, office work, etc.