Pay Arrangements Tend To Influence Employee Productivity

Today’s best managers know that how employees are paid can influence their productivity levels. Employees in payment arrangements where pay is a function of worker productivity tend to earn more and be more productive than when employees are not in such arrangements. An example of this is a piece rate system where employees make more money when they produce more pieces of product. Unfortunately, this trend tends not to hold for executives or for profit-sharing plans. In general, employees paid on a piece rate basis tend to make more money than those on a fixed rate pay plan.

Source: Pekkarinen, T., & Riddell, C. 2008, April. Performance pay and earnings: Evidence from personnel records. Industrial and Labor Relations Review, 61, 297-319.