Piece rate often occurs within a factory workplace, where workers get paid a certain amount for meeting a quota, no matter how many hours it took them to meet.
An advantage of piece rate is that a faster worker will benefit from it. If you are a fast worker, then you can earn a lot of money through piece work as it will probably take you less than the average time, meaning you can get more jobs done within a day and potentially earn more money.
In some cases piece rate jobs can be performed at home. If you work from home then there are no travel fees involved so you are earning more. It also means you can stay at home to look after your children or do other work for different employers or even your own business. It is a great way to supplement other sources of income and you can have more than one or two jobs on the go at any one time.
A disadvantage to the employee with piece rate jobs is that it could be quite stressful. If the employee takes a long time to perform a task, they will earn less each week. The stress that comes with meeting constant deadlines can pile up.
A disadvantage to the employer would be that the employees may be more interested in quantity rather than quality, which could reduce product standards. This could negatively impact on the business brand reputation, resulting in a loss of sales. Another disadvantage to the employer would be that organising employee pay may be quite difficult, with everyone meeting different targets set against the quota.
Many managerial jobs have a piece rate pay scheme. This is because many businesses see their tasks as ones that should be able to be completed within agreed time scales.
I believe that piece rate jobs are a good as a financial method of motivation. This is because the employees can see that hard work pays off with a cash reward that is a good motivator.
Job rate (Salary)
Job rate refers to the notion of workers being paid a fixed salary. This means that the employee and the employer know exactly how much will be paid out as the salary will not vary, but will stay consistent all year.
This is a job advertisement with a job rate method of payment. The salary would be between £15000 - £16000, I assume that the actual salary would be determined upon hiring.
The advantages to the employee of job rate are that they can easily budget their lives. This is a big advantage over commission; the employee is guaranteed how much they will receive at each pay day.
The advantage to the employer of using job rate is that they don’t have to waste time, since managers don’t need to manage daily employee production and decide whether it correlates to wages paid. “Those who work for fixed salaries generally have long-term goals they must reach within their companies. Managers assess these goals at various intervals during an employee's career.” -
A disadvantage to the employee of using job rate is that they have no opportunity for overtime pay. Some workers on job rate may be expected to work evenings or weekends, but cannot expect to be paid for these extra hours. This lack of over-time pay may be particularly bad for employees perhaps with rising bills or higher food costs. However, a few businesses do offer overtime at busy times. Another disadvantage would be if some employees were to work considerably harder than the rest, causes a distinct lack of motivation.
I believe that job rate is an okay method of financial motivation. I’d say its better at encouraging employee loyalty and works on more long term goals and motivation rather than quick and instant motivation.
Time rate
Time rate is a method of payment where employees are paid for the amount of time that they spend at work. Time rate is fixed in relation to a standard working week being 35 hours. This method is used often for bar or restaurant work as they can have enough staff available when they are needed.
This is an example of a job that is advertised with a time rate salary.
The advantages of time rate to the employee would be that the employee is able to budget his or her personal finance within a good degree of accuracy. It is also very easy to understand for the employee as they will usually get the same pay each week or month. Another advantage is that employees have the option to work overtime at a higher hourly pay. “However, many employees who are paid a monthly salary do not get paid overtime. This is usually the case for managerial positions where it is generally accepted that the hours worked need to be sufficient to fulfil the role required.” -
The advantages of time rate to the employee would be that it is relatively simple to calculate which in turn, keeps administration costs down. It is not dependant on calculating each employee’s productivity and figuring a wage from that. Employees may be more motivated to work longer hours if they are getting paid for that.
The disadvantages of time rate to the employee is that it doesn’t do much to motivate, there is no incentive to do better, only to work longer.
The disadvantages of time rate to the employer are that employees are only required to work longer in order to acquire more money; it doesn’t look specifically at effort or goals etc.
I believe that time rate is not very motivating in terms of financial methods of motivation. It is the most commonly used method of payment in the UK, I believe this is down to ease. It doesn’t put emphasis on working harder or working towards a goal.
Commission
Commission is the money made by claiming a small percentage of a sale. This method is usually used in the sale of high-cost items such as cars, sofas etc. Therefore, commission would usually go to a sales representative for cars or sofas.
This is an example of a job advertisement for a commission based pay job for Avon as a representative in the DN4 area.
The advantages to the employee of using commission are that the better worker they are and the more they sell the more money they will make. There is no limit on money you can make. A more confident employee with skills and knowledge in their area has the potential to do very well.
The advantages to the employer would be that the employees are hardworking and committed to their jobs. They are likely to go the extra mile with customers.
The disadvantages to the employee of using commission are that the money can be up and down and not as steady as most incomes. If the employee was also injured or could not work, they either have no money or just a basic wage which could be around £200 a week. With the commission money out of the equation, an employee may struggle to pay bills etc. Another disadvantage is that a lot of commission work can change depending on the economic climate. When the recession hit, more and more people were choosing to hang onto their cars for a bit longer, rather than fork out for another when times were tight. This massively affected employees on commission as they weren’t making as many sales.
The disadvantages to the employer would be that the staff turnover rate for commission jobs is quite high as the job can be high stress and pressure to sell many units. Finding suitable employees every few months can be costly.
I believe that commission is a quite effective method of financial motivation. This is because the employee is dependent on making sales to earn a better and better wage. The money benefits are a good incentive for many employees as a reason to work harder.
Bonus
And the end of a working year, many businesses give cash bonuses to some or all employees. Bonuses are often received during a holiday season e.g. Christmas. Bonuses can either be based on hard work or just as a gift of appreciation of general hard work.
The advantage of bonuses to the employer would be that it is a good incentive for an employee. Setting goals with a cash bonus upon completion is a good motivator for a team. Receiving a bonus payment will not only show the employee he was appreciated for his hard work, but it will motivate him to continue to work hard for further rewards.
The advantage of bonuses to the employee would be that the employee feels appreciated by the business as recognised as an individual. It also can be a big help around Christmas time when employees may have lower disposable income and is a nice treat for the employee.
The disadvantage of bonuses to the employer would be that giving out bonuses can be very costly. A company must calculate whether it can afford yearly bonuses, holiday bonuses or the use of incentive and reward bonuses and for how many employees.
The disadvantage of bonuses to the employee would be a feeling of unfairness or jealousy issues. As bonuses are not paid out the same across a company, employees may not always receive the same amount. In some cases an employee who has worked for a business for 10 years but is always late and doesn’t work hard may receive a higher bonus than a hard working employee based solely on status.
I believe that bonuses are a quite effective method of financial motivation. It shows the employees that they are recognised and appreciated and hardworking employees will also benefit from higher bonuses and will receive greater satisfaction from their hard work.
Profit-sharing
Profit sharing is a monetary incentive given to the employees depending on how well the business did that year; it is based on profits made. “The base salary of the employee will be taken into consideration and depending upon the amount the profit will be shared. Those employees having higher base salaries will get a higher share of the profits to be shared.”
A business that recently shared profits was Tesco. More than 207,000 employees at Tesco are scooping share bonuses worth a total of £98m after the retailer's record annual results, it was revealed today. Tesco said all staff from checkout workers to store managers who have worked with the supermarket giant for at least a year by the end of February are eligible for the free shares, offering 3.6 per cent of salary, up to a maximum of £3,000.
The advantage of profit sharing to the employee would be that it gives additional income for the employee. It also gives the employees a feeling of identity with the company.
The advantage of profit sharing to the employer would be that it brings employees together to work towards a common goal; the employees will be focused on the success of the business and profitability. This method also encourages employee loyalty to the business as they want to see it succeed.
The disadvantage of profit sharing to the employee would be that the additional income may not be shared equally. They are not based on merit or promotion.
The disadvantage of profit sharing to the employer would be that the focus of the employee may be on the profit rather than on quality.
A business that would use profit sharing would be a large business such as Tesco’s or BT etc. Tesco’s may have a £10million pot profits put aside for profit sharing which they would then divide out between the thousands of employees who may each receive a £200 bonus.
I believe that profit sharing is a very effective method of financial motivation. It gives employees a reward for their hard work and efforts. Employees can directly see when the business does well due to their hard work as they receive a higher income. An employee who is well taken care of will perform better. His or her motivation to work will be higher.
Profit related pay
Profit related pay is a kind of pay that is directly related to the profits of the company.
The advantage to the employee is that if the company does well and makes a high profit, the employees receive a higher salary.
The advantage to the employer of profit related pay is that the employees would be motivated to work hard and see the business do well as they want to stay in reasonable comfort in terms of a wage.
The disadvantage to the employee is that if the companies’ profits decrease or if they lose money, then the employee would suffer because of this by receiving a decrease in pay.
The disadvantage to the employer is that certain businesses can be susceptible to changes in the economy. If the business doesn’t do well regardless of hard work, this can be de-motivating for the employees as they are receiving a lower wage even though they are working to the best of their ability.
I believe that profit related pay is an okay method of financial motivation. It could put many employees off due to the stress with this method of payment. It is very uncertain and difficult to estimate.