It looks beautiful, so why are many companies abandoning piecework wages?
Most piecework pay systems are based on activity-based standards. There are many ways of standardizing, and if we take only one, then the standards may not be accurate. But what exactly is a norm? Is it the average time consumption per operation? Or optimal consumption? What is optimal? When I tell a client that I don’t know a company that is well standardized, they usually start objecting that they have the standards in order. Quite soon, however, it turns out that this is not entirely true, that it is rather wishful thinking. In my experience, when you “standardize” a company from start to finish, you can start standardizing again from the beginning, because the conditions of the activity change over time and logically evolve, and so there is always an operation where the existing standard is already outdated. And what role does piecework play in this regard? The shortcoming of piecework is also in the fact that we reward performance without an emphasis on quality. With one client with piecework pay, they asked me how to make people not work too fast, because it is reflected in the quality. This is not very well answered in piecework. Even if they count only the good ones in the pieces collected, there is a material consumption for rejects, which is paid by the employer. The paperwork associated with piecework is also high in most companies. Another aspect is that, despite the application of piecework remuneration, we must maintain the levels of minimum and guaranteed wages, which are constantly increasing. I asked myself what companies are afraid of that, despite the disadvantages, they still persist in piecework wages? In my opinion, formed by specific examples from practice on our projects, companies are afraid of a reduction in the performance of individual employees accustomed to a high workload as a result of the use of piecework wages. A logical continuation of this consideration is to outline a solution to this situation. This means figuring out how to manage the transition from piecework and also answering the question, what will they gain from this change? So, is it possible to switch from piecework to monthly wages and at the same time motivate employees to increase performance and learn new operations? Yes, in my opinion and practical experience, it is clearly possible. Here it is important to realize what we are actually paying employees for, what they are evaluated for, and what we want to pay them for. An effective remuneration system must be simple, comprehensible, fair and motivational. And it is also necessary that this system is properly communicated with employees and sufficiently explained before the transition from the current system to the new one. Of course, it is also necessary to comply with the basic rules of remuneration, which are well described in Sections 109 and 110 of the Labour Code. It is still true that employees with the highest performance should have the highest wage, but we also want to motivate them to quality by moving from piecework wages, as well as to ensure substitutability in all operations. Therefore, it is necessary to know exactly what effects the new remuneration system will have on the wages of all individuals and what effects these changes will have on wage costs. What I am describing here is a lot of work and individual tasks, but if done well and with precision, it is possible to achieve all of the above goals.
Transition from piecework wages in SOPO s.r.o.
I find it relevant to supplement the previous words with an example from practice. At SOPO, s.r.o., we worked on a project to transition from piecework to monthly wages. The reasons for this change are described by Ing. Radomír Sabela, Chairman of the Board of Directors of the company as follows: “We have decided to abandon the piecework wage system and introduce a “Basic Monthly Salary” system consisting of a Role-Based Tariff, Qualification Bonus and Personal Evaluation. On top of these items, we have newly added variable salary components linked to the company’s SMART goals. We decided to do this for 2 reasons:
- Piecework pays motivate an INDIVIDUAL attitude to work and performance, not TEAM performance. We are a TEAM where everyone plays an important role and cannot do without each other. Whether it’s a production worker, logistics, purchasing, sales, HR or technology.
- Piecework does not motivate employees to actively search for the most effective ways to achieve results. The longer the operation, the more they earn. The incentive to shorten production times is low here. Also, the willingness to learn new operations and activities that have shorter production times is practically zero, and substitutability in individual operations is negatively affected. We need to involve employees in internal productivity, in building substitutability across production and the company.”
And what was the assessment of this change by the top management of SOPO after one year since its introduction? Jan Ondráček, the company’s CEO, commented:”Wages must be part of the company’s overall management system. The wage reform has helped us to look at situations from multiple perspectives. Our fears of a decline in employee performance have not been confirmed, and performance remains at a comparable level.
It is confirmed that employees are more willing to work as a team, especially with regard to goals that are set as a team. There is a greater willingness to help others. The new system makes it possible to better revise standards and introduce new technological processes. The attitude of production management to the over-compliance of standards by individuals is gradually changing. For better production planning, instead of the maximum performance of individual employees, the stable performance of all employees and substitutability within the team becomes more interesting.
An important part of the project was the setting of competencies for individual positions and their evaluation.
It is necessary to continue to work with the system and gradually get to a truly fair salary for individual employees based on their contribution to the company (not just compliance with standards).
A great advantage is the reduction of administration in payroll processing, whether on the part of the payroll accountant or on the part of managerial employees.
The variable component of wages in production is paid on the basis of meeting monthly goals, which are visualized and employees have an overview of the current status of meeting the goal.
All employees were personally briefed by the company management and the benefits of the new system were explained to them, in particular: their pay is stable, they can better plan their personal finances, they don’t have to be afraid to learn new operations, their pay will not drop as it was in the case of piecework pay.”. From the above, it is evident that changes can be implemented and can be put into practice in an effective way. Of course, with the full support of the company’s top management and its cooperation with the competent departments – in this case, production and human resources representatives.
