A Business Encyclopedia

High Piece Rate System

Definition: High Piece Rate System is an incentive scheme similar to the straight piece-work system, in which the worker’s earnings are in proportion to his level of output, but however, the increment in earnings for each additional unit of output above the standard is much greater.

In other words, high piece rate system implies that the increment in the worker’s earnings for each extra unit of output above the standard is substantial. This means a worker starts earning more once the standards are reached. Such as one percent increase in the output above standard, may increase the worker’s earnings by 4/3 times as compared to the one percent increase in the worker’s earnings under the straight piece-work system.

The unique feature of high piece rate incentive scheme is that, since the direct labor cost per unit increases for each output level above the standard, the worker is also entitled to share the earnings in overhead costs resulting from the increased output. The amount of such worker’s share depends on the increment in the earnings at different levels of output.

In case, the increments are greater in size and further increases with the increase in the output level; the workers can obtain all the savings in the overhead costs. This is obviously not possible in the case, where the earnings remain the same for each successive increase in the level of output.

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