Fundamentals of Management, 8th ed

piece-rate incentive

plan

Reward system

wherein the

organization pays an

employee a certain

amount of money for

every unit he or she

produces

Chapter 10: Managing Employee Motivation and Performance

3 1 1

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In recent years, Lincoln has partially abandoned its famous system for business rea-

sons, but it still serves as a benchmark for other companies seeking innovative piece-

rate pay systems.

Perhaps the most common form of individual incentive is sales commissions that are

paid to people engaged in sales work. For example, sales representatives for consumer

products firms and retail sales agents may be compensated under this type of commis-

sion system. In general, the person might receive a percentage of the total volume of

attained sales as his or her commission for a period of time. Some sales jobs are based

entirely on commission, whereas others use a combination of base minimum salary with

additional commission as an incentive. Notice that these plans put a considerable

amount of the salespersons’ earnings “at risk.” In other words, although organizations

often have drawing accounts to allow the salesperson to live during lean periods (the

person then “owes” this money back to the organization), if he or she does not perform

well, he or she will not be paid much. The portion of salary based on commission is

simply not guaranteed and is paid only if sales reach some target level.