Between-worker variability in output under piece-rate versus hourly pay systems

This study re-examined the earlier conclusion by F. Schmidt and J. Hunter ( 1983) that incentive pay reduces between-worker differences in output, base d on their finding that the standard deviation of employee output as a perc entage of mean output (SDp) is smaller under piece-rate compensation than u nder hourly pay. Results of the present study indicate that while the avera ge observed SDp is larger under hourly conditions, this difference disappea rs after correcting for unreliability in the output measures. It appears th at the difference in mean observed SDp values is due to the fact that there is more measurement error in measures of output for employees working unde r nonincentive-based compensation conditions. This finding suggests that in centive pay may reduce random response variability in employee output but d oes not reduce differences between employees in work effort and motivation. This finding also suggests that type of compensation system does not affec t the percentage output increases produced through improved selection. Thes e findings have implications for theories of job performance.