The High Quality of Piece Rate

Abstract: Piece-rate compensation typically elicits higher volumes of output from workers. It is commonly believed that such compensation yields lower quality of output, but empirical studies of quality effects are rare. Using novel data concerning technicians in a large energy-related home services firm, we study the effect of piece-rate compensation on both quantity and quality of output. Piece-rate technicians complete jobs more quickly than their hourly-wage counterparts. Piece-rate technicians and hourly-wage technicians generate similar defect rates, a key measure of quality. However, piece-rate technicians perform less well than hourly-wage technicians on subjective customer-satisfaction measures. These findings highlight the multi-faceted aspects of quality service provision, and generate implications for the type of activities in which the quality/quantity tradeoff associated with piece-rate compensation will be low or high.