Piecework vs. salary by mattsteinglass
June 17, 2008, 9:18 am
Filed under: Economics

So to balance out the cranky post yesterday and explain why I read Megan’s blog, today I note that she had several very interesting points in a different post yesterday, and the first I’ll choose to address is the one about piecework. Megan writes:

…there’s a pretty rich body of literature on when piecework rates make sense. I highly recommend the chapter on the subject from Tim Harford’s thoroughly excellent book, The Logic of Life. Piecework makes sense when quality is readily observable and monitoring costs are low. The Atlantic wants me to maximize the quaity and readership of the blog, not the number of posts; that’s why I don’t get paid on piecework. Though of course I do, when I’m writing for other publications. But the question of compensation structure is not a matter of business being mean; most low-wage workers don’t get paid on piecework, and plenty of highly paid workers do–solo lawyers and consultants, for example.

I grew up, probably like Megan, being regaled about the evils of piecework in the context of such touchstones of working-class history as the Triangle Shirtwaist Fire. As you get older, you find that there are some contexts in which piecework makes sense. In one of my first jobs out of college, writing television cartoon scripts for a company that produced a show for Nickelodeon, I was at first paid by the script, then on salary. My productivity dropped by about 30%, and we went back to being paid by the script, which was better for everyone — I worked so much harder that way that I made significantly more money. (Amusingly, this TV company was in a former factory loft building in Soho, about a quarter-mile from the Triangle Shirtwaist building on Washington Square, which is now part of NYU.)

These days, I’m an employer — of one, my news assistant. I currently have a pretty solid setup, but previously, my reporting gigs were mainly freelance and the revenue month to month was quite uncertain. My news assistant at the time was very sharp, and I was afraid of losing her to the competition if I didn’t hike her pay. On the other hand, I couldn’t see how to generate the revenue to do that. So I tried to incentivize her to create more revenue by guaranteeing her a share of each freelance piece we did; that meant she might hunt for stories and gather material on her own, leaving me to just pitch it to editors and write it. The problem with that structure was that it was uncomfortable for her and gave her the impression that her revenue was unstable, and that she would be safer elsewhere. I often wondered whether it would make more sense to raise her guaranteed monthly salary by $100, rather than allowing her to keep a share of the freelance work in a way that could allow her to earn an extra $200 a month. (We’re talking Vietnamese salaries here.)

Meanwhile, since I switched 5 months ago from almost all freelance to a low salary with expenses covered plus freelance, I am vastly more productive. The biggest disincentive to productivity in freelance work was the high possibility of having pitches rejected and thus doing a bunch of work for nothing. Now I know my basic work is being paid, and whatever I do freelance is a bonus; I’m producing literally three times as much reporting as I used to. And I’m just as productive for the guys who pay the salary as I am for the freelance stuff — perhaps more so, oddly. Not sure quite why that is.

The overall point is that there’s a tradeoff in payment structures between incentives for more productivity and security. People will sometimes opt for security over higher pay, and may even work harder for the job that guarantees them security than for the job that pays more but on a highly uncertain basis.


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[…] defined, more easily delineated work product: a finished proposal. It’s analogous to the piecework versus salary debate, which you should read if you want to understand the problems. Software eventually has to ship, but […]

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