Question

How can piecework incentive systems be counterproductive in a pull environment? What other forms of compensation or incentive systems may be more suitable?   

Answer 1

In a pull environment, production takes place based on market demands rather than sales forecasts. Extra stock is kept at a minimum and is replenished as and when sold. This gives the company leverage in reacting to changes in market demands.

For such an environment, Piecework incentives which are given on the basis of the output of employees are counter-productive. Since the output is not based on the capabilities of the employees but the demands of the products in the market. Hence, providing such incentives doesn't hold value as the employees are deterred from giving more output until the market demands rise for the product or the existing inventory finishes.

For such an environment, incentives should be based on the quality of the performance rather than the quantity. Flexibility in working hours, year-end bonuses, and profit sharing options might prove to be more encouraging to employees than the piecework incentives.