What type of incentive ties an employee's pay directly to the number of units they produce?

The piece-rate incentive is a direct payment system that compensates employees based on the quantity of output they produce. This type of incentive is particularly effective in jobs where the work can be quantified in specific units, such as manufacturing or assembly line positions. Employees are motivated to increase their production levels because their earnings are directly linked to their productivity.

For example, if an employee assembles chairs and is paid a set amount for each chair assembled, their total pay will increase with each additional chair they complete. This structure encourages efficiency and productivity since there is a clear and tangible reward for high performance. The piece-rate incentive aligns the interests of both the employer, who benefits from increased production, and the employee, who earns more as they produce more.

In contrast, skill-based pay compensates employees based on their skills or qualifications rather than the quantity of work produced, and deferred plans and profit-sharing plans are related to longer-term performance and overall company profitability, not individual output metrics.