Advantages:
(i) It distinguishes between the efficient and less efficient workers and offers direct and positive encouragement to the superior workers to realise their ambitions.
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(ii) It ensures fairness to everyone by relating wages to results. People with poor performance are penalised.
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(iii) The cost can easily be calculated for the preparation of estimates, etc., because the cost of labour per unit is constant.
(iv) Since the workers are themselves interested in the maximization of wages through the maximization of output, they have not to be goaded by foremen. Strict supervision is not necessary under this system.
Disadvantages:
(i) It makes the workers feel insecure because the wages are paid on the basis of output. If, therefore, the worker’s efficiency is temporarily reduced because of a factor beyond his control, wages will be lower than otherwise.
(ii) It lays so much stress on the quantity of production that the quality is quite often lost sight of. To ensure proper quality of production, rigid inspection and quality control become necessary.
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(iii) Labour unions oppose it on ethical grounds, because it, creates greed and unhealthy rivalries born out of suspicion and jealousy among the workers. Politically too, piece rates weaken labour unions.
(i v) In their zeal to maximize output, the workers may work at excessive speeds and may mishandle and damage machinery. In the process of over-speeding, they may injure their health and efficiency.
(v) If workers are not able to maximize production due to some fault on the part of management (say, defective production control, etc.), they are likely to develop dissatisfaction which may affect the employer-employee relations adversely.
(vi) The setting of piece-rates may itself become a controversial issue which may spoil industrial relations.
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(vii) It involves the maintenance of elaborate production records and pay rolls.