Salary or by the hour?
If you are paying by the hour, would that encourage people to drag out projects in an attempt to make more money?
However, if you are paying salary, does that encourage people to limit their production since they are going to get paid the same amount either way? Even with a bonus structure, wouldn't they work just enough to get the bonus, and then nothing more?
Any idea of which system generates the higher level of productivity?
Depends on the type of business.
I paid my employees hourly, but I was always on the job working right next to them (carpentry). If someone dragged ass, they were told to drag their ass over to the unemployment line.
I gave raises based primarily on production. Which provided an incentive to work harder and faster. The raises weren't regular (such as every six months) or at set increments (such as $1 per hour raise). If a guy was outperforming everyone else on the job, his raise would reflect that.
Generally, I'm of the belief that someone's pay should reflect their competency at the job, not their "time-served" at the job. This is regardless of whether it's a salaried position or hourly.
One thing to think about when making the decision is how the business makes its money.
Is it a steady supply of predictable income or is it going to be sporadic and varied? In construction, the payouts are based on certain points of completion, but are really dictated by how long it takes the title company to release the construction-loan funds to the contractor. Some would be easy as pie to work with, others would be a ****ing nightmare. I often had to wait 6 months or so before I got a payout for a job (and that's for instances where I
didn't have to place liens on the property in order to get paid).
Plus, in lean times, jobs weren't always forthcoming (like now, for instance) or there was downtime while we had to wait for the job to be ready for the carpenters. If I were paying a salary, I'd have had to pay them during these downtimes, which would have lowered my profits or lowered their income, because Its impossible to predict exactly when they would crop up.
Instead of paying the guys to sit around, I would call around to other guys I knew in the industry and see if they were busy enough and if they needed a guy for a couple of weeks. Most of my best guys would then go out on loan to these guys. Other times, I'd be busy as **** while one of these guys would be slow and they'd send their guys over to me on loan. With the guys on loan, we'd just 1099 them and that was that. So while I might be dealing with some down time, my guys rarely had to deal with it. I'd usually have an idea whether downtime was on the way within a month of it happening so I'd have time to prepare for it.
Now, since construction work is
so scarce, these approaches wouldn't work for construction. But they might be useful in a field that hasn't been totally devastated by the recession or they might be useful some time in the future.
But they wouldn't be useful in an office setting or a business that has a different dynamic.
Essentially, I'm just saying all this to truly illuminate exactly how much the business will determine the way that you pay your workers. It's not
nearly so simplistic as deciding on which style of paying will get the most productivity. You really need to look at all of the factors involved and how pay-style will affect profitability and the viability of the company.