When it comes to determining how to pay employees, the “by the hour” model is often seen as the easiest and most straightforward option. After all, it’s simple to calculate and easily understood by both employer and employee. However, what many employers don’t realize is that paying an employee by the hour can actually punish their efficiency and skill.
Let’s start by looking at the fundamental economic principle that drives the “by the hour” payment system: the law of diminishing returns. As the hours worked increase, the value of the employee’s work decreases. This means that the more hours an employee works, the less money they are earning for the same job. This system quickly creates a ceiling for the employee’s income and does not reward their efficiency or skill.
In addition to this, the “by the hour” payment system fails to recognize the value of skills and experience. Even though an experienced employee may be able to do the same job in less time than a less experienced employee, they will still be paid the same hourly rate. This rewards seniority instead of skill and experience, which can lead to a lack of motivation and progress within the company.
Finally, the “by the hour” system does not take into account the quality of the employee’s work. If an employee is highly skilled and efficient, but is paid a set rate regardless of the quality of their work, then there is no incentive for them to go above and beyond. This can lead to a lack of innovation and progress within the company.
Ultimately, the “by the hour” payment system fails to reward the efficiency and skill of the employee. Instead, it creates a system that punishes employees for their efficiency and skill and rewards seniority instead. If employers wish to ensure that their employees are motivated and rewarded for their performance and value, then they should consider alternatives to the “by the hour” system. By doing so, employers can ensure that their employees are given the recognition they deserve, while also ensuring that the company is able to benefit from their efficiency and skill.
