Question

Why would a firm ever choose to offer profit sharing its employees in place of paying piece rates?

Answer 1

Piece rates do not have incentive for the employees to put their best efforts forward. This is because they are paid a fixed amount for a given action or each piece. If profit is shared with employees then they feel that they have a responsibility to increase profit and in this manner they try to put their best effort to increase the profit. If profits are reduced then employees feel that their salary is reduced so they attempt to maximize their earnings by maximizing their performance.