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On paper, piecework looks like a good way to encourage high productivity. But there's often a hidden cost, as Allen-Edmonds Shoe Corp. discovered 18 months ago, when it abandoned piecework in its Port Washington, Wis., plant and began paying salaries to its 125 production workers.

The change was necessary because a new, streamlined transport system in the factory made piecework far more difficult to administer. Even so, operations manager John Gantner worried that, without piecework incentives, productivity would suffer. To his surprise, productivity has risen by about 20%.

In part, the increase is due to an unexpected benefit of having workers on salary. "It has enabled us to cross-train people on different jobs," says Gantner. Employees enjoyed the new variety in their work and felt more stimulated. As a result, Gantner says, morale is up; the factory is more efficient; and the company's damage rate is down. "I think people are working a lot harder than they were before."