: What tends to happen is that under this imposed "meritocracy" the pay received per unit of goods becomes standardized downward to where only the most proficient (productive), working harder and faster, can "earn" a decent living.
Can you explain how this happens when, If Stuart starts reducing the rate per piece, a competitor would win the contracts of Stuart's current employees as they move away from his decreasingly attractive compensation package? The answer is it doesnt happen, with the possible exceptions of dying markets where the employees' (and managers') skills are less and less useful to consumers.
: You may be paying "above industry standards"...for now. Your competitors (unless you are a monopoly) will be able to produce similar units for less cost.
You described earlier how Stuart was improving on his wage cost-revenue ratio by employing people on piece work contracts, and now you say that others can undercut him? How so unless they are able to cut costs further (and risk losing their employees to better offers) or increase revenue?
I think your not looking quite far enough into the situation.