13 May What is the Modern-Day Compensation Definition?
Today a search for compensation definition will yield results such as “topics in regard to wage and/or salary programs and structures,” or some variation of that phrasing. Yet, compensation meanings have evolved through the ages, and the way we pay and reward today is far different from what it used to be. Let’s take a brief look at how past pay models have led us to today’s definition of compensation.
The Early 20th Century
According to the BLS, during the early 20th century, industrial workers were typically paid a flat rate based on their production performance. Typically, a piece rate would be given for each unit produced. There were rarely any formal managerial tactics in place to support pay decisions. Instead, pay was administered at the discretion of the shop foreman or another figure in charge. Benefits were nonexistent, household savings were the only tool workers could rely on should they fall ill.
The New Deal
The post-Depression New Deal legislation brought radical changes to American labor, including the Social Security Act in 1935. Still in place today, the act protects workers from loss of wages due to illness or old age. It wasn’t until 1965 that it covered the entire elderly, retired population, however.
Throughout the 1900s, further legislation such as the Fair Labor Standards Act (FLSA) were introduced to protect employees’ rights to minimum wage and pay for hours worked. Then, as more women entered the workforce and the nature of families began to change, an increasing desire for flexibility led to developments in compensation, including the Family and Medical Leave Act of 1993.
Flexible benefit plans continue to grow today, and modern employers are still continuing to leverage total rewards to attract and retain employees. Moreover, successful 21st companies realize that, while we’ve come a long way from paying per unit yielded in production, pay-for-performance initiatives are still in many cases appropriate for incentivizing quality work. Nonetheless, today total compensation extends far beyond base pay alone and there are many innovative options available for rewarding employees.
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