- Employee benefits came about as a result of government regulations and retention measures by employers following the industrial revolution.
- Though initially industrialisation caused overcrowding, exploitation, and the spread of contagious diseases, government regulation and investment in infrastructure created fertile grounds for scientific and economic progress.
- As industrial processes and mechanisation developed, industrialists like Frederick Winslow Taylor and Henry Ford pioneered new methods of mass production that improved efficiency and production capacity by giving workers specialised tasks.
- An increase in wage rates, reduction in prices, and a reduction in working hours helped boost productivity and consumption among the working class.
- Employee benefits and high wages became a way for employers to attract productive workers and retain them.
As I upload the receipt for a spin class, marking it “Health and Fitness”, to a dedicated portal for reimbursements from my company, I begin to wonder - How did we get here? Why is my place of work offering to pay for the hours I spend cycling indoors?
Going against the judgement of this age-old idiom, let’s look this gift horse in the mouth - How did we go from trading services for hourly wages to having our employers pay for cryopreservation?
What Chat GPT had to say
The shift from hourly wages to monthly salaries and employee benefits can be attributed to several factors:
Industrialisation: With the rise of industrialisation in the 19th century, the nature of work changed from traditional crafts and trades to mass production in factories. This led to the development of more complex work structures and management systems, including the need for a more sophisticated approach to compensation and benefits.
Labor laws: The introduction of labor laws in the early 20th century established minimum wage requirements and mandated overtime pay. This made hourly wage systems more expensive and cumbersome for employers to administer, leading to the adoption of a simpler monthly salary system.
Employee retention: Companies began to recognize the value of retaining skilled employees and offering them benefits to improve job satisfaction and reduce turnover. This led to the introduction of benefits such as health insurance, retirement plans, and paid time off, which were typically bundled with monthly salaries.
Market competition: As the labor market became more competitive, employers began to use benefits packages to attract and retain top talent. This made the monthly salary and benefits package an important part of an employee's compensation.
Overall, the shift from hourly wages to monthly salaries and employee benefits was driven by the need for more complex compensation structures to support the changing nature of work and to compete in a competitive labor market.
Let me elaborate further on Chat GPT’s summary -
It all began in the 19th Century, with the start of the Industrial Revolution.
The Great Stink
The advent of industrial towns resulted in new opportunities for labourers. This sent hopeful migrant workers from surrounding towns to industrial hubs, fuelled by hopes of finding their fortunes. This led to an excess in supply of labour in industrial hubs.
Like with any commodity in a free market economy, this crowding made labour cheap and easily available - especially unskilled labour employed to do repetitive tasks. With no labour laws to keep them in check, employers were often exploitative, putting workers in inhumane, unsanitary work conditions for a pittance.
To make matters worse, these industrial hubs that had originally been built to accommodate less than half as many people lacked the foundations for new housing and sanitation systems and became breeding grounds for diseases and criminal activity.
Industrial centres became pretty gross - ripe with sickness and pollution. Here is a Dickensian description of an industrial town in the 1800s to paint a better picture for you.
“a town of red brick, or of brick that would have been red if the smoke and ashes had allowed it; but as matters stood, it was a town of unnatural red and black like the painted face of a savage. It was a town of machinery and tall chimneys, out of which interminable serpents of smoke trailed themselves for ever and ever, and never got uncoiled.”
By the 1850s, industrial centres like London were unliveable. In fact, by the summer of 1858, the river Thames was so polluted with industrial effluent and human waste that it caused a city-wide stench so strong that it came to be called ‘the Great Stink’.
Winds of Change
Things would have continued to stink (pun intended) had it not been for government intervention. Over the next decade, cities were paved, roads were widened, and new sewers were built to deposit waste away from the city. New building laws were passed to ensure that cities could hold their new populations. With the arrival of the steam engine led to the emergence of suburban communities, giving workers a better standard of living and allowing workers to commute to work.
As infrastructure developed, so did labour laws. In response to growing labour movements laws were passed to protect labourers from exploitative practises. Minimum wages and maximum working hours were set, guidelines for safety and sanitation were defined.
In the meantime, the industrial revolution travelled overseas through immigrants and spies. Countries like America that were eager to stimulate their agrarian economies through manufacturing encouraged industrialism and innovation. This furthered scientific progress significantly leading to the Technological Revolution or the Second Industrial Revolution. The problem statement of the century early 20th century became this: With mechanisation and better organisation of labour, companies needed to now create processes to enable mass production and find sustainable ways for labour and machinery to interact.
Among the first industrialists to develop a method to this was Frederick Winslow Taylor (1856 - 1915), an American engineer. He realised that breaking down the process of production into many small, repetitive tasks reduced the time and effort required per worker. This method came to be known as the Scientific Organization of Work (SOW) and laid the foundations for the assembly line method of production pioneered by Henry Ford (1863 - 1947), in which a worker did not even need to move from his work station.
With workers doing specialised tasks, training employees became necessary and productive became indispensable. Companies began to invest in attracting and retaining quality labour. In 1914, in a historic move, Henry Ford set a new bar for industries by increasing his workers’ wages to $5/day and reducing working hours from 48 to 40 hours a week. This sparked a change in the very composition of American society. With more time and money to spend on leisure, a middle class with a disposable income emerged and fostered industry through consumption and consumerism. In fact, this increase in disposable income gave Ford employees the chance to buy their own Model T cars. Ford was able to double its profits in less than 2 years!
This changed the way employers perceived productivity. Over time, employers began to offer health insurance, pension schemes, maternity/paternity leave, and other benefits that positively impacted productivity and morale. I’ll cover more ground on the relationship between the two in my upcoming post about employee satisfaction.
It’s interesting to see how employee benefits have evolved. This article by Linkedin does a great job of identifying milestones in the history of employee benefits. Where the future of employee benefits will take us, I am not sure - but I’ve covered some of the world’s most innovative employee benefits programs in another blogpost.