The Next Age of Total Rewards Theory

Editor's Note:  Today's post comes to us courtesy of guest contributor Joe Thompson.

A few weeks back, Compensation Cafe guest contributor, Chris Dobyns, asked my thoughts about whether there were distinct ages – or “revolutions” in total rewards theory (akin to the industrial revolution, the digital revolution, etc.).  Chris opined – I think rightly – that the nexus of artificial intelligence and compensation marks a new age in total rewards theory. 

So, in the hopes of generating discussion, here is a lightly-modified version of the response that I provided Chris:

If we ignore the infamous instances of indentureship, impressment, and some of the other ignominious forms of total rewards, I think we can see three distinct periods in total rewards in our rear-view mirror:

 The First Age

Direct wage (or barter) for direct labor marked the first period. This was the simple exchange of labor for wage.  Think of the Biblical parable of the workers in the vineyard, where the vineyard owner paid the wages he thought fair to those who had worked his field.  It is easy to visualize other examples, like a blacksmith, a portrait artist, a composer, etc., all of whom worked under the actual or implied two-party specific performance contract of “do this in order to get that.” 

This period arguably lasted all the way through the beginnings of the industrial age - that is, up until the New Deal.  While toward the end of this period, there had been erosions made in the absolute power of the employer in the form of minimum age requirements and working conditions, little had changed in compensation theory.

The Second Age

The Fair Labor Standards Act, and several laws that followed closely, marked a seismic shift in compensation theory when Congress and the Courts began to impose compensation obligations on the employer that exceeded the exchange of direct wages for direct labor, such as minimum wage, overtime, portal-to-portal compensation, and other variations. 

Coupled with the related growth of labor unions (and what they represented), the role of the employer was shifted.  The owner of the vineyard was no longer free to pay the laborers as he wished.  The two-party contract had ended as the Government itself formed a third-party, as a semi-silent partner, in compensation contracts.  We might think of this as the Wages-Plus Period – in exchange for their labor, the employee was entitled to fair wages plus other compensation.

The Third Age

The next age was triggered by major disruptions in the employer-employee power-balance that began in the 1970's.  Like the prior total rewards revolution, this was also the result of Congressional action.  A new series of legislation (e.g., the Health Maintenance Organization Act of 1973 and the Employee Retirement Income Security Act of 1974) began to move us away from the "gold-watch" age of employer-unique benefits and pensions to the "free agency" age of portable benefits and retirement accounts. 

Heretofore, the employer had held all the cards.  If you wanted wages or benefits (e.g., pension), you had to put yourself in the service of the employer, often for decades.  But, HMO/ERISA/etc. marked a fundamental change that has accelerated since: the idea that the employee, as an agency unto themselves, is entitled to a range of compensable benefits – not for being in the employment of a given employer, but just for the fact of being AN employee.  More legislation, like the Consolidated Omnibus Budget Reconciliation Act of 1985 and the Health Insurance Portability and Accountability Act of 1996, continued to fuel this viewpoint.  

And the "free agency" aspect of work that this Age created began to drive the idea of "competitive" benefits to new heights as employees could now "shop" for jobs.  The pinnacle of this Age of total rewards theory may very well be the idea of the "living wage" – wages untethered from the services actually provided to the employer.  Now, just for being an employee, one is entitled to “extra-fair” wages (at times determined by someone other than the employer) and other benefits little connected to the underlying labor.

So, to my eye, I think if we want to label the revolution precipitated by artificial intelligence, we can argue we are entering a Fourth Age of Total Rewards Theory. 

But, this is just my opinion.  What do you think?

Joe Thompson, CCP, CCMP, is currently employed as a Human Capital Strategic Consultant at Booz Allen Hamilton where he assists clients with a wide range of human capital challenges.  He has delivered human capital solutions across the talent management lifecycle including recruitment, job analysis, hiring, compensation and incentives, workforce planning, HR policy, attrition, performance management, change management, cyber human capital, and human capital program design, implementation, and evaluation.  Joe has worked in the area of compensation for 10 years and, prior to Booz Allen, he has worked in the U.S. Intelligence Community and in the U.S. Navy.

“Vineyard With Ripe Grapes In Countryside at Sunset” image used under license from Fotolia.

Comments

[Chris Dobyns]

Congratulations on a super inaugural article Joe. Now that you've been "tricked" into taking a bite of the forbidden fruit - you know that this commits you to writing other guest articles now . . .

Since I was (apparently) something of a unknowing catalyst for this, I'll offer what we've already been speculating that AI and specifically machine learning presage for this Fourth Age of TR theory. Simply, outcomes from AI/ML are focused on improved predictions, efficiencies and other outcomes.

When it comes to people – if the goal is to try to maximize the productivity of people as a resource, and with the assumption that personal agency and motivations will continue to remain incredibly complex and nuanced, then the only logical course of action is to try to become as informed as possible about the motivations drivers for individual employees, and to respond to each individual with both intrinsic and extrinsic rewards, as well as the fit of the person to the job that are as closely aligned to meeting their individual needs as possible and maximized to elicit the optimized individual motivational responses, consistent with the needs of the organization. So, we think AI/ML will allow for customized total rewards in the future, which is maybe less of a "theory" and more of an improved process.

[E. James Brennan]

Love it, Joe! Of course, the stages you summarized were American-centric. Your Three Ages reflect few of the more diverse trends seen in other nations where employer domination either continues or has been even more severely curtailed than here. Perhaps the emerging outlier reactive trends elsewhere will suggest new mutually productive paths for us to analyze.

Fully agree, however, that the personalization of Total Rewards will indeed dominate the future of our profession. As long as individual value producers rather than identical automated units are employed, the range of innovative customized economic exchange ideas versus traditional standard programs will continue to proliferate.