Ricardo Semler on Compensation

Employers began hiring workers by the hour during the Industrial Revolution. Their reasons were simple and rapacious. Say you ran out of cotton thread at 11:30 in the morning. If you paid people by the hour, you could stop the looms, send everyone home, and pay only for the hours actually worked.

You couldn’t do such a thing today? The law probably wouldn’t let you. The unions certainly wouldn’t let you. Your own self-interest would argue strongly against it. Yet the system lives on. The distinction between wage-earning workers and salaried employees is alive but not well, nearly universal but perfectly silly. The new clerk who lives at home and doesn’t know hot to boil an egg starts on a monthly salary, but the chief lathe operator who’s been with the company 38 years and is a master sergeant in the army reserve still gets paid by the hour.

At Semco, we eliminated Frederick Winslow Taylor’s segmentation and specialization of work. We ended the wage analyst’s hundred years of solitude. We did away with hourly pay and now give everyone a monthly salary.

Jeremiah Josey

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