History of Compensation: Hourly Wages and Billable Hours

Compensation Data Facts - What's What in Compensation

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History of compensation... The world’s first efficiency expert, Frederick Winslow Taylor, was the first to introduce monetary incentives to workers who exceeded quotas. Devoted to maximizing efficiency of the industrial workforce, this mechanical engineer, and one of the first management consultants, was responsible for the birth of modern cost control. In 1911, he published "The Principles of Scientific Management," which provided the foundation for the billable hour.

In 1914, a former intern of Taylor's named Reginald Heber Smith was hired by a Boston law firm to manage a backlog of cases. Greatly influenced by his previous boss "Speedy Taylor," the attorney approached MIT for help with the project, resulting in the concept of billable hours for professional services. By requiring timesheets for accurate accounting, Smith's new process increased productivity by 65% in the first year.

Smith's findings were published in a 1939 issue of The American Bar Association, but his recommendations were quickly shot down by the legal community, who considered the filing of timesheets to be beneath them and dehumanizing. Smith's ideas weren't accepted among industry professionals until 1945, when New York law firm Shearman & Sterling began using timesheet systems for cost accounting. In an effort to increase profits, they began charging clients in billable hours, using 6 minute increments of measure. More firms followed suit and by the 1950s, billable hours became a standard for most law firms. Smith was praised for his innovation and hailed as the father of both the timesheet and billable hour.

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