Concept of Compensation Essay


            The concept of compensation dates back to 2150 B.C - Concept of Compensation Essay introduction. when Sumerian societies have implemented the first laws to compensate workers for bodily injuries. With time, the concept has gradually acquired its contemporary meaning, and has turned into a comprehensible and effective tool of compensating workers and protecting employers from damage suits.

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Concept of Compensation


            The concept of “compensation” was changing in accordance with the changing conditions of labor. Compensation is fairly considered to be the most ancient form of social insurance. Industrialization and the development of the new forms of labor required adapting the basic compensatory provisions to the need of the working society. “Simply defined, workers’ compensation recompenses, gives something to a worker, one who performs labor for another, for services rendered for injuries” (Hood, Hardy & Lewis, 2004). Historically, even the ancient societies exercised various sets of rules which later took for the form of compensation.

            The concept of compensation dates back to 2150 B.C., when Sumerian tribes implemented the compensation for bodily injuries among the workers (Kramer, 1998). At that time, Sumerians’ labor was already regulated by the so-called “law of Ur-Nammu” (Kramer 1998). The law provided material compensation for bodily injuries and has actually generated the concept of compensation the way we understand it now. Later in 1750 B.C., the concept was slightly changed under Hammurabi code, which not only compensated for bodily injuries, but also covered permanent impairments (Kramer, 1998). The ancient Greek, Arab, and Roman societies lived and worked according to the compensation schedules, which included the precise costs of compensations for bodily injuries. As antiquity was gradually replaced by feudalism, and later, by industrialization, the concept of compensation has experienced significant shifts: “the concept of compensation for worker was bound up in the doctrine of noblesse oblige; an honorable lord would care for his injured serf” (Hood, Hardy & Lewis, 2004).

            The American transition to the English law has seriously impacted the concept of compensation. It has given birth to the well known “unholy trinity of defenses” which included the notions of contributory negligence, the “fellow servant” rule, and the assumption of risk. These three types of defenses were used by employers to protect their rights and to avoid compensating their employees for being injured at workplace. For example, the “fellow servant rule” stated that employers were not held responsible for the fellow employees’ negligence which resulted in bodily injury of a worker (Hood, Hardy & Lewis, 2004). Evidently, during the early American years, the concept of compensation was losing its meaning and relevance for employers, leaving employees completely unprotected in the face of the growing industrialization. The 19th century in the U.S. has become the turning point in increasing the effectiveness and usefulness of the compensation concept for employees. Early in the 1850s, the courts got overloaded with the cases of employee bodily injuries, which proved the tragic inefficiency of the compensation system in the U.S., but only in 1906 and 1908 Congress passed the first Employers’ Liability Acts. The concept of compensation was no longer tied to the notion of contributory negligence, and was more comprehensible to workers.

Congress passed the first compensation law in 1911, and the concept of compensation has finally acquired its contemporary meaning. “The central tenet is that of ‘no-fault’ insurance; industrial accidents are accepted as a fact of life and the system exists to deal with their financial consequences in as expeditious a manner as possible” (Hood, Hardy & Lewis, 2004). The modern meaning of compensation implies distinct differences between the notions of “impairment” and “disability”. Since 1990, employers are also legally obliged to provide working opportunities for those with physical disabilities under the Americans with Disabilities Act 1990.


Historically, the concept of compensation turned from discriminative to remedial for employees. The concept of compensation has also lost its discriminative character for employers, and has turned into a cost-effective instrument of protecting employees from financial losses for employee injuries. In distinction from earlier time, the concept of compensation is much more comprehensible to mass employees, and provides sufficient stimuli for the constant improvement of workplace conditions in the U.S. economy and labor.


Hood, J.B., Hardy, B.A. & Lewis, H.S. (2004). Workers’ compensation and employee

protection laws in a nutshell. 4th edition. New York: West.

Kramer, S.M. (1998). History begins at Sumer. New York: Routledge.


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