Living wage

This page presents all relevant good practice case studies that showcase how business have addressed the Living wage dilemma. Case studies have been developed in close collaboration with a range of multi-national companies and relevant government, inter-governmental and civil society stakeholders. We also draw on public domain sources, including the UN Global Compact's own published Communications on Progress through which signatories are required to report on their performance against the Ten Principles.

The case studies explore the specific dilemmas and challenges faced by each organisation, good practice actions they have taken to resolve them and the results of such action. We reference challenges as well as achievements and invite you to submit commentary and suggestions through the Forum.

American Apparel: Vertically integrated manufacturing – US

American Apparel manufactures all of its clothing in one site in Los Angeles, US, in what it calls ‘vertically integrated manufacturing’. The average American Apparel sewer earns around US$25,000 per year, or between US$12-15 an hour – almost twice the federal minimum wage. The company also offers subsidised public transport and lunches, a bike lending programme, free onsite massages and subsidised health insurance for a worker and their family. American Apparel describes its approach to manufacturing as: “Not blindly outsourcing, but rather knowing the faces of our workers and providing them the opportunity to make a fair wage.”

Barclays Bank: Paying workers above the ‘London Living Wage’ – UK

In 2004, Barclays Bank agreed to offer both directly employed and contracted staff a salary above the then national minimum wage, a pension with 4.5% employer contribution, 15 days’ sick pay, eight paid public holidays and 20 days of leave per year – as well as training and bonuses. In July 2007, Barclays announced that it would also meet demands by stakeholders to exceed the London Living Wage (LLW), established by the Mayor of London and the Greater London Authority, for all support staff across its buildings in London. It introduced a market-leading base pay rate of £7.50 per hour for its third-party contractors working in Greater London (£1.98 per hour higher than the national minimum wage and 30p per hour more than the LLW). Around 1,000 cleaning, mailroom, gym and catering employees working across 370 branches and offices directly benefited from the increase. As a result, absenteeism and turnover dropped from 30% to 4%, whilst performance and satisfaction levels increased.

CIW: Working with companies to improve wages in the supply chain – US

Since April 2007, the Coalition of Immokalee Workers (CIW) has negotiated agreements with food brands including McDonalds, Burger King, Yum Brands, Whole Foods and Subway to call for an industry-wide net penny surcharge per pound of tomatoes to increase wages for all participating Florida tomato harvesters. When fully implemented, the pay received by tomato pickers increased by 74%. These agreements follow a successful campaign that led to Taco Bell agreeing to labour reforms, including the first-ever enforceable Code of Conduct for agricultural suppliers in the fast-food industry.

Ethical Trading Initiative: Working with member companies to improve wage levels – Global

The Ethical Trading Initiative (ETI), an alliance of companies, trade unions and voluntary organisations, expects its member companies to adopt and implement its Base Code, including a commitment that: “Wages should always be enough to meet basic needs and to provide some discretionary income.” Member companies, including Gap, Pentland, Marks & Spencer and Primark, provide the ETI with annual reports on their progress in implementing the commitments, including on the living wage. ETI conducts random validation visits to at least 20% of its reporting members each year. While the reports remain private, ETI’s analysis of the latest (2008/9) annual reports shows that, of all improvements made by member companies in the area of working conditions, 15% related to wages and 17% to working hours.

KPMG: Implementing a living wage policy for all directly and indirectly employed staff – UK

In 2006, professional services company KPMG implemented a living wage policy for all directly and indirectly employed staff in the UK. It required its catering and cleaning contractors ISS and Eurest to pay the London Living Wage (£7.20/US$10.50) on its London contracts and a minimum of £6 (US$8.76) an hour on contracts outside of London. KPMG applied the living wage to differentials as well as the minimum rate, giving supervisors the equivalent increase to those on the bottom rates. Because the London living wage figure was announced in March and salaries of most KPMG staff rise in October, the company decided to pay all staff the new living wage rate in October – plus the increase in retail price index from March. KPMG advises companies to look for service efficiencies to finance the extra costs of implementing the living wage. For example, they reviewed their own practices and decided to remove bins from under desks. Instead, it asked its staff to bring rubbish to central collection points, increasing recycling as well as saving time for cleaners. The efficiency saving was reinvested in higher pay rates. KPMG found that after it introduced its living wage policy, its turnover rate was halved and absenteeism was significantly reduced. Head of Corporate Services Guy Stallard was quoted in an interview with the UK Trade Union Congress as saying: “We get the benefit of reduced training costs and increased staff continuity. It is a much more motivated workforce.” Other benefits noted by KPMG include improved morale, attitudes and service, increased productivity, as well as reduced training and other overhead costs as a result of growing employee loyalty.

Marks & Spencer: Launch of three ‘ethical model’ factories – Bangladesh

UK-retailer Marks & Spencer (M&S) has worked with suppliers to open three ‘ethical model’ factories in Bangladesh to demonstrate the economic benefits of good ethical performance. During 2008, M&S used these factories to deliver labour rights training to 6,000 workers. It also provided human resource management, industrial relations management, and productivity training to the factories’ 130 supervisors and managers. M&S reports that by January 2009, the three ethical model factories in Bangladesh “had each converted at least one line of production to improve productivity and increase wages.” Oxfam reports that results after seven months included: - Productivity increases of between 20% and 61% - Average wage increases of between 12% and 42% based on a standard working day without overtime (bringing wages above the legal minimum) - An 85% reduction in absenteeism and 65% reduction in worker turnover As of 2010, the three trial factories in Bangladesh, as well as one UK food manufacturer, have completed their trials with positive outcomes. These include increasing efficiencies, improved quality and lower employee turnover. This knowledge has been shared with other suppliers across the company’s global supply chain and other companies operating in Bangladesh. As a result of this, six more Ethical Model Factories have been set up in Bangladesh. Further, the company is planning to roll out further Ethical Model Factories in India, Sri Lanka and Bangladesh by 2015.

New Look: Achieving a living wage through improved productivity – Bangladesh

UK-based fashion retailer New Look engaged with its major Bangladeshi supplier Echo Sourcing Ltd in September 2007 to raise wages and lower working hours for more than 2,000 workers by increasing productivity. Echo introduced a package of benefits, including additional medical care and child care facilities, a production incentive scheme, improved daily hot meals and bonuses for improved attendance (the latter funded by New Look). New Look improved its buying practices, including improved forecasting, reduced order changes, longer lead times for orders and training for buyers on the impacts of their buying decisions. In the first year, the lowest-grade wages increased by 24% and overtime rates dropped 46%. New Look is looking to roll out the methodology in Turkey, Moldova, Vietnam and India.

Social Accountability International: Determining a living wage - Global

Social Accountability International (SAI), global standard-setting non-governmental human rights organisation dedicated to improving workplaces and communities, uses a holistic approach when determining a living wage. It takes into consideration the basic concept of a regular workweek: 40-48 hours per week by ILO standards. The organisation also asserts that living wage is best determined through the collective bargaining process. SAI defines living wage as the wage that workers and their families need for a decent standard of living in the region(s) where they live. Workers should be able to afford for themselves and their dependents a standard level of nutrition, housing, transportation, energy, healthcare, childcare, education and savings within regulated working hours (e.g. without overtime hours). SAI’s guiding principles for remuneration include: - Employees must earn enough during the regular work week to live on and support dependents - Services provided to employees for a fee such as dormitories, catering and medicine shall be provided at cost - Depending on national laws, companies can choose to pay by the hour or for performance - Wages also must be understood by workers, paid in a convenient manner, paid in a timely and regular fashion, be accurately calculated, and be paid in accordance with a worker’s contract SAI states that to calculate a living wage employers should: - Assess workers' expenses and basket of goods in the region Assess the average family size in the area - Analyse the typical number of wage earners per family (usually this is not more than 1.6) - Analyse government statistics on poverty levels. Poverty level analysis should indicate the cost of living above the poverty line In addition, workers' income should at least enable him/her to support him/herself and two dependents above the poverty line with some discretionary income. Living wage includes wages for full-time work, minus any mandatory deductions (e.g. taxes) and only counts ‘benefits’ if they are valued at cost or at competitive market value – and only if these 'benefits' are optional for workers

Vancity: Adopting a living wage policy – Canada

In May 2011, Canada’s largest credit union, Vancity, adopted the living wage policy of Metro Vancouver’s Living Wage Employer Program. In order to help address the fact that around 25% of families in Greater Vancouver live below the Living Wage level, Vancity has committed to ensuring its employees and service providers benefit from an hourly wage of CAD18.81 (US$18.87). President and CEO of Vancity, Tamara Vrooman has stated that the company’s commitment to the program is based on a desire to “… help make families stronger and communities healthier”, and “… be part of a community that invests in long-term prosperity of individuals and the economy”.

Inditex: Engaging with stakeholders to make living wage commitment - Global

In a report by worker rights NGO Labour Behind the Label, ‘Let’s clean up fashion 2011: The state of pay behind the UK high street’, the world’s largest fashion group, Inditex, was highlighted as having taken “… steps to develop and implement a living wage methodology in the supplier base, with clear plans to move beyond pilot projects”. As part of its commitment to pay living wages, Inditex has signed a framework agreement with the International Textile, Garment and Leather Workers Federation (ITGLWF), and has established a relevant code of conduct, verified by the Ethical Trading Initiative (ETI). In addition, it has worked with Northumbria University on research into labour costing and its capacity to improve wage levels and reduce instances of default in payment. It has also participated in the UN Global Compact Supply Chain Advisory Group, advanced a living wage scheme in Bangladesh and invested in management training to raise awareness of the issue.

Aviva: Supporting regional and national living wage levels – UK

In November 2012, following an increase in the London Living Wage (LLW) by Mayor Boris Johnson to GBP8.55 (US$13.62) per hour, multinational insurance company Aviva renewed its commitment to the scheme it has implemented since its inception in 2005. As well as paying the LLW, Aviva also ensures that wages for its employees in other parts of the UK do not fall below the national living wage, standing at GBP7.45 (US$12.01) per hour as of December 2012. Aviva also continues to discuss living wage implementation with its onsite contractors and is working towards becoming an accredited living wage employer with the Living Wage Foundation.

H&M: Offering apparel workers in Asia a living wage – Bangladesh and Cambodia

As part of an H&M safety agreement for Asian factories, the Swedish clothing retailer has committed to paying a living wage to 850,000 workers in Bangladeshi and Cambodian factories. H&M initially pledged to help three factories in these countries adopt a fair living wage in 2014. The company plans to extend this pledge to cover a further 750 textile factories by 2018. To do this, H&M has developed a Fair Wage Method, which is used to assess and identify the basic needs of workers in each country (i.e. instead of implementing a pre-established figure in all supplier countries). As a next step, H&M will conduct consultations with workers and employers at the pilot factories (and later at the 750 factories) to agree and establish timeframes for wage reviews. 

 

GSCP: Effective ethical supply-chain management through peer cooperation between – Global

The Global Social Compliance Programme (GSCP) was formed because “the proliferation of codes, audit duplication and divergence of approach is causing inefficiency and slowing improvement within the supply chain”. It provides a global, cross?sector platform to facilitate the exchange of knowledge and best practice to “build comparability and transparency between existing social compliance and environmental compliance systems.” The GSCP is based on three key pillars:

·       Development of a set of reference tools to describe existing best practice – and to “provide a common interpretation of fair labour and environmental requirements and their implementation”. This is with the aim of enabling mutual recognition between existing programmes using these tools as a ‘benchmark’ through the GSCP equivalence process

·       The building of comparability between different systems – and the facilitation of data sharing between different databases

·       Collaborative approaches towards capacity building

The GSCP currently has 39 members, including Adidas Group, Chiquita, Gap Inc., S.C. Johnson, Hasbro, Timberland and Walmart. In addition, the GSCP’s advisory board includes representatives from UNI?Commerce, FGTA?FO, the International Federation for Human Rights, ICCR (SRI), the Global Partnerships Forum and Harvard’s Kennedy School of Government.

http://www.gscpnet.com/

Unilever: Cooperation with – and positive response to – Oxfam gap-analysis of labour rights – Viet Nam

In February 2013, UK-based NGO Oxfam published a report analysing labour standards within Unilever’s operations and supply chain in Viet Nam – and comparing these to the company’s Group-level policy commitments. Unilever cooperated with Oxfam in the study – providing access to employees, operations, data and suppliers. In particular, the study focused on issues such as: (1) Freedom of Association and Collective Bargaining; (2) Living Wages; (3) Working Hours; and (4) Contract Labour.

In the report, Unilever notes that: “the adoption of the UN Framework for Business and Human Rights has led us to rethink the integration of our human and labour rights strategies” and that it “accepted Oxfam’s request to conduct this research within our operations and supply chain in Viet Nam to learn what the implications of the UN Framework might be and how a global business can further improve and refine the labour standards of its employees and workers.

Amongst other things, the report found that:

·       Unilever management in Viet Nam lacked the capacity/knowledge to ensure compliance with international standards – and lacked authority to support suppliers to do the same

·       Suppliers were not always clear about what Unilever’s expectations were with respect to labour standards

·       Some Unilever supply practices encouraged excessive working hours and “precarious work” in the supply chain

·       There was a lack of internal reporting/monitoring mechanisms to help with the management of labour issues

·       Non-management employees “do not have opportunities to raise issues collectively with management and have no meaningful involvement in collective bargaining

·       Although wages paid in Unilever’s own operation significantly exceeded the applicable minimum wage – as well as the international poverty line of US$2 per day – they were found “not to meet other key benchmarks of the basic needs of employees and their families, such as the Asia Floor Wage (just over 4m VND) and Oxfam’s estimate of monthly expenses for an adult with a child (5.42m VND).

·       At one supplier, workers said they had worked excessive overtime beyond legal limits of 200 hours a year

Key recommendations from the study included the following:

·       Adjustment of policies and business models to deliver better quality jobs for workers (including a commitment to a Living Wage and the avoidance of precarious work)

·       Better alignment of business processes with policy, including training for buyers to understand the impacts of their decisions in terms of working hours, wages and precarious work in the supply chain – and incentives for suppliers that raise their standards

·       Strengthening of supply chain due diligence processes to ensure vulnerable people (including women with families and migrant workers) are given genuine opportunities to give their input

·       Collaboration with others to increase collective leverage in the promotion and implementation of labour rights

According to the Guardian Sustainable Business Blog, Unilever suggested the identified challenges stemmed from “simply expecting regional operations to follow its global CSR standards”. Pier Luigi Sigismondi, Unilever's global supply chain chief, is reported as saying: "Frankly speaking, the assumption that [global operations] would understand our code and that they would comply 100% was a wrong assumption." Unilever has reportedly invited Oxfam to revisit its operations in Viet Nam in two years to review progress.

http://www.oxfam.org

AngloGold Ashanti: US$1m pledge to public-private partnership promotes skills training in mining communities – sub-Saharan Africa

In October 2012, mining company AngloGold Ashanti launched a new public-private partnership with the UN Economic Commission for Africa (ECA) to develop skills training at educational institutions across sub-Saharan Africa. The African Mining Skills Initiative (AMSI) is intended to address a lack of education and vocational skills in mining-dependent communities – a major factor in preventing workers from earning a decent wage. During the launch ceremony at the 8th African Development Forum, the South African-based mining company noted that “the continent’s educational institutions are not currently in a position to meet this growing demand for a broad range of skills”. The partnership recognises that mining skills have previously been narrowly defined – with a primary focus on engineering and geology. AMSI wants to address a broader range of skills – such as strategic planning, law, finance, economics, environmental sciences, community affairs and human rights – to equip local workforces with a more holistic set of skills required to develop and administer the African mining sector. AMSI is developing a support framework for existing mining schools and other educational institutions to provide more resources, develop inter-disciplinary curricula, improve leadership and strengthen institutional capacity. To kick-start the partnership, AngloGold Ashanti has pledged US$1 million as part of its five-year financial commitment to AMSI.

 

Nestle: World’s largest food company commits to paying all of its workforce a living wage – UK

On 30 June 2014, Nestle became the first major manufacturing company in the UK to commit to paying all of its staff a living wage, with related wage increases due to take effect by December 2017. Although Nestle, the world’s largest food company by revenues, was already paying the living wage to its 8,000 permanent employees, the move means that its other 800 contractors will also be covered, as will the company’s graduates, interns and Fast Start school leavers. In a press release, Nestle UK & Ireland said that the move was “an opportunity to be a positive influence in our sector”. The decision also enabled the Swiss-based company to become the first manufacturer in the UK to be accredited to the Living Wage Foundation, a British NGO. Nestle has worked closely with its trade union partners in the UK to receive the accreditation, highlighting the positive effects of companies partnering with unions to meet the needs of employees.

 

Starbucks and Arizona State University: Online university degrees boost income potential of employees – US

In June 2014, Starbucks revealed that it was rolling out a programme to enable its full-time employees to earn online university degrees. The global coffeehouse chain said that it was partnering with Arizona State University to provide significantly discounted rates on degree courses to its 135,000 US-based employees who work more than 20 hours a week. Starbucks has not yet revealed the financial terms of the College Achievement Plan, but the university’s online degree courses would normally cost around US$10,000 per year. Tuition reimbursement provides an attractive benefit to workers in the food and beverage sector, who tend to be low-paid and are often low-skilled. Starbucks might also potentially attract a pool of workers with higher educational aspirations. Other companies such as Wal-Mart have rolled out similar university degree programmes to their US-based workers. Given that online courses are technically accessible anywhere in the world, such initiatives represent an opportunity for multinational companies to improve the educational attainments of employees, with long-term benefits to wage levels.

 

H&M: ‘Exclusivity agreements’ improve working conditions of suppliers – Bangladesh, Cambodia

In November 2013, H&M, a Sweden-based international fashion brand, reported that it had adopted ‘exclusivity agreements’ with its main clothing suppliers in Bangladesh and Cambodia. Under what the company is describing as a new business model, H&M has committed to purchasing the entire output of three unnamed clothing factories. The agreements are designed to enhance H&M’s control over the working practices of its suppliers, with particular impacts in terms of improving the wage levels and working conditions of factory employees. For example, H&M’s Fair Wage Method is being implemented at the three factories (see case study above). Full control over output is also beneficial for the company, in terms of increasing its visibility of product quality and health and safety standards. The move came as thousands of workers held protests that month in the Bangladeshi capital Dhaka to demand higher wages. H&M is one of the largest buyers from clothing suppliers in Bangladesh. In a media interview, H&M’s social sustainability manager said, “we see these a little like test centres where we can try out different things that we can then push out on a larger scale in the entire supply chain”.

 

ILO and IFC: Better work programme - Bangladesh

In October 2013, following the Rana Plaza collapse, the International Labour Organization (ILO) and the International Finance Corporation (IFC) launched the Better Work Bangladesh programme. The initiative is designed to improve compliance with labour standards and competitiveness among garment factories. The rationale behind the programme is that the protection and respect for trade union rights increases workers’ bargaining power and leverage to negotiate higher wages and better working conditions. Following this approach, trade unions can provide a platform for workers to channel their grievances, lowering the risk of spontaneous strike action. By supporting the programme, companies can encourage suppliers to respect trade union rights in order to empower workers in the supply chain (as part of a multifaceted approach to promoting a living wage).

http://www.ilo.org

 

 

IndustriALL: Major clothing brands collaborate to bargain for living wages – Global

In August 2015, global union IndustriALL announced that it was working with major clothing brands in a collaborative initiative known as ACT (Action, Collaboration, Transformation). ACT is a collaborative effort which aims to address the issue of living wages in the textile and garment supply chain. The initiative currently has 15 participating brands including New Look, Primark, H&M, Arcadia, and Tesco, and aims to create a system to increase wages in a sustainable way. It has been recognised that in order for improvements in labour standards to be effective, efforts must be collaborative, address root causes and include longer term commitments from buyers and suppliers. As a result, the collaboration between garment companies and IndustriALL will ultimately help to improve wages in the industry.

http://www.industriall-union.org