H&M front runner on wage commitments:
H&M is the first brand to have carried out Fair Wage assessments on a very large scale. It started by implementing the Fair Wage approach in two model factories in Cambodia and then extended it to many more suppliers through different batches in several markets carried out between 2015 and 2019.
Unique process in its coverage:
The exercise was carried out on a unique scale, since at the end of 2018 it had covered 8 markets, involved 336 suppliers, and interviewed nearly 30,000 workers (27,591).
Unique process in its contents:
The process aimed at achieving direct results on wage practices using the Fair Wage approach based on 12 complementary wage dimensions and including improvements on systemic issues (pay system, social dialogue on wages etc.).
Assessment immediately followed by remediation:
This exercise aimed not only at providing a global picture in terms of wage practices among suppliers but also involved a one year remediation process in each of the factories under coverage.
Encompassing workers’ representatives:
This process was carried out through a systematic involvement of both the management and workers’ representatives since this dialogue represented one major lever for remediation activities.
Unique process in its diversification of tools:
A comparison between initial assessment and final assessment in each factory has allowed to measure the progress after one year remediation plan, on the basis of a variety of tools and activities such as management and workers’ surveys, collection of statistics, training, technical assistance, follow-up visits, score cards, etc.). This combination of assessment and remediation has represented a much more effective process than classical auditing exercises.
Other wage issues addressed:
Better results have also been recorded in areas not directly related to legal obligations, on wage levels, with for instance better wage levels compared to prevailing/market rates, on wage adjustments with better adjustments to price increases (wages have significantly increased from one year to the other in most factories but without any adverse effects on competitiveness), and also some adaptation of wages also to human capital changes. Workers were also found to be less dependent on working hours to ensure decent living standards.
Legal compliance ensured:
Immediate and most urgent wage issues were solved by factories to lead to no wage payment delays, full payment of the minimum wage and workers’ awareness on the level of the minimum wage, number of working hours below maximum limit, full payment of overtime hours, removal of disciplinary wage sanctions, workers better covered by individual work contracts (for instance in Turkey between initial and final assessments), workers’ representatives recognized and involved. The cases of non-legal compliance in final assessments were rather rare. Those identified in initial assessments could be solved through continuous efforts during the Fair Wage remediation plans.
Conclusive in terms of results:
The results converge to show a definite improvement in all markets after the completion of a full Fair Wage process.
Communication on wage issues:
A direct commitment has been carried by managers of suppliers to improve communication on wage issues, not only on legal aspects like minimum wage but also on pay systems. All aspects related to communication have been significantly improved between initial and final assessments.
Pay systems and other wage mechanisms improved:
Decisive steps were done on the institutional side in most factories and markets under coverage: wage grids more systematically developed so that the link between wages and skills appears more clearly than before, schemes to relate wages to performance also introduced, implementation of an internal monitoring on living wage and prevailing wage, more communication channels, and also better recognition and involvement of workers’ representatives.
Levers to lift up wages:
Progress on the above wage issues have also shown to act as levers to improve wage levels, and to progressively improve their comparison to living wage thresholds.
Some institutional issues require follow-up:
At the same time, more progress is required for instance on collective bargaining on wages (to adjust wages through regular negotiations between the management and workers’ representatives), on the reduction of the number of working hours (that require changes in work organization), on the promotion of schemes relating wages to collective performance and on the monitoring (through workers’ survey etc.) of workers’ situation with regard the living wage. Wage disparity between the top and the bottom will also have to be better monitored.
The need to put more focus on living wage payment:
while wage levels have progressed during this exercise, they may not always compare favourably with the living wage levels that are available in the respective countries. This requires an H&M even stronger commitment to pay a living wage, not only through national or sectoral initiatives but also through a systematic monitoring at factory level, to identify the eventual living wage gap, and plan how to progressively reduce them notably through the other initiatives described above such as linking wages to performance (since this represents for workers a source of additional income that does not affect factory’s competitiveness) and adjusting wage more frequently for instance to price increases and to human capital changes.
Change of mentalities require time:
Some pay systems reforms such as the introduction of a wage grid will need a continuous focus for instance in a number of Asian countries. Similarly in China, more technical assistance and support will be required to help all Chinese factories to replace their piece rate system by a basic wage (defined along skills requirements in the classification and wage grid) complemented by bonuses related to performance. Social dialogue institutions are still insufficiently developed in countries as Turkey or India, and should aim at reaching collective agreements in all markets. More generally, there is a need to make managers more aware of the importance of wage issues for an effective Human Resources policy.
A progress often influenced by the local context:
The progress is often dependent on the national and local context, with for instance more wage increases and thus quicker catching up of wages to living wage thresholds in China compared to other countries, with also more wage grid progress in China compared to Cambodia and Indonesia. Minimum wage fixing –with for instance very irregular adjustments in Bangladesh compared to more frequent increases in China and Cambodia– continue to very much influence wage progression and performance on dimensions like the living wage, real wages and working hours (that are then seen by both workers and managers as a way to complement low minimum wages).
Labour market factors:
The situation of the labour market can favour such changes in mentalities and practices: as an example the imperious need to stop high workers’ rotation, especially of skilled employees, in China has motivated a number of managers to implement a wage grid to improve the link between skills and wages and to move away from the piece rate system towards more sophisticated, more performance and innovation oriented pay systems. Similarly, the request of younger generations of workers in China and other countries for less working hours, better coverage of social security and pension coverage (and related strikes) has led the management to improve their offer to include these monetary and non monetary components in their pay package.
A progress also recorded on sustainability indicators:
Some sustainability indicators such as workers’ satisfaction, propensity to leave and turnover, absenteeism have shown a definite improvement between Fair Wage initial and final assessments, and start showing the business case. Of course these are only some indicators, which may of course be influenced by other developments, but the fact that they are on the increase are the signs of definite improvements.
A path to sustainable wage practices:
The fact that these indicators improve while institutional reforms are carried out at factory level are also promising for the future and may well represent the way towards sustainable wage practices.
The need also to improve purchasing practices:
Reforming pay systems however is not enough: recent research has shown that purchasing practices can influence wages among suppliers. In particular pricing should help placing suppliers in the optimal conditions to pay a living wage or a fair wage. Improvements could also be done in other purchasing practices, for instance to better planning orders, improving technical specifications and lengthening lead times since those could help suppliers (by better planning production) to reduce overtime hours, improve wage payments and working conditions. According to ETI report, H&M’s own purchasing practices have not been in full alignment with the roadmap strategy.