Living wage: ensuring fair remuneration across the value chain

September 20, 2022

Over the last few years, calls have been growing tremendously from investors, employees, consumers and broader stakeholders, for employees across the supply chain to receive a decent standard of living. Additionally, the urgency for workers to receive a living wage is increasing post-pandemic, as inflation is rising and a potential recession is looming.

Recently, Sainsbury’s was met with a shareholder resolution to pay all its employees, including contract workers such as cleaners and security guards, a real living wage. Although this resolution did not succeed, it did put a spotlight on the support for fair remuneration for all employees, including suppliers. In the retail sector, a new European Citizens’ initiative is urging the European Commission to pass legislation that will require garment, textile and footwear companies to pay a living wage across their supply chains.

A living wage is defined by the UN Global Compact as “a wage that enables workers and their families to meet their basic needs”. The minimum wage, on the other hand, set by many governments in legislation, does not always allow for a decent quality of life. The estimated living wage in some countries is two to six times higher than the country’s statutory minimum wage. While many agree that introducing the living wage is the right thing to do for workers, as energy prices soar, business leaders are hesitant to proactively increase costs.

However, it can be financially advantageous for companies to commit to paying a living wage across the value chain. Improving remuneration can make employees feel recognised, which can lead to more productivity and engagement. Because workers feel content in their job, they are more likely to show loyalty to the organisation, which reduces turnover and lowers recruitment and training costs. Engagement also increases, due to higher staff motivation and morale. Additionally, paying a living wage feeds into stakeholders’ perceptions of the responsibility of the business’s practices (86% of businesses say it has improved their reputation). This has a wealth of benefits, including ensuring the business attracts highly skilled talent.

Also, establishing a living wage across the full value chain can offer similar benefits. While providing stability to suppliers, businesses may see increasing performance and operational resilience. It can boost supply chain transparency and mitigate risks within the supply chain.

While proving a living wage delivers companies’ responsibility to protect human rights, stakeholders are also beginning to use pay as a key metric when quantifying the S in a company’s ESG strategy; for example, some investors are using pay as a proxy to understand employee wellbeing.

Many companies are already stepping up their commitments to ensure that workers in their supply chain are receiving fair remuneration. Unilever, for example, has committed to providing all workers in its supply chain with a living wage by 2030. Tesco also announced a new strategy to tackle the living wage gap for its banana producers, by not only paying the living wage to them, but also rewarding its suppliers who do the same.

Accredited UK employers, certified by the Living Wage Foundation, have increased by over 4,500 since March 2020, and this trend is expected to continue. However, only paying the living wage to direct employees is beginning to be seen as falling short of the mark. As the cost of living increases, concerns about how companies support employees are growing, and companies should prepare for pressure to pay a living wage across the full supply chain.

If you would like to learn more about a living wage and living income, join us for a webinar on 11 October from 5–6:15 BST/12–1:15 ET, to hear directly from experts and companies about how they are tackling this issue and making lasting commitments. Follow this link to register.

Author: Laurien Callens