Only 4% of companies commit to living wages, missing a key opportunity to reduce inequalities

Companies significantly impact society through their employment practices. By providing decent employment and supporting their suppliers to do the same, companies have a significant opportunity to positively impact the lives of workers and communities. Even though close to 3.5 billion of the world population is employed (of which about 40% are in formal employment), 664 million workers are working poor; unable to maintain a decent standard of living for themselves or their families living in extreme or moderate poverty. The 2,000 companies assessed in the Social Benchmark directly employ a total of 95 million people. Their reach extends to hundreds of millions more workers through their supply chains. However, our findings reveal a significant gap between companies’ actions and society’s expectations regarding decent work fundamentals such as living wages and working hours. Companies are undermining progress towards the Sustainable Development Goals and leaving millions of people and their families in a vulnerable situation.

A living wage is a salary which guarantees that workers’ basic needs, as well as those of their dependents, are met without requiring overtime hours. If all 2,000 companies paid their workers a living wage and required their suppliers to do the same, the benefits would extend far beyond lifting those individuals out of poverty to their families and communities, creating a multiplier effect on society.

FIGURE 1: PERCENTAGE OF COMPANIES THAT MEET LIVING WAGE INDICATORS

While the topic of living wages has gained momentum in recent years, the Social Benchmark’s findings show that progress on living wages is far too slow. Less than 4% of companies pay their direct employees a living wage, and under 1% have set a target to do so. This indicates that the vast majority of companies are likely not planning how they will bridge the gap between workers’ current pay and a living wage. Moreover, what companies disclose about wages paid to their workers is often not sufficient to meet current living wage estimates. While over 60% of companies disclose some information regarding wages paid to their workers, such information is often related to legally required minimum wages in the countries where a company operates and, therefore, is not considered comparable to a living wage. Legal minimum wages are well below living wages for most countries. Furthermore, only 3% of companies support the payment of a living wage in their supply chain by either requiring suppliers to pay a living wage or describing how they work with suppliers to pay a living wage.

Respecting labour rights is not just a legal obligation for businesses, it is also a fundamental necessity for any company seeking to operate in a sustainable environment. Sustainable companies need sustainable societies; businesses tend to thrive where societies thrive and vice versa. Companies contribute to the achievement of SDG targets first and foremost by respecting workers’ rights and advancing decent work, including paying a living wage, through their day-to-day operations and investments, and by using their leverage with business partners.

– Griet Cattaert, Head of Labour Rights at United Nations Global Compact

Decent working conditions are underpinned by more than the wages paid to workers. The Social Benchmark also assesses whether a company safeguards its employees and supply chain workers from working excessive hours. The International Labour Organization (ILO) sets the maximum working time at 48 hours in a regular work week and a maximum of 60 hours when accounting for overtime. While over 40% of companies commit to preventing their employees from working either more than a 48-hour work week or a maximum of 60 hours including overtime, only 3% of the 2,000 companies fulfil both of these minimum standards on working hours for their direct employees. This again highlights a discrepancy between what companies disclose about their commitments and societal expectations around fundamental decent work practices.

FIGURE 2: PERCENTAGE OF COMPANIES THAT MEET WORKING HOURS INDICATORS

Living wage and working hours are the lowest scoring indicators in the benchmark. Over 90% of the 2,000 companies are not meeting these fundamentals. The combination of pay below a living wage and low compliance with ILO standards on working hours signals that exploitative labour practices of both direct employees and supply chain workers are ingrained in companies’ business models. Interestingly, the topics of living wage and working hours have a different history and presence in internationally accepted guidance. Debates around working hours have advanced in the last century with dedicated ILO conventions that present clear and simple guidance on the topic for states and companies. Despite this, overall performance on working hours is shockingly low. Performance on the living wage fundamentals has equally poor performance in the benchmark, though the expectation for companies to pay workers a living wage has become more prominent and defined recently. There are currently several initiatives to establish living wage estimates. Earlier this year, the ILO agreed on a formal definition for a living wage and declared living wages central to economic and social development because of the essential role they play in reducing poverty and inequality. This agreement opens the way for international actors to estimate and operationalise living wages across the private sector, as well as to engage with living wage initiatives.

Decent work for everyone is crucial to make progress on the Sustainable Development Goals, and each part of society has a role to play. Collective bargaining is one way for companies and workers to establish mutually beneficial contractual obligations and working experiences. Unfortunately, many workers worldwide are still not covered by collective bargaining agreements. Out of the 2,000 companies, close to 30% disclose the percentage of their direct employees covered by a collective bargaining agreement, while only 1% disclose their actions to support their suppliers in fostering freedom of association and collective bargaining. To negotiate better working conditions, workers must be able to create and join worker representation organisations such as unions without fear of repercussions. Companies have a responsibility to facilitate collective bargaining in their direct operations and throughout their supply chains.