Fair living wages

All textile workers have the right to a fair living wage, and we will continue to use our size to bring about lasting change. Improving wages is a challenge that concerns the whole industry, and we need to take it on collectively and to scale — and encourage others to do the same. That’s why we have a clear strategy to create the best preconditions for fair living wages.

What is a Fair Living Wage? 

The H&M Group is a design and fashion company. As is usual in the fashion industry, we outsource manufacture to independent companies who are responsible for paying the wages of their workers.  

As defined by the ILO (International Labour Organization), a fair living wage is one which fulfils the basic needs of workers and their families, as well as providing some flexible income, within normal working hours. According to the ILO and global trade unions, there is no universal benchmark on how to calculate a living wage. Instead, they stress the importance of promoting freedom of association and collective bargaining as necessary for workers and employers to negotiate wages and working conditions. 

We share the view that better workplace dialogue, as well as good business relations in the markets, are key to ensuring lasting improvements for the textile workers. Meaning that freedom of association is fully respected, workers’ representatives have a voice, and trade unions can negotiate and bargain collectively. This touches all areas of working conditions, including the development of fair living wages. It’s also key to stable and predictable production markets where ethical and responsible businesses can thrive. 

“The government engagement aspect of H&M Group’s work is key. Governments must install an enabling legislative environment for labour rights, one that creates a better balance of power and supports collective bargaining between social partners. Governments must secure implementation of international labour standards when it comes to trade union rights – the right to organise and the right to collective bargaining. Employers must be required to adhere to these standards; and in that sense, buyers can do much more to engage governments and stress adherence to these rights by their suppliers.

Sustainable industrial relations can only be achieved by workers organising themselves in democratic, independent trade unions at the factory or company level, and at the national level. This requires action from governments, but it also entails education. Workers need to know their own rights and have channels for claiming them. Management must understand workers’ rights and put systems in place that foster better industrial relations and social dialogue. And brands must support their suppliers in improving working conditions. Training all actors on these issues across the supply chain, as H&M Group is doing in partnership with us and others, is incredibly important.”

Mats Svensson, IF Metall

Why collaboration is key 

Challenges related to working conditions and wages concern the entire fashion industry. The fact that many brands often buy from the same supplier is just one of many reasons we work for an industry-wide change — not just for the workers making garments for H&M Group, but for all workers. This is part of our commitment to lead the change towards a more sustainable fashion industry. That includes being bold and courageous in our work and pushing others to make responsible choices, which demands collaboration with different stakeholders. 

We partner with 21 other brands and the global trade union IndustriALL in an initiative called Action, Collaboration, Transformation (ACT). ACT is a ground-breaking agreement between global brands and retailers and trades unions to transform the garment, textile and footwear industry and achieve living wages for workers through collective bargaining at industry level linked to purchasing practices. Through ACT we’re teaming up with others to bring change across the industry, supporting freedom of association and industry-wide collective bargaining. 

One particularly game-changing component of ACT’s approach is bringing brands’ purchasing practices into the equation. While local employers and trade unions should negotiate wage levels and working conditions with each other, brands can contribute by committing to responsible purchasing practices. For example, they can offer long-term commitments to source from suppliers and markets that are willing to enter such a collective bargaining agreement. To support this, all ACT brands have signed a Memorandum of Understanding with IndustriAll Global Union, which commits them, amongst other things, to ensure that their purchasing practices facilitate the payment of a living wage. 

Read more about ACT and the meaning of an industry-wide collective bargaining agreement

“It’s crucial that we join forces to find solutions to shared challenges. ACT enables lasting change for the whole industry in a way that wouldn’t be possible for individual companies. We need to address this collectively, especially since the challenges concern the whole industry and we share suppliers with other brands.”

Anna Gedda, Head of Sustainability, H&M Group

“ACT is something which has never been tried before. It’s a joint initiative of major brands in the garment and textile industry, together with IndustriALL, with a clear objective to work together to achieve living wages for textile workers in the garment and textile producing countries.”

Frank Hoffer, Executive Director ACT

Denim production in one of our suppliers' factories just outside of Istanbul

Working locally for global good

H&M Group led the way back in the 1970s by establishing production offices where our garments were made — a key strategy and a great asset for engaging with national governments, local trades unions and NGOs. Today, H&M Group employs over 4,000 people in the markets where our suppliers manufacture, giving us a unique opportunity to initiate and support close relationships with them. 

  • We engage with factory owners, enabling them to embrace the importance of well-functioning industrial relations as well as implementing wage-management systems. We’ve supported our suppliers to implement improved wage management systems and workplace dialogue programmes in an increasing number of factories and countries.
  • We train workers about their rights, management about their responsibilities, and assist the democratic election of employee representatives through trade unions or worker committees. 
  • We ensure that we maintain good purchasing practices by being a long-term and stable business partner, enabling suppliers to pay the true cost of labour.

Why the price tag doesn’t reflect the payslip

A sweater that costs as little as €8 can absolutely be produced sustainably — the sustainable option shouldn’t be more expensive. H&M Group brands can offer stylish garments at affordable prices, made in a sustainable way. This is because we’re a big company with our own design teams, we order in large quantities and don’t use intermediaries. The workers in the supplier factories earn the same whether they produce an €8 or €80 garment. That’s because different brands offering different price ranges produce in the same factories, employing the same people. This is one reason why it’s so important to collaborate with other brands outside the Group and encourage others to be responsible companies. 

Understanding the different components of wages 

Wages are a complex issue. To achieve fair living wages for all garment workers, it is important to understand the components of a textile worker’s monthly take-home wage and how these elements can be influenced. 

In general, there are two major components: 

  • Basic wages: these make up most of a worker’s take-home wage and, in textile producing countries, are usually guided by the minimum wage levels set by the government. At a country level, the basic wage is often similar for all factories and workers within the industry. 
  • Benefits and other additions: individual wage setting allows the recognition and reward of, for instance, skill, seniority and performance. Overtime can also be included in a worker’s take-home wage. 

Combined, these components make up the take-home wage for garment workers. 

 

From current basic wage to industry-wide collective bargaining 

We share the view of ILO and many other experts, that the only lasting and viable way to achieve substantial and sufficient increases in the basic wage for all workers is through fair negotiations between workers, trade unions and employers. This requires industry-wide collective bargaining agreements that empower workers’ representatives to engage in fair negotiations. This approach replaces the idea that global brands should impose specific wage levels, a short-sighted tactic that undermines the role of workers, unions, employers’ organisations and governments to affect lasting change. Wages are an industry-wide challenge, and therefore need to be solved at an industry level to stand the test of time.  

Instead of imposing specific wage levels, brands should ensure that our purchasing practices facilitate the payment of a living wage and enable collective bargaining. Brands also need to lobby governments to set the necessary legal framework, ensuring the right to freedom of association and enabling collective bargaining. 

This is not an easy thing to achieve, especially considering trade union representation is low in many sourcing markets and industrial relation systems are often immature or even legally restricted. However, we believe this is the only way wages can increase in a sustainable way, with a level playing field. While it takes time to change complex systems like this, we can see significant progress and a growing consensus between relevant stakeholder groups to collaboratively drive structural change at an industry and country level. 

 

Improved Wage Management Systems  

We see that improved Wage Management Systems can help factories become fairer and more transparent in the way they work with individual wage setting (i.e. benefits and other additions). We have supported our suppliers in establishing transparent wage grids in their factories, which show workers how they are rewarded for different skills, tasks, education and seniority. This allows the workers to better understand what it takes to influence their wage by improving their skill and performance. The systems also strengthen human resources management, and lead to an increase in motivation, retention and productivity. 

When analysing the data from our key market suppliers, we can see the factories that are implementing improved wage management systems pay higher take-home wages on average than those factories which don’t.  

 

Purchasing practices remove labour costs from price negotiations 

A brand’s purchasing practices are an important contributor to improving workers’ wages. We developed a purchasing practice guide in 2013. It helps ensure best possible capacity planning, timely payments and much more. Thanks to our purchasing practises, 96% of our suppliers regarded H&M Group as a fair business in 2019.  

We also developed a scientific pricing method. This involves suppliers sharing with us all the major cost components that contribute to a product’s price, including the labour-cost. This means merchandisers can and will negotiate the price of a garment with our suppliers around all component costs except one: labour. 

This takes garment workers’ wages out of price negotiations. If wages increase as a result of a collective bargaining agreement, our method ensures the money needed to pay for these wages is accounted for. Together with the other brands within ACT, we are committed to ensure that higher wages are covered by our purchasing price. We believe this systematic isolation of the labour cost is important as an enabler to an industry-wide collective bargaining agreement. 

Having adopted the five global commitments on purchasing practices shared by all ACT members in 2017, this year we committed to the ACT accountability and monitoring framework. Our progress against the five commitments will be measured annually from 2020 onwards.   

 

Workers and suppliers better prepared for collective bargaining agreements 

As a part of our Wages Strategy, we have placed a strong focus on establishing well-functioning dialogue and democratically elected worker representation in factories. This provides workers with better opportunities to make their voices heard and resolve any issues that arise.  

Democratically elected worker representation also helps prepare suppliers for an industry with maturing industrial relations and industry-wide collective bargaining agreements. Many of our supplier factories undergo a mindset shift when they initiate this kind of change, in which they recognise the benefits of improved dialogue with their workers and worker representatives. In turn, this leads to an openness to address specific key issues such as worker wellbeing, health and safety, or wages and compensation. 

We have also seen an increase in the number of supplier factories with one or more trades unions. While this is a positive development that we will continue to support, more needs to be done by everyone involved.  

 

Independent strategy review and the next steps   

In addition to our own analysis, we asked Ethical Trading Initiative (ETI) to conduct an independent review of our strategy, what worked well and learnings to consider for the future. They concluded that our strategy has demonstrated leadership on a difficult issue and can deliver wage growth over time. We are using the findings in our work and sharing it with the industry and all concerned stakeholders in order to build on these learnings collectively. 

We remain committed to our vision of improving wages for all textile workers. We will continue to work with our supplier factories to further build on the positive learnings and impacts from the implementation of improved wage management systems and workplace dialogue programmes. Beyond this, we know we’ll continue to need strong collaboration with various actors. Therefore, we will continue and further expand our work with trades unions, other brands, the ILO and many other partners. This includes continuing to work with ACT and its ground-breaking approach to achieving fair living wages through industry-wide collective bargaining agreements.  

We will continue to take a leading role in driving such collaboration and continue to contribute by sharing our future learnings, challenges and achievements. 

Read the full ETI report . 
Read the Shift summary of our strategy  

 

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