Wages

A fair living wage is an income earned during normal working hours that meets the basic needs of workers and their families, with some left over for extra expenses or savings. 

Like most fashion companies, we don’t own any factories or make our own clothes – we outsource production to independent manufacturers. This means we don’t pay garment workers’ salaries, nor can we decide how much they are paid. 

But there are many things we can do to have a positive impact on wages and wage development to give workers and their families better livelihoods, improved working conditions and more power in the workplace. We’re taking responsibility and driving change by: 

• Setting clear standards and expectations for every supplier that makes our products, as well as taking action if the standards are not met, which is clearly stated in our Sustainability Commitment.  
• Ensuring that our purchasing practices – the way we place our orders and the prices we pay – enable the payment of correct wages. 
• Helping suppliers implement effective wage management systems that classify jobs according to skill level and pay workers according to their competence.  
• Providing education, services and frameworks that empower workers to negotiate their own wages and supporting suppliers to improve working conditions. 
• Working with partners, peers, experts and governments to improve wages at both industry and country level. 

Our production supply chain spans over many countries and contributes to the employment of around 1.5 million people. For many working in the garment and textile sector, especially women, this is their first formal employment and an opportunity to earn a regular income. 

We have a significant responsibility to uphold the rights of workers in our supply chain and ensure they know these rights, which include good working conditions, proper representation, improved wages and opportunities to develop. 

As far back as the 1970s we established production offices in the countries where our garments were made. This was, and still is, a key strategy and a valuable asset for engaging with workers, factories, governments, local trade unions and NGOs. 

By building and maintaining close relationships with factory owners we can support them to improve wage-management systems and develop well-functioning industrial relations. 

To drive fair and competitive wages in our supply chain, we take a global approach that feeds into country-specific strategies while considering national contexts and legal settings. This way our work is adapted to better meet the conditions in production countries and we can help our suppliers improve the wages of their workers.  

We monitor the level of wages paid in our factories constantly and this data is a key dimension in our Sustainability Index. We use this index to rate our suppliers and then reward those who perform well by planning with them longer term. 

In 2020, we engaged with experts to identify what drove wage increases between 2013 and 2019. We also involved stakeholders and industry researchers to develop the best mix of interventions, adding new areas where we aim to use our influence. Based on this input and evidence, we refocused our work to become more effective by: 

• Adopting a more localised, market-based approach based on data so we can do what works best in each production country. 
• Integrating social protection as part of statutory minimum-wage advocacy. 
• Extending our external engagement to create industry-wide awareness and action, including collaboration beyond our sector. 
• Informing and educating suppliers about our commitment to improving wage systems through clear incentives and requirements. 
• Helping our suppliers improve productivity so they can pay higher wages and remain competitive. 
• Ensuring internal cooperation, with business and public affairs teams working together for systemic changes. 

Fair wages go beyond the statutory minimum wage set by governments. They contribute to economic and social development for both workers and employers. Setting a fair wage takes an individual worker’s skills, experience, performance, and responsibility into consideration and means: 

• Workers work reasonable hours and are fairly paid for these hours, so they can meet the needs of their families and live good lives. 
• Workers have the knowledge, freedom, and power to negotiate wages and working conditions. 
• Employers have the knowledge, frameworks and support to operate and grow sustainably so they can provide stable, productive, and fair workplaces. 

To improve wages for all garment workers, several factors need to be considered, including statutory minimum wage, social protection, collective bargaining, bonuses, skill and performance recognition, benefits and productivity developments. Since 2012, we have been monitoring wages paid to employees by all our direct suppliers* and we work continuously to improve our data collection processes. Each quarter we collect and check monthly data.  

It is uncommon in the fashion industry to have access to such detailed wage data.  This is a result of the trust we have built up with our suppliers over the years.  

1. We want to make sure suppliers are paying at least the statutory minimum wage and that all benefits and additional allowances due to workers are paid correctly, on time, and in full. For this reason, wages data are checked through virtual and in-person audits by our local teams.
2. We need data we can rely on so we can understand how wages are progressing. Understanding why wages have increased over time gives us important insight into how we should intervene. Such data also allows us to get crucial input from external experts. 
3. To enable us to itemise the labour costs and ensure that the price we pay our suppliers allows them to pay wages correctly. This is part of our commitment to responsible purchasing practices. 
4. So that we can reward the best suppliers, our Sustainability Index tracks how suppliers are performing in terms of social sustainability. It is divided into two parts, environmental and social (each weighted 50%). Wage-related performance constitutes 43% of the social score and the question about average wage levels is the highest weighted in the index. Higher scoring suppliers get access to better business opportunities with us, including longer-term planning and more insight into what products we need, incentivising them to increase the wages in their factories.  
5. We want to lead the industry towards a higher level of transparency. Therefore we have engaged with the Sustainable Apparel Coalition to develop an industry tool that can capture more data about wages. 
6. We want to show our customers reliable data so they can make sustainable choices.
7. Covid-19 caused an unprecedented situation for the whole industry and put garment workers in an extremely vulnerable situation. We monitor wage levels and the number of workers in our supply chain to track the impact of the pandemic. Here are the results for the first six months of 2020 and for the first nine months of 2021. 

*By direct suppliers we mean suppliers we have contractual relationships with. They are also called Tier 1 suppliers and are the ones who sew our clothing. They, in turn, have their own suppliers, for example companies who make the fabric they use. 

We evaluate and assess our strategy and activities regularly to make sure we’re doing the right things and having a positive impact. Additionally, we continuously collaborate with external experts and researchers to identify what works well and what we should do better. 

For example, in 2020, three external wage experts — Greg Distelhorst and Jee-Eun Shin from the University of Toronto and Raymond Robertson from Texas A&M University — evaluated our previous strategy results and found that:  

• The focus areas of our wage work (statutory minimum wages, factory wage systems, purchasing practices, workplace dialogue and collective bargaining agreements) reinforce each other and are all essential to achieve wage increases. 
• Suppliers enrolled in factory-level wage management systems and workplace dialogue programmes increased real-wages by an average of 2.8% more than suppliers not enrolled in these programmes. When these programmes are accompanied by a wage grid, which classifies jobs according to skill level, the total increase in real wages was on average 5% higher than suppliers not enrolled in these programmes. 

• H&M Group has the most influence through wage management systems, but for maximum impact, work is also needed on statutory minimum wages and social protection on a national level, and productivity on a factory level. 
• Presence of trade unions in factories positively affected wages by an average of 5.5%. 
• Increasing efficiency by ten percentage points has proven to increase wages on average by 4.6%, strengthening our view that productivity is an enabler for higher wages. 

Instead of tracking progress based on factory enrolment in workplace dialogue and wage programmes, we’re measuring the real effect on wages, and we’ve updated our internal key performance indicators accordingly. We’ll continue to review these as we develop our strategy.

One of the best ways to achieve substantial and long-lasting wage increases for all workers is through fair negotiations between empowered workers, trade unions and employers. This requires industry-wide collective bargaining agreements. These contracts between unions and employers set terms and conditions of employment such as working hours and wages. 

Our strategy for improving wages in the supply chain places a strong focus on establishing well-functioning dialogue and democratically elected worker representation in factories. This gives workers better opportunities to make their voices heard and resolve any issues.  And it is an essential precondition for collective bargaining agreements. 

Democratically elected worker representation also helps prepare suppliers for maturing industrial relations, including trade unions and industry-wide collective bargaining agreements. Many of our supplier factories undergo a mindset shift when they initiate this kind of change, recognising the benefits of improved dialogue with their workers and worker representatives. In turn, this leads to an increase in the number of supplier factories with one or more trade unions. While this is a positive development that we will continue to support, more needs to be done by everyone involved. 

All companies can make a difference by ensuring their purchasing practices allow the payment of agreed-upon wages and enable collective bargaining. Brands also need to advocate for governments to set the legal frameworks that ensure 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 best way wages can increase in a sustainable way. 

The Covid-19 pandemic has highlighted the need for better social security for garment industry workers. We are working with the ILO Call to Action, a coalition of more than 125 brands who have come together to mitigate the negative impacts of the pandemic and build a stronger industry for the long term. The initiative calls for action to protect garment workers’ income, health and employment. The coalition also sets urgent priorities and specific commitments to support employers to survive, and to work together to establish sustainable systems of social protection for a more just and resilient garment industry. 

An International Working Group, convened by the ILO and coordinated by International Organization of Employers (IOE) and International Trade Union Confederation, has been working since April 2020 to deliver on the commitments and to support progress in priority countries, Bangladesh, Cambodia, Ethiopia, Haiti, Indonesia, Myanmar, and Pakistan. The Working Group includes brands and manufacturers, workers and employer organisations, and governments. 

In addition, we’ve commissioned external research and met with industry stakeholders, such as the ILO and other brands, to explore solutions for building national social-security systems. 

We have monitored the wages levels and number of workers in our supply chain since January 2020 to track the impact of the pandemic.