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, good 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.
• Helping suppliers improve working conditions and implement effective wage management systems that move away from paying the same wage to all workers and, instead, classify jobs according to skill level, so workers are paid according to their competence.
• Providing education, services and frameworks that empower workers to negotiate their own wages and conditions.
• Ensuring that our purchasing practices – the way we place our orders and the prices we pay – enable the payment of correct wages.
• Working with partners, peers, experts and governments to improve wages at both industry and country level.

Fair wages go beyond the statutory minimum wage set by governments. They contribute to economic and social development for both workers and employers. Fair wage setting 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 elements need to be considered, including statutory minimum wage, social protection, collective bargaining, bonuses, skill and performance recognition, benefits and productivity developments.

Our production supply chain spans many countries and contributes to the employment of 1.56 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.

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 more longer term.

Having a well-established local presence where our clothes are made also means we can be hands-on in training workers about their rights, management about their responsibilities, and assist with the democratic election of worker representatives through trade unions or worker committees.

Within our own operations we focus on good purchasing practices, which in turn enable suppliers to pay the actual cost of labour.

To drive fair and competitive wage increases we take a global approach that feeds into country-specific strategies while considering national contexts and legal settings.

In 2020 we engaged with experts to identify what had worked well in driving wage increases between 2013 and 2019. Based on this evidence, we have refocused our efforts.

At the same time, we have used input from stakeholders and industry experts to develop the best mix of interventions, adding new areas where we want to use our influence. As a result, key components of our strategy are the programme to set up wage-management systems, strengthening factory-level industrial relations and responsible purchasing practices. We’re also addressing systemic issues, including wage-setting mechanisms, such as collective bargaining and statutory minimum wage, at country level and implementing nationally appropriate social protection systems. We are also focusing more on supporting productivity increases at factories.

Results of our wages work and stakeholder consultation have reinforced our ambitions to:

• Move to a more localised, market-based approach based on data so we can do what works best in each region.
• Focus on social protection as an integral part of statutory minimum-wage advocacy.
• Extend external engagement to create industry-wide awareness and action, including collaboration beyond our sector.
• Inform and educate suppliers about our commitment to improving wage systems through clear incentives and requirements.
• Help our suppliers improve productivity so they can pay higher wages and still remain competitive.
• Ensure internal cooperation, with business and public affairs teams working together for systemic changes.

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, support employers to survive during the Covid-19 crisis, 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 monitored the wages levels and number of workers in our supply chain for the first six months of 2020 to track the impact of the pandemic. Here are the results.

We’re continuing to examine what a responsible transition to a circular fashion industry means for people and their jobs in practice, for example through the project “Keeping Workers in the Loop”, led by BSR Laudes Foundation.

We evaluate and assess our strategy and activities regularly to make sure we’re doing the right things and having a positive impact. In 2020 we conducted an in-depth review and brought in external experts to identify what worked well and what we should do better.

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 strategy results and found that:

• The focus areas of our existing strategy (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 2.7% 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 10% has proven to increase wages on average by 3.8%, 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.

We constantly monitor the wages paid to employees by all of our direct suppliers*. Gaining access to such detailed wages data is uncommon in the fashion industry and is the result of the trust we have built up with our suppliers over the years.

We have been monitoring wages since 2012. Each quarter we collect and check monthly data.

Why do we monitor wages?

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 ensure that we are ring-fencing the cost of wages correctly so that the price we pay to our suppliers allows them to pay wages correctly. This is part of our commitment to responsible purchasing practices.
4. So we can reward the best suppliers. Our Sustainability Index tracks how suppliers are performing in terms of social sustainability. Suppliers who score higher on the index will have access to better business opportunities with us, including longer-term planning and more insight into what products we need. This increases their chances of improving profitability. In 2020 we strengthened the Index by placing greater importance on the actual level of wages paid.
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

*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.

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 wages strategy 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.