Photo by Sitthiphong on iStock
March 21, 2024
Authors
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Associate Director, Consumer Sectors and Human Rights, BSR
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Roger McElrath
Former Associate Director, Human Rights, BSR
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Manager, Equity, Inclusion, and Justice, BSR
Key Points
- There has been a surge of company engagement on Living Wage in recent years due to changing regulatory, investor expectations and increasing employer commitments to their workers.
- BSR has been a driving force behind this movement by working with over 35 companies for 20 years to implement Living Wage programs for employees.
- The lack of harmonization on what is the “best” Living Wage for each location remains one of the most significant barriers to global adoption.
In 2000, Novartis, a multinational pharmaceutical company, made a public commitment to pay its employees a Living Wage. At that time, there were no Living Wage benchmarks covering the breadth of countries where Novartis had its operations. As a founding member of BSR, the company enlisted the organization’s support to launch a Living Wage program for its employees. Engaging with economists and multiple organizations, BSR developed its first global Living Wage benchmark dataset.
This initiative launched BSR into over 20 years of collaboration with more than 35 of the world’s largest companies to establish Living Wage programs for their owned operations. BSR became the behind-the-scenes driver of Living Wage implementation amongst multinationals, impacting tens of thousands of employees worldwide. Recently, BSR expanded its focus to extending Living Wage commitments to supply chains and working with companies to develop strategies and tools to support their direct suppliers.
Understanding Living Wage
The most commonly accepted definition of Living Wage is defined by the Global Living Wage Coalition as the “remuneration received for a standard work week by a worker in a particular [time and] place sufficient to afford a decent standard of living include food, water, housing, education, healthcare, transport.”
Traditionally, most employers have focused on paying a minimum wage to meet regulatory requirements, or paying an average wage, or paying market rates. While valuable, these frameworks do not address Living Wage.
Trends in Living Wage
There has been a surge of company engagement on Living Wage recently due to changing stakeholder expectations. This momentum is fueled further by commitments from major brands to take on Living Wages in their supply chains and new tools to alleviate the challenges that companies have faced in scaling their Living Wage programs.
- Living Wage is embedded within many international human rights conventions: The concept of Living Wage dates to the 1948 Universal Declaration of Human Rights, which asserts the right to a standard of living adequate for health and well-being. It is directly connected to three of the Sustainable Development Goals (SDGs), specifically: no poverty; decent work and economic growth; and reduced inequalities. To accelerate reaching these goals in 2023, the UN Global Compact launched its Forward Faster initiative, asking companies to commit to two Living Wage targets for owned operations and suppliers by 2030.
- Living Wage is increasingly included in mandatory human rights due diligence requirements and reporting. The primary regulations that name Living Wage are the Norwegian Transparency Act and the German Supply Chain Act. The recently passed Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to adopt strategies, such as their purchasing practices, to support their suppliers in paying Living Wages. While the mechanism for how Living Wage will be enforced is still unclear, it will likely continue to have prominence in future regulation.
- Living Wage is now used in reporting and evaluations. The EU Corporate Sustainability Reporting Directive requires companies to disclose their Living Wage gaps, and companies are working to comply as early as 2024. Increasingly, benchmarking organizations and rating agencies have also included Living Wage as part of their evaluation of companies. For example, the World Benchmarking Alliance uses its inaugural Social Transformation Baseline Assessment, which includes a core social indicator on “paying a Living Wage.”
- There is a push from stakeholders for data clarity and transparency: The lack of harmonization and the “best” Living Wage number for each location remains one of the most significant blockages to expanding Living Wages for all. A new consortium of Living Wage data and service providers, called WageMap, launched in 2023 to create a universal standard to determine consistent Living Wage benchmarks that are globally comparable yet locally tailored—for every location worldwide.
This push for data harmonization is now reinforced by an ILO meeting, held in February 2024, which provided guidance on Living Wages for the first time. The outcome was a joint understanding of the concept of Living Wages, principles for the estimation and operationalization of Living Wages, as well as recommendations to strengthen wage-setting processes. This initial alignment is an important milestone that lays the foundation for WageMap to establish a Living Wage standard. - Today, there is clear evidence of the business case for paying a Living Wage: there is significant proof that paying a Living Wage enhances employee well-being, job satisfaction, and productivity, fostering a motivated workforce. It attracts and retains skilled talent, reducing turnover costs. Improved employee morale and engagement positively impact organizational reputation and customer relations, contributing to sustained profitability. Living Wage has also been found to be key to responsible sourcing, value chain stability, and a measurable pathway to improve supply chain transparency and social impact.
The BSR Approach to Living Wage
For many years, BSR used its own Living Wage methodology, which was widely appreciated because it employed a scalable approach and could be conducted regularly. The methodology allowed companies to dedicate more of their resources to closing identified Living Wage gaps rather than executing expensive market-basket studies to determine the Living Wage.
The ecosystem has evolved significantly, and there are now numerous organizations developing Living Wage benchmark data. To enable harmonization of methodologies and global adoption of Living Wages, BSR sunset its methodology in 2023 and has shifted to using an aggregated set of Typical Family Living Wage benchmarks from WageIndicator Foundation, Living Wage for Us, and Living Wage Foundation.
BSR continues to support companies in launching their Living Wage programs for direct employees and works with others to develop supply chain action plans and pilot programs. We use our decades of experience to enable Total Rewards and Compensation teams to build awareness of Living Wages across operations, conduct assessments of their total remuneration, establish management frameworks, develop communication strategies, and implement the appropriate remediation approach to close identified Living Wage gaps.
As employers navigate the evolving terrain of global wage-setting practices, BSR will remain a key resource to its corporate partners to offer guidance and foster collaboration toward a future where workers across global value chains are paid a Living Wage.
Contact us for more information on BSR’s work on the Living Wage.
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