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H&M’s Fair Living Wage Strategy

Improving wage management systems and industrial relations as a global brand

H&M’s Fair Living Wage Strategy graphic



The challenge

Over 1.6 million people work in the factories that supply H&M apparel, 65% of whom are women.

There is thus little question about the scale at which this global apparel brand has the ability to contribute to sustainable development by supporting the provision of living wages to workers in their supply chain.

The response

Acknowledging the substantial number of individuals involved in its global supply chain, H&M has identified and prioritized living wages as one of its salient human rights issues – defined as the human rights at risk of the most severe negative impacts through the company’s activities and business relationships.

At the center of the company’s work on this issue is H&M’s Fair Living Wage Strategy. Launched in 2013, it is the first comprehensive wage strategy undertaken individually by a global brand.

In implementing the strategy, the company defines a living wage as “a wage which satisfies the basic needs of employees and their families and provides some discretionary income such as savings. It should be revised annually, and negotiated with democratically elected worker representatives."

“We developed our global Fair Living Wage Strategy in 2013 with guidance from multiple experts, trade-unions and NGOs. The strategy focuses on governments, factory owners, our own purchasing practices and most crucially, workers. The strategy is both interlinked with and dependent on well-functioning industrial relations, including collective bargaining. Therefore, it is crucial for all parties involved to work together for the strategy to really come to life.”
The H&M Group Sustainability Report 2017

 

Key aspects of the initiative

H&M’s Fair Living Wage Strategy, which the company has refined since its launch in 2013 based on its stakeholder engagement and involvement in various collaborative initiatives, has four main components and respective results so far:

  1. Workplace dialogue and industrial relations programs to facilitate positive communication and negotiation on wage increases and other working conditions between (a) employers and employees at the factory level and (b) employer associations and trade unions at the national level.

These programs support the establishment of democratically elected worker representation at strategic suppliers, which can lead to the establishment of trade unions if the employees so choose. 

The programs also include training at the factory level on workplace cooperation, negotiation skills, collective bargaining and labor law. The global union federation IndustriALL, the Swedish trade union IF Metall, the International Labour Organization (ILO), and the Swedish development agency Sida are key partners in several of these programs.

According to H&M:

  • By the end of 2017, 458 factories were enrolled in the company’s workplace dialogue and industrial relations programs, representing 52% of H&M’s total product volume. In 2018, an additional 223 factories are enrolling in these programs.

  • More than 600,000 factory workers are directly covered by democratically elected worker representation through these programs.

  • The programs are currently run in Bangladesh, Cambodia, China, Ethiopia, India, Indonesia, Myanmar and Turkey.

  •  In 2017, democratically elected worker representation was in place at suppliers representing 52% of the company’s product volume.

“At H&M group, we believe that well-functioning industrial relations are crucial to the creation of fair jobs. Good relationships between workers and management and effective interactions and negotiations on factory, industry and country level, promote good working conditions and better wages. Good labour relations also support stability and performance in our production markets.”

The H&M Group Sustainability Report 2017

 

  1. Fair Wage Method to ensure that wage-setting takes the individual worker’s skills, experience, performance, and responsibility into full consideration.

The Fair Wage Method, developed by the Fair Wage Network and based on twelve dimensions, supports the creation of holistic pay structures that enable and sustain fair living wages and facilitate improved dialogue between employers and employees at the factory level.

Distinct from an audit approach, the Fair Wage Method focuses on partnerships with factories, stores, and brands to assess wage practices through worker and management surveys, identify root causes, and implement improvements, including within Human Resources policies and practices.

According to H&M:

  • Systems taking the Fair Wage Method into consideration are being implemented at an increasing number of factories: 140 at the end of 2016 (representing 29% of H&M’s total product volume), 228 at the end of 2017 (representing 40% of H&M’s total product volume), and a total of 336 by the end of 2018, superseding H&M’s goal of 50% of the total product volume by the end of 2018.

  • Implementation of the Fair Wage Method takes place in Vietnam, China, Cambodia, Bangladesh, Turkey, Myanmar, India, and Indonesia.
  • Approximately 200 factories will also be enrolled in the Wage Management System Program internally developed by H&M.

  • Implementation of the Wage Management System Program takes place in Bangladesh, Turkey, Ethiopia, Pakistan, India, Indonesia, China, and Cambodia.

“Living wages are key to the Fair Wage Method – wages paid to workers should be sufficient to cover their needs and those of their families. But you also have to look at broader pay systems to ensure that the provision of a living wage is comprehensive and sustainable. For instance, is the wage level being adjusted based on each worker’s skills, education, and experience levels? How are you improving fairness and efficiency of pay systems through pay-to-performance related pay? What systems are in place to ensure that wages are paid on time and that hours are fair? How is wage setting being communicated to workers and influenced by dialogue with those workers?

H&M is taking this broader approach, starting with extensive assessments at the factory level that go beyond audits and then proactively engaging with suppliers and workers to come up with remediation plans that have positive incentives baked in. Small and medium-sized enterprises can do this as well – it’s not about the size of the company. It’s about shifting mentalities and using the right levers to modify systems in a positive way.”

Daniel Vaughan-Whitehead, Fair Wage Network

 

  1. Strategic collaborations in recognition that H&M shares its suppliers with many other brands, meaning that living wages are an industry-wide challenge that must be tackled in partnership with others.

Here, H&M’s membership in the ACT (Action, Collaboration, Transformation) initiative plays a key role in the company’s strategy, as the company is one of the founding members of the initiative (see the ACT case study).

This collaborative work is further complemented by the now-permanent Global Framework Agreement between H&M, IndustriALL and the Swedish trade union IF Metall.

This agreement is already demonstrating its value and has facilitated conflict resolution between workers and management within H&M’s supply chains. Implementation of the agreement has been mainly channeled through the National Monitoring Committees (NMCs) that consist of representatives from local trade unions and H&M. In Myanmar, where a month-long strike took place after eight union leaders were fired in October 2015, the agreement was “key to getting trade unionists back to work, as well as achieving trade union recognition at the Jiale Fashion factory in Yangon.” In Pakistan, the agreement was invoked to bring together IndustriALL Pakistani affiliate NTUF and local management of the Denim Clothing Company factory for joint negotiations, which resulted in the reinstatement of 88 workers after they had been fired for demanding better working conditions at the factory.

Moreover, the company continues its collaboration projects with Sida, ILO, and IF Metall to train management and workers on workplace cooperation and dispute resolution.

“The traditional supplier perspective has been that, in order to be competitive, wages need to be kept very low. But the ability for workers to meet basic needs through a fair living wage should not be part of the competition.

Instead, we’re looking at how you can use wages in a smart way – a way that motivates workers, gets turnover rates down, and incentivizes productivity and performance. Using the Fair Wage Method, we’re tracking actual changes in behavior and attitudes at the factory level and we can see the benefits.

These positive changes start with the fact that more and more workers are electing their own representatives. For example, in Bangladesh, 40% of all worker representatives are now women. This means that issues that concern women are more visible and can be strategically addressed as part of the overall Fair Living Wage Strategy, which in turn has positive effects on quality, worker turnover and productivity.

It takes time – one has to be patient. But a focused approach that identifies your salient human rights issues, sets a long-term strategy, and engages both internal and external stakeholders is the only way to systemic change.”
Maritha Lorentzon, H&M

 

  1. Government engagement in recognition of H&M’s influence and access to the governments in the countries where the company’s products are made.

For example, since 2014, the company joined peer companies to advocate for the Cambodian government’s Trade Union Law and its compliance with ILO conventions. According to H&M, this influence and access relies on the fact that the company’s presence in all of its sourcing markets includes an H&M office and a sustainability team.

“The government engagement aspect of H&M’s work is key. Governments must install an enabling legislative environment for labor rights, one that creates a better balance of power and supports collective bargaining between social partners. In particular, governments must secure implementation of international labor standards when it comes to trade union rights – the right to organize 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.

In the end, sustainable industrial relations can only be achieved by workers organizing 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 requires 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 is doing in partnership with us and others, is incredibly important.”

Mats Svensson, IF Metall
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