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How Two Factories Achieved a ‘Living Wage’ for Supply Chain Workers

A living wage for the world’s garment workers may not be the pie-in-the-sky notion it’s been made out to be, according to a leading multi-stakeholder nonprofit that counts some of the world’s top brands and retailers among its members.

In a report published earlier this week, the Fair Labor Association (FLA) described how a handful of affiliates were able to increase their workers’ net salaries by between 29 to 57 percent over a three-year period. The pay bump, the organization said, allowed workers to take home enough money without having to resort to excessive overtime, an issue endemic to an industry under constant pressure to turn around products quickly and at bottom-barrel prices.

“Buyers and suppliers often explain that workers request to work overtime and frequently volunteer for overtime hours, making remediation difficult or impossible,” the report noted. “However, this narrative masks the systemic and persistent issue of extremely low wages in the apparel industry. In reality, workers may seek extra overtime when they cannot afford their basic expenses or support their families with the money earned in a regular workweek.”

Overtime hours that exceed 60 per week or leave workers without at least one day of rest every seven days are common in the garment supply chain. Workers typically seek extra hours because they’re unable to cobble enough together to pay for food, shelter, clothing and transportation, let alone put money aside for emergencies, on their regular salaries, according to the report. Globally, 85 percent of factories assessed by the FLA from 2012 to 2019 had violated its workplace code of conduct, requiring FLA-affiliated companies to tackle not only factory-level remediation but also plot out improvements in their own internal purchasing and production practices.

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Such efforts can be fruitful, the FLA said. When the organization assessed one of New Era’s contract factories in China’s Jiangsu province in 2017, it found that 93 percent of its workers toiled between 40 to 74 overtime hours a month, exceeding China’s legal maximum of 36 overtime hours each month. Not counting overtime, workers eked out just 55 percent of the living wage estimated for the region that same year.

Globally, 85 percent of factories assessed by the FLA from 2012 to 2019 had violated its workplace code of conduct.

New Era and the factory, the FLA said, increased workers’ wages and decreased excessive overtime by holding regular meetings with worker representatives and engaging more frequently about their purchasing plans and production capacity. The factory started training workers on the salary and benefits structure, invested in new machinery to improve efficiency and shifted salaries from an hourly wage to a higher base wage for each occupation, incentivizing productivity during regular hours. Besides monitoring work hours through monthly audits, New Era updated its responsible purchasing practices policy to detail how long-term capacity planning, fair pricing and “reasonable” lead times can help prevent negative ripple effects in the supply chain. Later, the company rolled out a product life-cycle management system to better hone and track its purchasing and planning practices with its suppliers.

By 2019, workers’ monthly net wages had increased 57 percent from 1,792 renminbi ($277.55) to 3,661 renminbi ($567.03), surpassing the living wage estimate by 4 percent. Any incentive pay during the regular work week and leave pay was doled out separately from workers’ base wages.

“New Era and the factory succeeded by removing overtime hours from the production plan, investing in new equipment and worker training, and committing to substantive supplier, union and worker engagement,” the report said. “This achievement underscores that living wage progress is possible and practical with strong commitment and collaboration between buyers, suppliers and workers.”

China Nanjing GDP
People work in a garment factory in Nanjing city in east China’s Jiangsu province. FeatureChina via AP Images

A similar scene unfolded at a facility in Nam Dinh, Vietnam owned by Maxport, whose clients include FLA members such as Kathmandu, Lululemon and Nike. In 2015, FLA flagged violations such as 65-hour workweeks, the absence of legally required overtime breaks and the use of a “piece-rate” structure that compensated workers by item sewed rather than by the hour. Wage allowances were also not included when the factory calculated its contribution to social insurance, as legally required. At the same time, workers received the lowest level of base wages, regardless of their seniority, flouting legal requirements and hurting contributions to their social insurance coverage.

Following the assessment in 2015, Maxport set about reviewing its working schedule for the year to reduce excessive overtime and ensure at least one day off every week for each worker, FLA said. The facility spoke to its buyers about the need to reduce excessive overtime and worked with trade union representatives to modify workers’ incentives and bonuses to boost take-home pay. Workers, management and buyers at the factory also linked arms to improve sampling and the purchase order management system, while Maxport launched a training program to allow workers to diversify their skill sets.

By 2019, workers had a 48-hour workweek with a voluntary maximum of 60 hours per week. From 2015 to 2017, workers’ average monthly net wage ticked up from 3.6 million Vietnamese dong ($158.44) to 4.8 million dong ($211.25), or 4 percent more than the FLA’s reported average in Vietnam and 8 percent more than the living wage estimate for rural Vietnam at the time. Maxport then continued to increase workers’ compensation by an average of 21 percent year over year, resulting in a “real wage increase” of 39 percent from 2015 to 2020, FLA said. With incentive pay earned during the regular workweek, all worker occupations earned an average of 50 percent more than the urban living wage estimate for Vietnam in 2019.

Buyers and suppliers need to ensure that production planning is based on the legal workweek, without assuming overtime.

“Maxport is a unique example within this case study, showcasing the actions a supplier group can take to improve wages beyond a living wage benchmark. An important finding was its consideration of living wage benchmarks as an initial goal, but not as a final target, especially since excessive overtime remained a persistent violation,” the report said. “As an FLA supplier, Maxport was able to apply a comprehensive approach to understanding wages, working hours and productivity bonuses and incentives through the FLA’s wage data collection tools, analysis, and accreditation recommendations. Furthermore, Maxport took ownership by applying FLA guidance and internationally recognized labor standards to improve conditions for its workers.”

The case studies in the report share a throughline, the FLA said. For one thing, buyers and suppliers need to ensure that production planning is based on the legal workweek, without assuming overtime. For another, buyers’ purchasing practices, which include order timelines, forecasting and communication, must “complement and support” suppliers’ production planning. Equally important is worker engagement, collaboration and training, which allow workers to understand why changes are being made to payment systems and manufacturing flows. Incentive pay should also be structured to reward worker’s performance during the regular workweek while being achievable during regular working hours.

“For any of these actions to result in living wage progress, companies in the apparel and footwear sector must have solid data analysis, commitment from top management, thoughtful and transparent communication (internally and with supply chain partners), and collaboration and engagement with stakeholders—including unions, workers and governments,” the report concluded.

To push things along, FLA developed a “fair compensation dashboard” and wage data collection toolkit to help companies calculate what workers earn, figure out the gap between actual and living wages and track progress over time. Employing these tools contributed to the compensation improvements described in the report, it said.

“The FLA believes that every worker has a right to compensation for a regular workweek that is sufficient to meet the worker’s basic needs and provide some discretionary income,” the organization said. “FLA-affiliated companies must take steps to progressively improve workers’ compensation when it is not sufficient to equal a living wage.”