Looking to improve the wage conditions of factory workers in developing countries who produce goods for multinational corporations? While increasing pay may be the most obvious solution, research, conducted on clothing retailer H&M Group from the Rotman School, suggests that an indirect approach focusing on management practices can effectively empower workers and bring about sustainable wage increases, maximizing the impact of the company’s investment.
Under pressure from activists, H&M implemented two programs in 2013, encouraging its suppliers to voluntarily adopt them. The first program, a workplace dialogue initiative, aimed to promote worker awareness of their rights and provide formal channels of communication between management and labor representatives.
The second program introduced a wage management system that established transparent pay grids based on workers’ education, experience, skills, and performance, and implemented standardized systems for tracking and measuring wages.
Wage increase
Implemented across 1,800 factories in nine Asian countries, the programs resulted in an average wage increase of five percent within three years. This translated to an annual increase of approximately $44 per worker, compared to H&M’s investment of $4.57 million in the initiative, or $1.62 per worker.
By intervening at the management level, H&M was able to effectively raise wages in a sustainable manner and empower workers, demonstrating that a thoughtful and strategic approach can lead to significant positive outcomes.
“The easiest way to raise wages would have been to just give the money directly to be paid to the workers. But H&M took a long-term approach, where they’re implementing systems,” the researchers explain.
Showing progress
Suppliers that adopted H&M Group’s wage-increasing programs were able to maintain competitive pricing while experiencing significant increases in their orders, according to research.
While the study was not able to empirically determine how the suppliers covered the increased wages, anecdotal evidence suggested that increased productivity played a major role, as there were no significant changes to overtime pay or workforce cuts.
The presence of labor unions in the factories that implemented the programs did not have a significant impact on the wage increases, likely due to their limited power in the regions studied.
The study demonstrates the potential for standardized metrics to assess corporations’ social practices, which have historically been more difficult to establish compared to environmental or governance practices.
“A collective approach is needed,” to improve conditions for workers, the researchers conclude, “and corporations like big multi-nationals, if they really want to make a change, they have huge powers to do that.”
