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Female workers in Bangladesh 01
Promoting living wages

Promoting living wages in H&M Group’s global supply chain through social dialogue

Introduction

The H&M Group, a Global Deal partner and fashion company employing around 1.5 million people, exemplifies the challenge of how to uphold the right of workers to earn a living wage.

The company has been working to address the payment of living wages, primarily in manufacturing supply chains, as it has been identified as one of the company’s salient human rights risks.

In 2013, H&M Group launched their Fair Living Wage Strategy based on four pillars:

  • Rolling out workplace dialogue and industrial relations programmes across the company’s supply chain to facilitate consultation and negotiation on wage increases and other working conditions.
  • Ensuring that providing a living wage was part of a larger pay system, called H&M Group’s Wage Management System Method, taking workers’ skills, education and responsibility levels into account.
  • Developing a Purchasing Practices Roadmap by 2014, including a tool to define labour as an itemised cost in purchasing prices, and improve order plans to mitigate production peaks.
  • Engaging with governments in the company’s countries of operation and contributing to fostering an enabling environment for social dialogue.

Social dialogue is at the heart of these four pillars, and H&M Group consider it to be crucial in the process of achieving sustainable living wages across its global supply chains.

What is a living wage?

H&M Group defines a living wage as 'a wage which satisfies the basic needs of employees and their families while providing some discretionary income such as savings. It should be revised annually and negotiated with democratically elected worker representatives.'

Key components of H&M’s Group wage strategy
Development & Implementation

Since 2013, H&M Group’s strategy to address low wages has evolved based on acquired experiences and now comprises six focus areas that reinforce each other and work together to increase wages:

  1. Strengthening industrial relations at the factory level in an effort to increase the presence of democratically elected worker representation and trade unions across H&M Group’s supply chain and, in turn, improve the basis for industry-wide agreements.
  2. Implementing wage management systems in suppliers’ factories to provide transparency and fairness, but also promote skill development so that workers can see how investing in training can improve their wages
  3. Implementing programmes to support productivity gains to ensure sustainable wage increases.
  4. Ensuring responsible purchasing practices and tracking suppliers’ performance in social sustainability against H&M’s Sustainability Index. Suppliers that score higher on the index receive access to better business opportunities with H&M. As questions about average wage levels have the highest weighting, suppliers are incentivised to increase wages in their factories. Importantly, labour costs are also ringfenced in price negotiations with suppliers.
  5. Promoting wage-setting mechanisms, such as collective bargaining and statutory minimum wages at country level.
  6. Sound and sustainable social protection systems that provide security for workers and may offset some of the financial difficulties they face, in line with the ILO Call to Action in the Global Garment Industry, which H&M Group has joined.
Stronger social dialogue delivers higher and better wages.
Results

H&M Group states that 37% of its tier 1 supplier factories have trade union representation, while 27% have collective bargaining agreements in place.

Furthermore, results from research undertaken by three external academic experts commissioned by H&M Group confirm that stronger social dialogue delivers higher and better wages:

  • Real wages increase by an average of 2.8% more when suppliers participate in workplace social dialogue programmes and factory-level wage management systems compared to suppliers not participating in these programmes.
  • When combined with a wage grid that classifies jobs by skill level, the wage effect is amplified and outperforms by 5% (on average) the wages of non-enrolled suppliers.
  • Productivity improvements constitute another enabler for higher wages, as a 10-percentage-point improvement in factory productivity is associated with an average increase in wages of 4.6%.
  • The presence of trade unions at the factory level is estimated to add another average 5.5% to wages.

Key Lessons

A well-established presence at a local level is key to implementing a Fair Living Wage Strategy. In H&M Group’s case, this presence comes in the form of officials at the supplier level who make it possible to have a real, hands-on approach in multiple areas of practical implementation.

More needs to be done to promote the benefits of social dialogue and shift mindsets.

Social dialogue brings lasting change and has a clear and positive impact on wage levels, as testified to by the academic review of suppliers’ wage data.

We have learned so much in our journey to advance living wages, but wage-related challenges are huge and complex tasks. One single company alone cannot achieve the kind of change that we see as necessary, and we must continue to evolve, improve our tools and programs, facilitate effective social dialogue, and collaborate closely with trade unions, organisations, governments, and other brands within and beyond the industry to find joint solutions on advancing living wages.

Leyla Ertur

Head of Sustainability Quality Strategy and Compliance, H&M Group

Read the full report

Download the Global Deal Flagship Report 2022 for the full version of this case study, plus 12 others examining the work carried out by Global Deal partners and the voluntary commitments made to promote social dialogue in addressing global-labour market challenges.

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