Enough to live on

What do Nestlé, ITV and HSBC have in common?

Over the past two months, all three companies have pledged that they will pay their staff and their contractors the living wage.

The world’s largest food company, the broadcaster and the global banking organisation have each made the pledge that is designed to help end in-work poverty. And for Nestlé and ITV, both were the first in their respective sectors to do so.

So why this sudden rush to sign up, voluntarily, to a pay rate that is, in London, up to £2.49 an hour more than the statutory national minimum wage?

The campaign in favour of a realistic wage appears to have taken off this year. Gillian Owen, spokeswoman at the Living Wage Foundation, says it has increased the number of accredited employers from 500 last year to 800 this year.

This may sound a lot but many of these businesses are small or local authority-funded employers. Of the leading businesses in the UK, just 14 of the FTSE 100 are now accredited.

‘We do feel that we are reaching a bit of a tipping point. With the likes of Nestlé, HSBC, Barclays and ITV signing up we are starting to feel that people are recognising the campaign and our logo, and the next step is that consumers will begin to choose what products or services they buy, on the basis of whether companies are signed up,’ she says.

Rhys Moore, director of the Living Wage Foundation, adds: ‘We were very pleased to announce Nestlé as an accredited Living Wage employer. They are the first large manufacturer to accredit; and experience tells us that when a well-regarded player in the sector, such as Nestlé, takes the positive step to accredit as a Living Wage employer, others follow their lead. The Living Wage rewards a hard day’s work with a fair day’s pay.’

Momentum is certainly building. Living Wage campaigners were protesting outside Whitehall last month – where 12 out of 17 government departments pay their cleaners less than the recommended £8.80 an hour for London.

Even Sir Ian McKellen has called for actors to be paid a living wage.

The campaign has also been taking its message to big business at companies’ annual meetings, this summer, where it has had a favourable reception and secured several high-level meetings with company executives.

The pay rate, set independently each year, is calculated on the cost of living and is currently £8.80 in London and £7.65 an hour outside the capital. It is calculated by the Centre for Research in Social Policy at Loughborough University, while the London living wage has been calculated by the Greater London Authority since 2005.

By contrast, the national minimum wage is currently £6.31 for employees aged 21 or over, rising to £6.50 in November.

The Living Wage campaign enjoys support from all three major political parties, as well as the Mayor of London and the companies that have already signed up include KPMG, Nationwide and Aviva.

Since it launched ten years ago, the campaign claims to have saved 45,000 people from poverty pay – adding £240 million to people’s pay packets.

Behind the campaign is a community action group called Citizens UK, which has been active for almost 25 years and was inspired by similar groups in the US. Business in the Community, which tries to encourage corporate social responsibility among companies, is also involved.

Nestlé says it became the first manufacturer to sign up because the commitment fits in with its own corporate social responsibility commitment, called ‘Creating Shared Value’.

‘We believe that if we are to succeed as a business in the long-term and create value for shareholders, we must also create value for society. Doing so is good for our people, and that makes good business sense,’ a company spokeswoman says.

While the Living Wage model was a good fit with Nestlé’s values, the company also recognised the opportunity ‘to be a positive influence within our industry’.

Nestlé says that all its UK staff currently earn the Living Wage, so it has committed to paying all its contractors – cleaning, catering and security staff – the living wage by December 2017.

Rupert Younger, director of the Centre for Corporate Reputation at Said Business School, welcomes the move but warns that by adopting the living wage, Nestlé sends a signal that will be interpreted in different ways by different people.

‘If you’re an employee, it’s very positive. If you’re an activist or a non-governmental organisation, it may attract more scrutiny to the company. The obvious question to ask is whether this commitment extends through the company’s supply chain.’

Younger points out that even when a company has properly thought-through and audited CSR commitments, it can find itself under attack. Marks & Spencer’s ‘Plan A’ strategy to create a sustainable company goes further than many businesses, is audited and has made good progress, but it has still been criticised by some observers. And since M&S is seen to be failing on other fronts, Plan A has become something of a stick with which to beat the company.

Sandra Macleod, chief executive of Mindful Reputation, says that in some ways it is surprising that the Swiss chocolate and food group was the first among its peers to act – given that it has a reputation for conservativeness and usually prefers to stay under the radar.

Macleod observes that support for the living wage should be set against a backdrop of growing concern about unpaid internships, something that the media and communications world is frequently guilty of.

‘There is a growing backlash against exploitation of people, especially the young who are hungry to get on the job ladder. Nestlé and other large firms are doing an important thing here in getting ahead on this issue. It does take big companies to set the standard and even to get ahead of Government regulation.’

Ben Lloyd, senior director at Millward Brown, agrees that other companies will take note of Nestlé’s lead.

And he argues that while it looks like a good bit of public relations, it is actually an example of Nestlé adapting and developing its reputational commitments – the Creating Shared Value philosophy - as part of a longer-term strategic goal.

Lloyd believes that the upcoming UK General Election could have been a factor in Nestlé’s decision making.

‘Unemployment, job creation and working conditions will all be on the agenda with zero-hours contracts likely to attract plenty of attention.

Nestlé’s announcement distances themselves from that debate,’ he argues.

‘Rarely is a company’s reputation dependent on one factor. Typically it is a blend of        attributes, all of which are important to its success. The challenge for businesses is to understand which attributes matter most for them. Clearly, people are an important reputation driver for Nestlé and they have acted accordingly.’

But Ed Gillespie, co-founder of Futerra, the sustainability communications agency, suggests that while companies signing up to the living wage should be applauded, the commitment should be set against the wider pay context.

‘This move has to be seen against the broader backdrop of spiraling executive pay. Across business, we are seeing a ridiculous gap emerging between the boardroom and senior executives and ordinary workers.’

Interestingly, Nestlé actually cut the pay of its chief executive, Paul Bulcke, by seven per cent in 2013 to 9.3 million Swiss francs (£6 million) as executive pay fell under closer scrutiny in Switzerland.

‘Yes, this move is laudable but you can’t look at it in isolation from executive pay. Otherwise, it really is just a gesture,’ says Gillespie.

He has a further warning for companies.

‘Increasingly, companies seek reputational benefit from stuff that people expect them to do. If that’s what companies are looking for from committing to a living wage, then they are going to be disappointed because paying a reasonable salary is what companies are expected to do,’ he adds.

‘To really improve your reputation you have to do something radical, special and different. Committing to pay people more is laudable, but not radical or special.’

For these reasons, the Living Wage campaigners actually spend more time arguing the business benefits of paying a realistic wage, rather than the reputational benefits. ‘We talk to people about the business benefits including higher retention of staff and greater productivity on contracts,’ explains Owen. There is also evidence from the UK and overseas that paying better wages improves the customer experience and decreases costs, while maintaining competitiveness.

A study by London Economics for the Greater London Authority in 2009 showed that half of the employers asked felt that the living wage had made their workers ‘more willing to implement changes in their working practices, enabled them to require fewer concessions to effect change, and made them more likely to adopt changes more quickly’.

This is particularly important since many employees are much closer to customers and clients than ever before, and can therefore make a true difference to a business.

Efforts to encourage employee engagement, which have the strong backing of the Government’s Department for Business, Innovation and Skills, have also been linked to the living wage, although many human resources directors who espouse employee engagement have yet to push their firms towards the higher rate of pay.

Certainly, the fact that successful businesses like Nationwide, KPMG and Aviva are behind the campaign is very persuasive to other companies, adds Owen.

Meetings with prospective companies are usually led by director Rhys Moore and Mike Kelly, chair of the Living Wage Foundation, who is also head of corporate responsibility at accountancy firm KPMG.

Hopes are high that Nestlé’s competitors Unilever, Procter and Gamble, Mars and Cadbury will also become accredited employers. ‘It would be natural for us to target them now,’ says Owen.

But the next big sector the campaign is targeting is retail. Apart from high-profile exceptions, such as cosmetics firm Lush, very few companies in retail, food service or travel and tourism, where the bulk of low pay occurs, have made the commitment.

Lush’s founder and chief executive Mark Constantine started paying the living wage in 2011, at an annual cost of £300,000, after staff challenged him about their wages.

Even John Lewis, where staff are partners in the business and which is often hailed as a new, more ethical model of business, still pays its contracted cleaners below the living wage.

But these are difficult times in retail, where margins are being pared right back amidst ferocious competition for shoppers’ pounds.

‘We are targeting the big supermarkets and the department stores. We are talking to all of them, including John Lewis. We do believe that as sector leaders, one of these could really lead the way,’ concludes Owen.

Watch this space.