Supply Chain Innovation

Wage Fairness: It’s not just about the money

Wednesday, March 9, 2011

Most corporate social responsibility work on wages has focused on whether a workplace meets a certain level of compensation, usually the legal minimum wage. But fairness of wages and, crucially, perception of wage fairness, are more complex than that. Even if a factory pays workers the national minimum wage and meets other legal requirements (e.g. pay the legally-required wage on time and in full; pay for the proper number of hours worked) it may nevertheless have unfair wages because of undue disparities in wages within the enterprise or because wages may not reflect worker productivity. In addition to meeting legal requirements, a factory must also consider wage levels in light of prevailing wages and cost of living; rates of wage adjustments, pay systems such as the bases for wages, overtime and wage deductions; and how pay systems are communicated and discussed with workers.

Working in collaboration with FLA and its affiliates, Daniel Vaughan-Whitehead of the International Labor Organization has developed a measurement approach that looks at twelve dimensions of fair wages.[1] Based on this approach, and the accompanying research, the FLA has created a self-assessment tool that companies and factories can use to assess whether their wage practices are fair and sustainable.

According to Daniel Vaughan-Whitehead, the following dimensions should be considered in order to ensure workers’ wages are fair:


  1. Payment of wages: A wage which is regularly and formally paid in full to the workers.
  2. Living wage: A wage that ensures minimum acceptable living standards.
  3. Minimum wage: A wage which respects the minimum wage regulations.
  4. Prevailing wage: A wage which is comparable to wages in similar enterprises in the same sector.
  5. Payment of working time: A wage that does not generate excessive working hours and properly rewards normal working hours and overtime.
  6. Pay systems: A wage that leads to a balanced wage structure/composition between the basic wage and additional bonuses and benefits. A wage that reflects different levels of education, skills and professional experience, as well as rewarding individual and collective performance. A wage that complies with regulations on social insurance payments and paid holidays and is not dominated by disciplinary wage sanctions.
  7. Communication and social dialogue: A wage on which workers receive sufficient information in advance (through an individual work contract), in the course of the production process (through regular communication channels) and at the time of the wage payment (with a detailed pay slip). A wage that is negotiated individually (between the employee and his or her own individual employer) and if appropriate collectively (notably through collective bargaining between the employer and the workers’ representatives who are freely accepted in the company).
  8. Wage discrimination/wage disparity: An equal wage for equal work that does not lead to wage discrimination and does not generate unjustified and high wage differentials within the company.
  9. Real wages: A wage that progresses at least in proportion to increases in the cost of living.
  10. Wage share: A wage that progresses proportionally along with enterprise sales and profit growth and which does not lead to a fall in the wage share in enterprise performance growth.
  11. Wage costs: A wage whose progression does not lead to a dramatic reduction in wage costs within total production costs and as a percentage of employment.
  12. Work intensity, technology and increases in skill: A wage that progresses along with changes in intensity at work, technological content and the evolving skills and tasks of the labor force.


Global wage study: Stay tuned for information on how to participate in a global study of how well current wages meet the twelve dimensions of fairness and sustainability. Click here to read more about FLA’s work on fair wage practices, including the 2010 FLA Stakeholder Forum Report: Wages Along the Supply Chain.

[1] Vaughan-Whitehead, Daniel. “Fair Wages: Strengthening Corporate Social Responsibility”, Edward Elgar Publishing, 2010. ISBN: 9781849801478.


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