Compensation

Fair compensation, the long term solution to quality and decent life

Nowadays, it makes no doubt that a fair compensation of a work well done can ensure an apt, motivated and stable workforce. Salary schemes take many forms depending on sectors of activities and legal frameworks around the world. All in all, the objective of a responsible supply chain is to make sure that at every step of the chain, a decent price is paid, however the calculation is made, because workers and their families depend of it.

What is the risk in the supply chain ?

  • Adding value along the chain: In the supply chain, the value of goods and services evolves along the steps, from subcontractors to suppliers, traders and eventually the final buyer. The added value generated along the chain is to be split among these actors and their respective workers, with a risk of misbalance in commercial systems and bargaining powers.
  • Education: In some sectors or countries, the level of education of the workers is very low and the work they do very basic. Workers are not always classified on the basis of their competencies within the legal framework.
  • Wage calculation: In case of piece-rate, hour-rate and other forms of wages calculation, legal provisions have to be respected as well. Such payment schemes can push workers to work longer hours to reach a decent compensation because they need the “bonuses” to complete their basic salary and reach legal and/or decent salaries. Such overtime has to be paid and compensated at premium rate.
  • Disciplinary measures and withholding: some employers practice wage deductions or retention as a means to keep their personnel, which amounts to illegal disciplinary measures.
  • Subcontracting: is sometimes seen as a means to circumvene legal provisions and to pay lower compensation. In that case, it is very difficult to ensure that a fair compensation is paid along the supply chain.
  • Inverted auctions: such tender systems can induce cases where suppliers accept minimal to no-margins to get an order. To respect the terms of the contracts, some producers increase the risks (lower investment in safe working environment), the stress (causing absenteeism, accidents) or decrease the amounts paid for compensation, which has also an impact on the quality of production.

What can I do to improve compensation in the supply chain ?

Education, terms of payment, working hours and living wages play an important role in the balance as they influence the compensation paid to the workers. Transaction practices which take these aspects into consideration attain higher standards of quality and productivity and favour long-term relationships.

  • Verify if the legally prescribed minimum wages are sufficient to live a decent living according to the ILO recommendations. If you have doubts, consult with stakeholders. If you and the stakeholders have the opinion that this is not sufficient, address this matter to the official authorities or through your business associations.
  • Always pay at minima the minimum wages, overtime hours and mandated benefits.
  • Communicate with the workers in a timely manner the basis on which they are being compensated, whether overtime is required and the (extra) wages to be paid for such overtime.
  • Try to shorten the supply chain, to limit the amount of interveners and hence the loss in margins which are eventually paid by the last subcontractor.
  • Make sure the price paid for an order enables a supplier to pay its employees for the time requested to comply with the command.

Links:

Convention: ILO conventions 26, 94, 95, 99, 131, 173