Novartis takes leadership in paying “living wages” worldwide
As part of its corporate citizenship goals, Novartis has established living wages for its employees in 62 countries around the world. Paying a living wage to all 90,000 associates is one of the company’s concrete actions to implement the UN Global Compact (see Novartis and the UNGC).
March 27, 2006 - Together with Business for Social Responsibility (BSR), a global organization that helps companies achieve success in ways that respect ethical values, Novartis has developed a methodology for calculating living wages. Plans are now under way to engage a broad set of stakeholders in the discussions in order to update the methodology, which can be applied to many sectors beyond the pharmaceutical industry.
A broad social commitment
Novartis believes that there is more to the company’s success than its financial bottom line. On the corporate level, our commitment to the living wage goes hand-in-hand with our belief that a company should foster social development wherever it operates, within its boundaries of responsibilities. On an individual level, if employees receive an adequate salary, they will be more committed to their company and thus be more motivated and less likely to leave, resulting in higher productivity and lower turnover. Novartis also believes that the commitment to pay a living wage makes the company a more attractive employer for prospective employees.
A market-based methodology
As a first step to unravel the complexities of the subject, BSR invited representatives from a cross-section of business, academia and government. They agreed that the most accurate way of calculating a living wage was to conduct a market basket study. The resulting methodology is thus based on various market basket surveys from the United States as well as Mexico and entails detailed surveys of the cost of items that a typical family needs, including housing, food, education, and healthcare. Using a series of country-specific multipliers and conversion rates, the respective figures for OECD and developing countries were extended to total family expenditures – assuming that 1.5 member of the family is contributing to the total income. This methodology was checked against a country’s minimum wage and average wage, and other available studies of living wages. In most cases, what was identified as a living wage fell in between the minimum and average wage of the respective countries.
In 2004 and 2005, the living wage numbers were proposed to management in the 62 most important countries where Novartis does business and has employees. This process created a dialogue between headquarters and country operations, which resulted in a better understanding of the issues faced at national level. In September 2005, Novartis found that 93 out of 90,000 employees were paid below the living wage, and these employees’ wages are being adjusted in 2006. Living wages need to be revised from time to time, thus BSR and Novartis are developing procedures for updating the living wages, including taking into account inflation. For countries with a negative inflation, wages will be kept at their current levels.
Applicable to third-party contractors and other industries
Looking ahead, Novartis plans to expand its living wage commitment to its on-site contractors, who correspond to 15 percent of the workforce globally. Novartis is also interested in exchanging information about living wages with other companies and institutions, and is planning to share its data and experiences in a publication. On its part, BSR is interested in convening more companies to discuss this further as the living wage methodology is applicable to other industries.