The value of a living wage: Engaging on fair compensation

As asset managers, our responsibility extends beyond simply generating returns for our clients. We must also consider the broader implications of our investments and the companies within our portfolios. One area of increasing importance is the payment of a living wage to employees. In light of the ongoing cost of living crisis and in order to progress on the United Nations’ Sustainable Development Goals (SDGs), it is crucial for asset managers to engage with portfolio companies on this issue. By encouraging the adoption of living wage policies, we can help address poverty, promote social equality, and ultimately enhance the long-term value of our investments.

The cost of living crisis and the UN’s Sustainable Development Goals

The cost of living crisis is a pressing issue that has led to millions of people struggling to afford basic necessities such as housing, food, transport and healthcare. This crisis is not only a humanitarian concern but also a business risk. Companies that fail to pay their employees a living wage may face higher turnover rates, lower productivity, and potential reputational damage.

Proportion of below Living Wage workers ranking the following measures their employers could take as the most important in helping them deal with increased living costs, Life on Low Pay 2022,

The UN’s Sustainable Development Goals (SDGs) provide a framework to address these challenges. Specifically, Goal 1 (No Poverty) and Goal 8 (Decent Work and Economic Growth) emphasise the need to eradicate poverty and promote sustainable, inclusive economic growth through the provision of decent work and fair compensation. By engaging with companies on living wage policies, asset managers can contribute to the achievement of these goals and position their investments for long-term success.

The ‘business case’ for a living wage

While proposing a business case for ethics and integrity feels a somewhat flawed process, there is no doubt that adopting living wage policies can benefit companies in several ways:

  1. Reduced employee turnover: Employees who earn a living wage are more likely to stay with their employer, reducing recruitment and training costs.
  2. Increased productivity: Well-compensated employees are more motivated and engaged, leading to higher productivity and a positive impact on the bottom line.
  3. Enhanced reputation: Companies that pay a living wage are often seen as responsible corporate citizens, which can lead to increased brand loyalty and customer satisfaction.
Case Study: Aviva

Aviva, a multinational insurance company headquartered in the UK, became an accredited Living Wage employer in 2014. In addition to committing to pay a living wage to all its employees, including those working for suppliers and contractors, Aviva has also embraced Living Hours and Living Pension standards. These commitments ensure that employees not only receive fair wages but also have guaranteed minimum working hours and access to a workplace pension scheme that provides a decent standard of living in retirement.

The adoption of Living Wage, Living Hours, and Living Pension policies has resulted in numerous positive outcomes for Aviva, such as reduced staff turnover, increased employee satisfaction, and improved productivity. By prioritising these policies, Aviva has been able to attract and retain top talent, which has contributed to the company’s strong performance and growth. Moreover, Aviva’s commitment to fair pay and employee well-being has reinforced its reputation as a responsible and ethical employer, leading to increased customer loyalty and trust.

Case Study: Nationwide Building Society

The UK-based financial services company, Nationwide Building Society, implemented the Living Wage in 2013. The move directly benefited its employees and extended to its supply chain by making it a requirement for all suppliers. Nationwide’s decision to pay the Living Wage led to increased employee satisfaction, reduced staff turnover, and enhanced its reputation as an ethical employer.

Following the adoption of the Living Wage, Nationwide received the Living Wage Champion Award in 2014 and was recognised as a ‘Living Wage Friendly Funder’ in 2016. In 2022, all staff earning a salary less than £35,000 were paid a one-off £1,200 as additional support through the cost of living crisis.

The commitment to fair pay has further cemented Nationwide’s position as a leader in the financial services industry, attracting talent and customer loyalty while demonstrating the positive impact of living wage policies on overall business performance.

As asset managers, we are responsible for engaging with portfolio companies on the importance of paying a living wage. By doing so, we can help address the cost of living crisis, contribute to the UN’s Sustainable Development Goals, and enhance the long-term value of our investments. Encouraging companies to adopt living wage policies supports the creation of more inclusive, sustainable, and resilient businesses that benefit all stakeholders.

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