Fairphone Addresses Living Wage Gaps in the Electronics Supply Chain

“We innovated the Living Wage Bonus Programme at Fairphone to tackle the rampant issue of poverty wages and excessive overtime in the electronics supply chain. We believed that, under the current circumstances, simply curtailing work hours would be detrimental to employee well-being, as they rely on overtime pay to meet their living costs. As a result, we decided to begin bridging the Living Wage gap through our bonus programme in the electronics supply chain,” says Remco Kouwenhoven, Social Innovation Lead at Fairphone.

WageIndicator spoke to Remco to understand Fairphone’s Living Wage Bonus Programme in-depth.

What inspired Fairphone to pioneer the Living Wage Bonus programme, and what challenges was it designed to address?

Fairphone has prioritised wages in the electronics supply chain since its founding in 2013, particularly after worker surveys revealed that wages and benefits consistently rank among the top concerns—often first or second. This focus stems from two systemic issues in the industry: poverty wages and excessive overtime. Many workers endure 70–100-hour work weeks because their base wages are too low to sustain a living, relying on overtime to make ends meet. We realised that limiting working hours without addressing wages would only harm them financially.

We tried addressing this issue in the past through a Workers Welfare Fund. This fund enabled workers to vote on how to use resources to improve their workplace, and it was funded by both Fairphone and the manufacturer. Workers often chose to distribute the funds as a bonus. However, we were unable to replicate that system on a larger scale.

This led us to look for a simpler way to increase the wage levels of workers in the supply chain. That’s when we came up with the Living Wage Bonus system. 

One of the reasons we adopted this approach is that we don’t own any of the factories where our products are produced and Fairphone is not the only customer of any factory. This is very common in the electronics industry and many others. These factories are specialized companies focusing on specific parts of a product. As a small customer, we typically represent between 0 and 10% of a factory’s total annual production. The further down the supply chain you go, this percentage diminishes to nearly zero.

This means we don’t have the leverage to raise wages across the board for an entire workforce or for all production. But what we can do is focus on our production. By calculating the wage gap and the labor time spent on Fairphone’s production, the company ensures that the product price paid to the supplier enables living wages. 

Does the Living Wage Bonus cover only workers making Fairphone products or all workers under the Living Wage?

We engage with manufacturers and suppliers to assess wage levels for the lowest-paid workers in their factories, using living wage benchmarks. We focus on production line workers, as they’re usually the lowest paid. We calculate using the average wage for production workers.

The living wage premium we pay is based on the labor that goes into our production time, but the bonus is distributed across the entire workforce of the factory. So not just the people working on our products. This often means not everyone reaches a living wage due to our small share of the factory's total production. We’ve tried to collaborate with other customers to address this, but so far, no one else has joined.

What has your experience been like negotiating with factories and supply chain managers to introduce a living wage?

We’ve mapped living wages and introduced the living wage bonus premium not only for our direct suppliers but also further down the supply chain, including indirect suppliers of components. While we don’t have direct relationships with these suppliers, we maintain a connection through our main suppliers. We’ve been pleasantly surprised by the positive responses we get when we ask sub-suppliers to partner on living wages.

Manufacturers are eager to understand how we calculate wages and what constitutes a living wage estimate. We help them assess wages using third-party living wage benchmarks and identify any gaps. For implementation, we offer flexibility. Direct suppliers, where our share is larger, can distribute bonuses more frequently, while indirect suppliers may decide on annual or biannual payments to ensure they remain impactful.

Bonuses are paid through the manufacturer to the workers, due to system setups and privacy rules. This ensures bonuses are included on salary slips, with taxes applied based on local legislation. While taxes may reduce the bonus, they typically consume a small part only. We're not in a position to cover taxes.

The main challenge we face in scaling up living wage bonuses deeper in the supply chain, is in our business volumes. If production volumes of Fairphone at component suppliers is small, or the workforce of the factory very large, the bonus based on Fairphone production may not be impactful anymore. This highlights the need for more companies to join us in addressing wage gaps and making a broader impact on living wages in the supply chain.

How much of the living wage gap do you close when the bonus is shared among many workers?

In the case of final assembly suppliers of our products it amounted to approximately one month’s extra salary per year. However, the gap to a living wage is ten times that amount. For indirect suppliers deeper in the supply chain, the bonus per person is  even less— about a third of a month’s salary.

Is it beneficial or problematic if multiple companies offer living wage bonuses, leading to payslips with several external top-ups alongside the basic salary?

Ideally, the bonuses from various companies or customers should be pooled into one pot, managed and distributed by the manufacturer with a clear label and explanation. This should include details such as how the distribution works, who is eligible, and the amount. 

I agree that this is not the ultimate solution—it’s an interim solution until living wages are paid out systemically. For instance, we’ve already seen this with one component manufacturer who decided to close the gap themselves. After completing the living wage gap assessment and calculating the required bonus scheme, they essentially said, “We’ll close the gap ourselves; we don’t need your bonus.” They raised their wages to close the gap, which is exactly where we want to end up.

Ultimately, the goal is for everyone to receive a living wage. The steps Fairphone is taking now are intermediary measures, paving the way toward that systemic change.

What is the scale of the Living Wage Bonus Programme?

The Living Wage Bonus Programme has supported  over 7,500 workers. The living wage premium in our products is small, it's less than 0.3% of our product’s retail price. And yet it has enabled us to make a big impact for workers: over $1 million US dollars has been distributed to low paid factory workers to increase their wages since 2019. 

Why did you feel it was necessary to lobby for EU-level legislation on living wages? Why was political support important for the cause, and what was the process like?

In general, current economic and political systems don’t adequately safeguard human rights or protect the environment. Systemic change is necessary, requiring responsibility from both businesses and governments. Governments play a critical role in creating a level playing field for companies, ensuring the minimum threshold includes protecting people and nature.

We support progressive legislation, particularly in Europe, to raise the minimum standards. Fairphone has long advocated for due diligence legislation by sending letters, joining coalitions, and providing positive examples to policymakers.

Regarding the EU Corporate Sustainability Due Diligence Directive (CSDDD), we were pleased to see explicit references to human rights, environmental issues, and living wages in the annexes. When we heard about resistance from some companies to the inclusion of living wages, we acted to preserve this provision.

We mobilized support within our network to send a clear signal that companies could view explicit living wage requirements as a positive step. This effort grew significantly, gaining the backing of many companies and NGOs. The European Parliament and Commission appreciated these diverse perspectives, particularly the support from companies, which underscored the transformative power of living wages in advancing Sustainable Development Goals and human rights.

WageIndicator would like to express its gratitude to Fairphone for helping enable the free publication of Living Wage estimates for 2,973 regions in 173 countries since May 2024. 

January 2025