Philips: WageIndicator is Our De Facto Standard for Living Wages

“Today, 97% of our employees are paid at least a living wage. We still need to check for living wage gaps in our supply chain and address any gaps identified,” says Simon Braaksma, Senior Director of Group Sustainability at Royal Philips.

WageIndicator interviewed Simon Braaksma from Philips to delve into the organisation's living wage journey, exploring the challenges encountered and their vision for the future.

Could you tell us a little about the supplier sustainability program at Philips? And is the living wage work that you're doing also part of that program?

Our long-standing supplier sustainability program includes several building blocks:

1. The updated Supplier Sustainability Declaration, now requesting suppliers to actively develop towards paying a living wage.
2. Supplier sustainability development activities, which involve working closely with suppliers to implement structural improvements gradually.

For more details, refer to the Beyond Auditing brochure.

We are currently testing the waters with certain suppliers, focusing primarily on the salaries they pay, particularly to young workers and interns, and addressing concerns about child labor and the use of interns, for example for late shifts, which we have observed in some factories. Importantly, we conduct these evaluations ourselves rather than hiring third-party firms like Bureau Veritas or SGS.

We have found that conducting these assessments ourselves, through an extensive process with a select group of suppliers in our development program, is more effective. We report our progress in our annual report, and suppliers see the benefits of participating in this program in various ways.

Why did you choose to work with WageIndicator Foundation? 

At Philips, we consider the WageIndicator Foundation the de facto standard for living wage estimates. We not only use these estimates ourselves but also encourage other partners in the ecosystem to use them as well.

Could you walk us through your implementation process? How did you identify gaps in the living wage and how are you planning to address those? 

We implemented this by first securing senior management commitment, which we obtained from our CEO years ago. This commitment is now part of our company policies, ensuring that Philips pays at least a living wage to all its staff.

Following our commitment, we implemented the system using Workday, our central People platform that spans nearly all Philips countries. Workday allows us to perform various queries based on defined criteria, such as handling dormitory residents or specific allowances. When specific issues need clarification, the central People function collaborates with local People business partners or country-specific representatives.

In the first year, we discovered that a small number of employees in China were earning below a living wage. Typically, dataset anomalies need to be addressed. For instance, you might find someone in Switzerland with a full-time job earning 10,000 Swiss francs a year, which is insufficient for basic expenses. Such errors were investigated, corrected, and resolved.

Specifically in China we identified that a few employees in one factory were not earning a living wage yet. We addressed this by raising their salaries to meet the living wage requirements. All the gaps found in our analysis were resolved within the same year.

Can you share what percentage of your workforce is currently receiving at least a living wage?

Today, 97% of our employees are paid at least a living wage. 

What challenges did Philips encounter in the process of implementing living wages? 

Our next challenge is implementing living wages across our supply chain. Initially, we focused on ensuring Philips employees receive a living wage, as companies should address their own issues before advising others.

Implementing living wages in our supply chain will take about five years. We prioritise urgent issues like fair wages for young workers and safe environments before addressing biodiversity and other concerns. Companies must balance priorities, including climate change, biodiversity loss, and social inequity. We address social inequality and human rights first, followed by climate concerns and biodiversity.

Living wages are crucial to our strategy and align with these priorities.

Could you tell us how you have been reporting these numbers?

In our annual report we highlight our commitment to paying at least a living wage to all employees. To support this, we conducted an analysis of the lowest salaries in each country where we operate. We discuss the Anker methodology and our findings. Regarding your earlier question, 97% of Philips employees receive wages and benefits that meet or exceed the minimum living wage standard for a standard family, according to the reference data provided by WageIndicator. This is the key disclosure included in our annual report.

What would help make more standardised reporting around living wages, making it more comparable across different companies?

I believe, as the standard setter, WageIndicator could perhaps play a role in this. First provide the living wage data and then offer disclosure recommendations. Start with a gentle recommendation, and later make it more stringent. Initially, suggest "You can do it," and the next year, present "This is how you should do it." It's encouraging to see WageIndicator’s thoroughgoing commitment to this. More standardised auditing will simplify the process too.

We should also keep in mind that the motivation comes from a genuine belief in being a responsible employer. Transparency aims to ensure comparable data, similar to the Corporate Sustainability Reporting Directive’s (CSRD) goals. If the data isn't comparable, it undermines the purpose. Although this remains a challenge and we face limited support at this level, it’s a reality we must accept.

You can always reference what other companies are doing for comparison. Regarding industry response, many claim it's difficult to implement due to a lack of standards. However, I argue that standards do exist and implementation is possible—our experience proves this.

Since you've been engaging with the living wage project for a while, what has been the industry response around you?

It's encouraging to see more companies supporting living wages, despite claims it's too difficult due to a lack of standards. I argue there is a standard, and we’ve been successfully implementing it. It is a pity that the CSRD, introduced a new term “adequate wages”. It's frustrating to see that when clear standards exist organizations introduce their own, like Europe sometimes does, This does not enhance transparency nor comparability..

There's an opportunity to help people understand what an adequate wage is and how it relates to a living wage. I would urge WageIndicator to position itself as an expert on this topic; many in the People function and other fields prefer third-party expertise. Running this analysis and comparing adequate wages to living wages is complex, but if a knowledge institute like yours sets the standard, it’s very helpful.

If you pay a living wage, you meet the adequate wage threshold in most countries. This is what I discussed with my colleagues: we pay a living wage, and as long as we can prove it exceeds an adequate wage, let's stick to it.

August, 2024