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 OUR BUSINESS PRACTICES > DIALOGUE WITH STAKEHOLDERS > ESSAY: WORKING HOURS & WAGES
 

It is imperative that our business partners are committed to the betterment of wage and benefit levels to the extent appropriate in light of national practices and conditions. Reebok will not approve factories for production who pay less than the minimum wage required by applicable law or who pay less than the prevailing local industry wage.

Reebok Standards’ require that workers shall not be required to work more than 60 hours per week, including overtime and have at least one day off in a seven-day period, except in extraordinary circumstances. In countries where the maximum workweek is less, that standard applies.

Working hours and wages are linked for several reasons. Worker’s wages are often based on the amount of hours worked. Enforcement by Reebok of hour limits has driven, in some countries like China, some factories to maintain inaccurate records. This makes it difficult for field staff to confirm accurate hours and wages.

This essay discusses our efforts to enforce our wages and working hours standards, as well as the perspective of a leading expert on these subjects.

  
 
 

EXTENT OF PROBLEM
Non-payment of proper wages and working excessive hours are common labor standards violations. Our field staff reported that 29% of factories audited from January–December 2005 had one or more violations with non-payment of minimum wage or industry wage and 15% had violations with unallowable wage deductions. 18% had one or more violations reported with non-payment of proper overtime wage. 35% had one or more violations reported with lack of maintenance of accurate payroll or time records. Moreover, 49% had one or more violations reported with working hour limits (including rest day restrictions).

In these cases, if the factory is unwilling to remediate and prevent future noncompliance, they were not authorized to receive orders for Reebok. Working hour violations are the exception, since this is not considered a zero-tolerance issue.

These compliance issues are driven by a variety of factors, both inside and outside the factory. For wages, outside contributors include intense price

  

competition from large retailers, level of development in a country, the fragmented nature of the industry, inadequate labor laws or insufficient enforcement of labor laws. For working hours, we recognize that cyclical orders from our customers made level loading of the factories we use difficult to do, sometimes contributing to violations of standards.

Factories often make mistakes in wage calculations because they are not sure of our Standard or legal requirements. Many factories pay workers using a piece rate, where workers are paid for each piece they do. Factories often fail to understand that they are permited to use piece rate incentives provided that workers are compensated at least as much as they would be if paid for all hours worked, including appropriate premium pay for overtime, holidays and rest days.

Inefficient internal production systems, poor management, and inadequate internal communications, combined with unrealistically high margins, all make it difficult for some factories to meet working hours and wage standards.

  
 
 

OUR RESPONSE
Ensuring Payment of Wages: The issue of what is considered “fair” compensation of worker wages is a complex one, especially in light of the many different national economies in which workers reside. The apparel and footwear industry is usually a workers’ first exposure to the formal sector where they gain experience and skills, which allow them to earn wages to meet basic needs.

We require that workers receive the full wages (for regular, overtime, rest and holiday work) and other compensation they are due without unallowable deductions for fines, deposits, or recruitment fees. We have taken steps beyond our routine assessments and remediation strategies to improve wages. For example, in Vietnam, we require factories to pay the foreign-invested minimum wage, rather than the lower minimum wage for local industry, regardless of ownership structure. We’ve managed to find foreign-invested factories that achieve our standards and others that have been willing to adopt our wage policy. When underpayment of any of our wage requirements is found, we require factories to make back payments of all wages owed to workers. When a factory is unwilling to do so, because we have terminated the business relationship or we have no leverage, we hold the agent accountable for the back wages.

Ensuring Accurate Records are in Place: Identification of proper wage payments and hours worked requires intensive auditing by our staff. This is particularly difficult where workers are coached to provide field staff with incorrect information, or factory records are not accurate or transparent. In the case of certain countries where this infraction is common, we sent a communication to all active factories in the region (called a Compliance Performance Resolution) to inform the factories that Reebok was aware that this was an endemic problem in the region. We required transparency and enforcement of policies regarding hours and wages. We also mandated that workers record hours and payments for themselves.

This approach has been quite successful in Guatemala, for example, where factory follow-up visits have identified that factories have created policies and procedures to reduce the risks of violating local law and Reebok standards. Worker interviews confirmed that workers no longer have to work long work shifts and that management has created systems to adhere to the 60-hour limit. During factory assessments, management has provided field staff with credible evidence that employees no longer (if they did) work late shifts.

Penalizing Factories for Noncompliance: In our primary footwear factories, where we have the long-term relationships, we introduced a Sanctions Matrix that allows us to fine factories with serious wage violations or with persistent working hours violations. This matrix creates a sliding scale of violation levels and financially penalizes the factory for noncompliance. The funds are then used to benefit workers.

Reducing Working Hours: Our experiment with primary footwear factories in 2005 is a good example of the complexities involved in addressing the overtime issue. We set up a plan to decrease overtime hours worked in China and Vietnam as local law has very low limits. While footwear factories complied with our 60-hour limits, they did not fully meet the stricter local law standard in these two countries. In footwear factories, Reebok has long-term relationships and a high percentage of total volume. We organized our production requirements and decreased our order loads so that they could be completed within regular factory working hours and overtime limits.

The average working hours in 3 out of 4 China footwear factories succeeded in meeting the strict legal standards for the year. Reasons why targets were not fully reached include:

  
 
 

• Failure of factories to maintain previous wage rates as total work hours decreased

• The willingness of workers to seek long hours, often leaving to work in other nearby factories where overtime is available

• Reebok’s difficulty in forecasting order placements when meeting short-term business opportunities

• Delay in arrival at factory of diverse materials and components, especially for complex styles

• Absence of other companies committed to enforcement of legal working hour restrictions allowing factories to seek other buyers besides Reebok

  
 
 

While our work demonstrates the seriousness with which we take the fair wage and working hour issues, we realize that more work can be done in this area. We will continue to learn about the living wage issue and what companies can do about it in collaboration with academics, governments, international agencies and NGOs.

An NGO perspective
BY ROSEY HURST, HILARY MURDOCH AND DANIELLA GOULD FROM IMPACTT LIMITED
Impactt is an ethical consultancy specializing in supply chains. Since 1997, Impactt has worked with companies to help them integrate and improve labor standards in their supply chain.

  
 

Companies are under increasing pressure to tackle labor standards issues in their supply chains. This is especially pertinent in China, owing to the increasing dependency on Far East production. Working excessive hours is one of the most common labor standards problems in China and one that has failed to respond to purchasers’ compliance activity. Workers often work 360 hours per month and some work up to 400 hours, almost twice the legal limit. This is the equivalent of 12–13 hours per day or 80–90 hours per week with no days off in a while month. This situation in China leads to reduced efficiency, high rates of accidents, worker dissatisfaction and therefore high turnover. The excessive overtime hours are driven by inefficient internal production systems, poor human resources management, inadequate internal communications, the buying practices of purchasing companies and poor quality and late delivery of inputs.

Some regions in China, especially in the Pearl River Delta, are now experiencing a labor shortage and high levels of worker turnover. At the same time, there is increasing pressure from the Chinese government and from workers themselves to improve working conditions. Factories that want a stable work force and do not want to see their trained workers leaving for other factories need to improve pay and benefits. Factory managers are therefore starting to realize the business necessity of understanding and meeting workers’ needs.

There are clear limitations to the current approach of companies, which is often heavily dependent on compliance-focused audits. Assessments therefore need to be more focused on supporting continuous improvement and should be supplemented by capacity building activities. Purchasing companies need to help their business partners improve their productivity, human resources management and internal communications, while maintaining wage levels.

  

Impactt tested this theory with 11 purchasing companies and their local partners over a period of three years. The project found that improvement is possible and most factories saw increased productivity, reduced reworking, steady or increasing pay and reduced worker turnover. However, although most factories achieved reductions in working hours, none were able to be consistently compliant with Chinese labor law.

The success of the project in different factories depended on various factors including managers’ commitments and openness to new ways of working, commitment and involvement of purchasing companies, and trust and transparency of all parties. Progress was also most significant where the factories made changes in all areas rather than just productivity and where they communicated the changes effectively to all levels of the workforce.

There are a number of challenges purchasing companies will need to consider when tackling this issue. For factory managers, the challenges are to further improve two-way communications with workers and to ensure that a fair proportion of the benefits gained are passed on to workers. The challenges for purchasing companies include working with suppliers over an extended period of time and providing support for changes rather than demanding immediate compliance. This means understanding the pressures on factories, rewarding honesty and ensuring that their buying practices do not undermine their ethical trading initiatives. Purchasers need to set realistic lead times and stick to timescales agreed.

A full copy of Impactt’s report “Changing Overtime, Tacking Supply Chain Labor Issues Through Business Practice” is available at www.impacttlimited.com.