A Big Step Toward ‘Living Wages’

The debate keeps gaining steam—that people who earn minimum wage can’t make ends meet. Now, a voluntary program in the United Kingdom has produced a large buy-in from firms in a way that is turning heads.

Spurred on by an advocacy group, the Living Wage Foundation, some 6,000 companies that already agreed to pay their workers more than the legal minimum will give them a raise. The increases vary, but the majority of covered employees will get £9.30 per hour ($10.33 USD), up £0.30—a rate that remains ahead of the current legal minimum of £8.21. People in London will get more. The move will affect 210,000 people, in a country where almost half the population (48%) receives more in government benefits than they pay in taxes. “More and more people are financially reliant on handouts from the state,” says Mark Thompson, a Korn Ferry senior client partner for rewards.

Though done in different ways, companies in other countries seem to be following suit. “The UK change seems to be part of a global trend,” says Benjamin Frost, Korn Ferry’s global manager for pay. In the United States, for example, many states and cities have introduced ordinances to ensure higher rates. Among them are New York City and Seattle, which have mandated minimum wages as high as $15 and $16 per hour, respectively, for larger employers.

Local US laws aren’t the only thing. Soft persuasion is being used by advocacy groups and politicians to help hike wages. Sometimes that’s in the news media, and sometimes that’s inside closed meetings. “There’s lots of pressure on big companies,” says Frost.

To be sure, changes in the economy can derail some of the momentum. But experts say that there’s a growing sense that to have a good business, companies collectively must pay their workers well. Paying more may also help keep customers who want to shop at stores where pay is better. “It’s definitely reputational branding driven in part by the idea of corporate social responsibility,” says Thompson.

For his part, Frost recalls some history here. In the early 1900s, the iconic automobile pioneer Henry Ford pondered how he’d get people to buy his cars. The answer was simple: pay the workers enough so they could buy one. “Having rich customers and poor workers is not sustainable, and that’s something Henry Ford realized a century ago,” Frost says.

As for the UK, political realities are also driving change. As Britain prepares for its mid-December general election, both the Labour and Conservative parties are promising to increase the legal minimum wage. “Effectively, firms are forced to do the right thing,” says Tom Hellier, Korn Ferry’s head of rewards and benefits for the UK and Ireland. “Generally speaking, organizations can see where this is going.”