Rachel Hargreaves, Senior Project Officer at ShareAction, says a recently-filed resolution provides the perfect template for how investors can encourage companies to pay all employees a Living Wage.
The UK is facing a cost of living crisis which could throw millions more into poverty. Rising food prices, skyrocketing energy bills, an increase in national insurance and cuts to Universal Credit are putting huge financial pressure on individuals and families across the economic spectrum. But those in low paid roles are amongst the hardest hit – including the ‘key workers’ who we heavily relied on throughout the pandemic.
Food banks are recording unprecedented numbers of users, including those workers who kept us fed throughout the pandemic. The Independent Food Aid Network (IFAN) says it has seen an increase in supermarket workers using their food banks and one in three Sainsbury’s workers report that they regularly worry about putting food on the table.
At ShareAction, we’ve been working with investors to engage with their investee companies on the real Living Wage for nearly a decade. Against the backdrop of the sharply rising cost of living and increasing in-work poverty, a group of 10 institutional investors have stood up to call on the UK’s second-largest supermarket, Sainsbury’s, to do the right thing and make a commitment that all their workers will receive a real Living Wage. The investors have filed a shareholder resolution, which will go to a vote at Sainsbury’s AGM in July. If shareholders representing 75% or more of the company’s shares vote in favour of the motion, Sainsbury’s will be legally required to accredit as a Living Wage employer.
The resolution has been co-filed by some of the UK’s largest institutional investors, including Legal and General Investment Management and Nest. These investors recognise that, not only is paying the Living Wage the right thing to do, it brings many commercial benefits, including increased productivity and reduced staff turnover.
What is the real Living Wage?
Established by the Living Wage Foundation, the ‘real Living Wage’ is the only rate in the UK that reflects what workers need to earn to meet their needs. It is calculated annually by the Resolution Foundation, using the most recent available data on the cost of living. The calculation draws on the Minimum Income Standard, a basket of household goods and services – including housing and food – that represents an acceptable standard of living.
The rates are currently £11.05 per hour in London and £9.90 per hour in the rest of the UK. This is higher than the government’s ‘National Living Wage’, which, as of today, is £9.50 per hour. Unlike the real Living Wage, the National Living Wage is not determined by what workers and their families need to live on; rather it is based on a target to meet 66% of median earnings by 2024.
Living Wage employers commit to ensuring that all directly employed and contract staff central to the success of their business receive at least the real Living Wage – and that’s what 10 institutional and 108 retail investors have called on Sainsbury’s to do.
Sainsbury’s has an opportunity to set the standard and drive change
Sainsbury’s has taken important steps in regards to its base pay, but there is still room for improvement.
In January 2022, it announced that it would increase workers’ base pay to £10.00 per hour for directly employed staff outside of London. And they are not the only ones. Over the last two years we’ve seen movement towards higher base rates of pay in the sector. In April 2021, for example, Morrisons became the first supermarket to guarantee at least £10 an hour to its direct staff. Others have since joined them in paying higher rates – including Aldi and Lidl.
This move is welcomed. But it leaves many of those working in the sector still falling short of a wage that meets their needs. Forty-two per cent of all supermarket workers in the UK still earn below the real Living Wage – and this number would be higher if we look at third-party contracted staff working for supermarkets such as cleaners and security guards.
Sainsbury’s announcement did not extend to these workers. These roles are some of the lowest-paid and most insecure. They are often described as ‘invisible’ as they are not included in workforce reporting or official statistics. But these workers are essential to the success of Sainsbury’s business and they have a responsibility to these workers too.
Furthermore, without accrediting as a Living Wage employer, Sainsbury’s have not provided the certainty workers need that wages will continue to meet the cost of living. Now more than ever, it is critical that workers have this reassurance.
Over 9,500 UK companies – including half of the FTSE100 – are now accredited Living Wage employers. But not a single supermarket is amongst them.
Accrediting as a Living Wage employer would see Sainsbury’s live up to their public commitment to ‘always focus on doing the right thing for our people’, but it would also set expectations across the sector and for other large employers.
Why are investors getting involved in companies’ pay decisions?
Low pay and inequality bring acute challenges for those individuals most impacted by them, but they are also a drag on economic output, which affects investors’ returns across their portfolios. OECD research found that an increase in inequality of just three Gini points could reduce economic growth by 8.5%.
Paying higher wages delivers benefits to the businesses who implement them, too. Research has shown that higher wages can drive increased service quality, productivity and a reduction of costs in the long term. The Cardiff University Business School found that 75% of employers said that Living Wage accreditation had increased motivation and retention rates for employees, while 89% of accredited retailers said that paying the Living Wage had enhanced their reputation.
What can investors do?
Investor engagement can have a big impact on corporate behaviour. When ShareAction’s Good Work investor coalition started engaging with companies on this issue ten years ago, just two FTSE100 companies were accredited Living Wage employers. That number now stands at 50.
It’s great to see some of the UK’s largest investors take a stance by filing a Living Wage resolution at one of the country’s largest employers of low paid workers. But as the cost of living crisis intensifies, it’s time for all investors to step up and engage on this topic.
Workforce advocates from within companies often report that senior leadership need to be hearing about the Living Wage from a range of stakeholders. Therefore, investors should ensure that they routinely engage with their investee companies and raise the Living Wage in engagement meetings. For examples of engagement questions, investors can see ShareAction’s Living Wage toolkit.
From our work at ShareAction, we’ve seen that investors have been able to gain more effective responses from companies when they engage as a collaborative group and we would encourage any investor wanting to start engaging on this topic to consider joining a coalition such as the Good Work Coalition.
As well as engagement with investee companies, investors should integrate the Living Wage as part of their ESG considerations relating to active ownership and investment decisions. The Living Wage can be, and should be, integrated into voting policies, especially in relation to how they vote on remuneration reports. The Church Investors Group have led the way on this issue and will not support the remuneration reports of FTSE100 companies in the telecommunications, financial and pharmaceutical sectors if they are not Living Wage accredited.
Asset owners can play a key role in scrutinising their managers’ voting policies and decisions – and the Living Wage resolution at Sainsbury’s provides a perfect litmus test of managers’ credentials on this issue. Low pay and the rise of in-work poverty is an affront to justice, a stain on corporate reputations, and a drag on our economy. It’s time for investors to use their influence to stamp it out.