The living wage concept

The living wage concept is nothing new or controversial. In fact, the UN’s Universal Declaration of Hu­man Rights, covers very similar ground. For instance, article 23 (3) states: “Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity.”

Granted, Article 23 does go on to say that this right should be “supplemented, if necessary, by other means of social protection” but the spirit of the Universal Declaration of Human Rights, in my opinion, is similar to the concept of a living wage which to my mind is a basic wage derived from a 40 hour working week, which meets basic needs (such as housing, clothing and nutrition) and (without additional income) enables a worker to afford a basic quality of life.

I would add that it should also mean that a worker has some money left over after deducting basic (necessary) expenses such as food, utility bills, and schooling. Whether or not the figure of €314 per week is the answer I don’t know but what is certain is that the idea has kicked-up a right old fuss.

The local controversy seems to hinge on the question of whether the living wage would be compulsory or imposed by the state. Naturally, if such an aspiration were to be imposed (like the minimum wage currently is) there would be a lot of justifiable opposition. This is not something you impose but something you encourage. I think a predominantly Catholic society such as ours should aspire to generate sufficient wealth for everyone to afford a living wage even if part of it is “supplemented by other means such as social protection” but we should never impose it.

Why am I writing about this topic? Because this aspiration if realised could have a huge impact on the business community of which I form part of and serve through my business consultancy work. I therefore think that members of the business community have an interest and obligation to express their reasoned opinion and try to influence the debate. In fact, I was glad to read the recently reported observations and suggestions made by the Malta Employers Association on the topic. They raised very valid questions: Who will pay for it? Can we afford it? How will it be calculated? Will it be voluntary or obligatory?

The heart of the matter, and much like the minimum wage, is that a living wage could help to improve workers’ standard of living and lift people out of poverty or near poverty but simultaneously can make Malta uncompetitive which would defeat the purpose of introducing a living wage in the first place.

To my mind, a living wage can only ever be an aspiration, it should never be imposed, all options should be considered before any decisions are taken and ideally a national consensus achieved. The government can encourage it by providing tax breaks to businesses voluntarily opting to implementing a pre-defined standard. Alternatively, we can consider other options.

What do I mean by “other options”? I consider “vertical pay equity” (vide my previous article in The Times Business entitled “A Blue Ocean Budget” dated October 1, 2009) as much more attainable as a nation and sellable to the business community. By this I mean sharing the rewards of business proportionately up-and-down an organisation. So a company’s CEO cannot earn more than 15 times as much as the average lowest pay at the same company. In this way, if times are good and the business can afford it, everyone gets a proportionate pay increase. Now, whether one opts for x10 or x20 vertical pay equity is a political decision (out of my ambit) but the principle I think is much fairer on the employee and employer alike.

Southwest Airlines (a hugely successfully American airline business) has operated with a rule that executive pay increases cannot be larger, proportionately, than other employees’ raises. Industry analysts calculate that as a result of this practice, Southwest generated 10 times more revenue for every dollar of executive compensation than some of its big US competitors. Why? Well because if you want your employees to embrace your vision of shared success, you must be perceived as putting fairness and equity above self-interest.

I think it is fair to say that leading management-consultants / business advisors in America and Northern Europe are cajoling their clients to move away from the narrow-minded and short-term thinking of “maximising shareholder value” to a more balanced view of aiming to maximise customer satisfaction as well as employee well-being whilst at the same time ensuring that shareholders earn an acceptable risk-adjusted return on their equity.

I like to quote Henry Ford on this subject, who said: “Business must be run at a profit or else it will die. But when anyone tries to run a business solely for profit then also the business must die, for it no longer has a reason for existence.” And this is precisely the point I am trying to make. You can’t impose something like a living wage on a business but at the same time the business community can’t ignore or neglect, over time, the well being of its workers. To highlight this point, please read P&G’s “statement of purpose” (which if my memory serves me correct was written way back in 1986

“We will provide products of superior quality and value that improve the lives of the world’s consumers. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper.”

How about that as a mission statement for the Maltese business community!

I think we can as a nation come together (i.e. unite) behind the right approach for sustainable corporate and personal taxation, a minimum and/or living wage policy, em­ployer/employee obligations. I have tried to propose a solution which caters for everyone’s vested interest including that of Malta!

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Mr Fenech is managing director of Fenci Consulting Ltd.