'Minimum' vs. 'Fair' vs. 'Living' Wages

By Krell, Eric | HRMagazine, June 2012 | Go to article overview

'Minimum' vs. 'Fair' vs. 'Living' Wages


Krell, Eric, HRMagazine


Use multiple data sources to set compensation rates overseas.

At first blush, a country's minimum wage rate may look like a definitive starting point for compensation planning. Upon scrutiny, however, global minimum wage rates raise more compensation and workforce planning questions than they answer, according to human resource professionals, compensation consultants, and labor and economic experts.

As globalization intensifies-and as more countries establish legal minimum wage rates-HR professionals in global operations should familiarize themselves with minimum wage rates through data from public and private sources. They should recognize what this standard can-and cannot-tell them about:

* A country's total compensation standards.

* A country's wage inflation.

* Wage levels that would comply with ethical sourcing guidelines.

Minimum Wages and Human Resources

Managed effectively, a minimum wage rate can reduce poverty and deliver significant societal and economic benefits, World Bank economist Jan Rutkowski has written. From a workforce planning perspective, however, minimum wage rates are not terribly useful in isolation.

"If I were working with my executive team, trying to decide where in the world to open a new factory, I wouldn't look that closely at a country's minimum wage rate," says Adam Goldman, vice president of human resources for Safariland, a Jacksonville, Fla.-based provider of law enforcement and security products and services, and a subsidiary of BAE Systems.

Yet Goldman monitors minimum wage rates in Mexico, where manufacturing operations employ half of Safariland's 1,700 workers. Minimum wages are "an indicator of wage inflation," he explains. "In a previous job, I worked with operations in Brazil. When the minimum wage increased by 5 percent [in Brazil], we essentially increased our entire salary structure by 5 percent."

Global minimum wage rates also influence Goldman's role in another capacity. He is responsible for complying with the ethical purchasing guidelines some Safariland customers require of vendors. Some "municipalities want us to prove that we are not only paying above a minimum wage, but also demonstrate that we are paying a living wage," Goldman says.

These exercises represent a challenge because definitions of "living" and "fair" wages continue to evolve; different organizations publish different standards, which often requires translation into local currency-in this case, U.S. dollars.

"I track what we pay in Mexico by the peso," Goldman explains. "Some of our customers want us to report our compensation in [U.S.] dollars." Of course, exchange rates change daily.

Another customer requires Safariland to comply with a poverty wage table that sets a dollar-per-hour base line. Exchange rate fluctuations and differences in average workweeks- 40 hours in the United States and 48 hours in Mexico-complicate these requirements. Goldman is not concerned about compliance per se- Safariland pays workers more than minimum wage rates everywhere, he says-but completing each set of purchasing requirements grows more timeconsuming and challenging. "It is very difficult to make apples-to-apples comparisons based on minimum wages," Goldman explains.

A Wage Floor

The minimum wage is important for HR professionals, asserts Geneva-based Daniel Vaughan-Whitehead, who helps set wage policies at the International Labour Organization, a United Nations agency. "It represents a wage floor in the country below which no workers should normally be paid- unless the legislation provides exceptions," he notes, adding that a minimum wage represents a "starting wage" for the least-skilled employees.

The International Labour Organization promotes employee rights, encourages employment opportunities and fosters dialogue on work-related issues. According to its research, an estimated 90 percent of countries have minimum wage policies. …

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