Impact Topic: Fair Wages

The draft standards for B Corp Certification include a particularly interconnected Impact Topic, Fair Wages. Bernard Gouw, Senior Social Standards Manager, candidly shares the tensions and considerations that led to the latest draft requirements.
By Bernard Gouw, Senior Social Standards Manager, B Lab Global
December 7, 2023

B Lab’s standards define the performance that a company needs to manage and continuously improve upon to achieve and maintain B Corp Certification. Since 2006, they have been developed to improve their impactfulness and clarity around what it means to be a leading business and to incorporate feedback shared along the way.

In order to achieve these goals, the draft standards have departed from the current framework where companies have flexibility in how to achieve a verified 80-point score, and instead meet specific requirements across the standards’ Impact Topics. While the components of the draft standards have been developed with the existing standards in mind, you can expect to see new topics, designed to optimize and improve our certification processes. After all, the B Corp community is on a journey of continuous improvement.

Fair Wages play a crucial role in the overall well-being of individuals, society, and the economy, along with being key to both JEDI (justice, equity, diversity & inclusion) and human rights. Demonstrating the interconnected nature of this topic is reflected in the draft standards, where B Lab uses Fair Wages as an umbrella term for many wage-related themes, such as living wage, collective bargaining, wage transparency, and wage equity. 

Bernard Gouw, B Lab’s Senior Social Standards Manager, candidly shares the tensions and considerations that led to the latest draft requirements on this crucial, and enabling, topic.

What is the purpose of the topic, and why is it important?

Affording a decent standard of living for oneself and a family is a human right. It is also an enabling right, meaning it helps fulfill other human rights, such as the rights to housing and education. Ensuring people can cover the cost of having a family is also a transformational tool to break the cycle of intergenerational poverty. Together this is what makes Fair Wages so important and worthy of its own Impact Topic.

Government-set minimum wages should be enough for people to afford a decent standard of living. Unfortunately, in the majority of the world, this is not the case. This issue is compounded by a lack of fairness in how wages and promotions are determined. Combined, it means that historically marginalized, underpaid, undervalued groups are often stuck in cycles of poverty, despite having paid work.

How has the idea of this topic in relation to the standards for B Corp Certification evolved over time, and what are the main driving factors behind this evolution?

In the latest draft standards, readers will notice four significant changes:

A living wage has long been part of the B Impact Assessment in two distinct ways: payment of an individual living wage (i.e. enough for one person) and a family living wage (i.e. enough for a person and their family). To align with the broader consensus that a living wage is for a person and their family, the concept of an individual living wage will disappear from the standards. A living wage will by definition be a ‘family living wage’.

Collective bargaining, referring to when companies and unions negotiate and agree on the terms and conditions of work and wages, long predates the modern concept of a living wage, yet is often sidelined. In the latest draft standards, we create space for both approaches, recognizing not only their individual value but also their combined strength.

Advancing living wage, or income with suppliers, has seen dramatic growth in recent years, driven by more benchmark data becoming available, higher consumer expectations, and the human rights due diligence approach pushing companies to look at their purchasing practices. To reflect these growing expectations, the latest draft standards expect more of B Corps, particularly the largest ones.

Wage equity is given more importance by having larger companies calculate multiple types of pay gaps and implementing simple, yet powerful actions like not requesting wage histories from job applicants. Crucially, the latest drafts have a new sub-requirement to close the gender pay gap, going beyond the typical requirement in sustainability standards to only disclose the gap.

What are the potential risks and criticisms associated with this topic, and how do the latest draft standards address them?

Commitments to a living wage are on the rise. This is great to see, yet we must acknowledge that a living wage is not a perfect instrument. In the latest draft standards, we take a step back from a strict ‘pass or fail’ living wage requirement to recognize that despite living wage approaches being more harmonized than ever before, to exist alongside valuable alternatives.

Not a silver bullet: A living wage feels tangible because it distills the complexity of human needs into one simple figure. This is possible because many assumptions are made. For example, assumptions are made about how many people are in a family and how many wage earners there are. Assumptions are also made about what types of benefits and allowances contribute to someone’s ability to meet a decent standard of living. In some contexts, impactful benefits, like employer health care or child care contributions, cannot be fully captured in wage calculations because they are subject to nuanced and localized regulations that a global standard cannot account for.

In light of these limitations, the latest draft standards offer an ‘alternative living wage track’ that requires companies to pay 75% of a living wage and meet one other criterion, such as implementing a worker-ownership model (captured through the Worker-Owned Impact Business Model) or advocacy to increase wages and benefits beyond the company. This flexibility acknowledges that whilst the living wage approach feels concrete, there is an inherent complexity that makes it unsuitable for a strict ‘pass or fail’ requirement in a global certification standard. For example, companies in the USA are at a disadvantage because the country’s healthcare system relies on employers to provide healthcare - a system that is so complex and nuanced, varying by company size and state, that a company’s contributions cannot be fully captured by a global standard and verification approach. 

Valuable alternative: There is a long-standing tension between living wage and collective bargaining. Some argue that the increasing focus on living wage has come at the cost of collective bargaining, despite the latter being the originally envisioned instrument of the International Labour Organization for setting wages.

The following statistic reveals how the two instruments differ in their potential impact: “Among all adults living in a poor household [in OECD countries], only slightly more than 20% have a full-time job.” (OECD, page 45). A living wage assumes full-time employment, so for these adults, paying a living wage would not lift them out of poverty. A benefit of collective bargaining is that negotiations look at the ‘full package’ of working conditions, covering wages and working hours, potentially giving workers more control over their path out of poverty.

Historically, the two approaches have been viewed as mutually exclusive, but in recent years more stakeholders have been asked how the two can reinforce one another. For example, WageIndicator provides free living wage data to unions to strengthen their negotiation positions and Global Deal has published a thought piece on the “Role of Social Dialogue in Promoting Living Wages” (2023). To encourage this trend, B Lab’s priority in the latest draft standards is to create space for both instruments to coexist without any preference. Concretely, this means accepting both a living wage and collective bargaining.

If you were to convey ‘just one thing’ about why this topic is important for the standards for B Corp Certification, what would it be?

Fair wages are a cornerstone of a just and equitable society. They not only provide individuals and their families with the means to support themselves but also contribute to broader social and economic well-being.

The second consultation will run from 16 January 2024 to 26 March 2024.

What is the overarching expectation of B Corps for this Impact Topic?

That B Corps pay their workers beyond a minimum threshold and ensure there is wage equity in the workplace. In addition, larger B Corps will be expected to take concrete and meaningful steps towards paying their supplier living wage or income rates.

What are the most significant differences between the current standards and the latest draft of the standards in relation to Fair Wages?

In the latest draft standards, readers will notice four significant changes:

  • An individual living wage will no longer exist as a concept, meaning a living wage is assumed to be for a person and their family

  • Recognition of collectively bargained wages alongside living wages

  • Higher expectations on wage equity: wage transparency and addressing pay gaps

  • Higher expectations on advancing living wage/income with suppliers

How will the standards related to Fair Wages be responsive to the different contexts of companies?

As elsewhere in the latest draft standards, the Fair Wages requirements expect more of larger companies. This reflects the increased responsibilities and impacts of larger companies, but also that wage analyses are a ‘numbers game’ and only become statistically significant with a large workforce (assumed to be 250 workers).

There is also contextualization based on location in that both a living wage and collectively bargained wage are inherently location-based and therefore specific to their context.

What kinds of impacts does the topic hope to address?

This topic takes aim at wages in two ways: ensuring people have enough and ensuring equity between different groups of people. Their combination is what we call ‘fair wages’, and their unique nature means B Corps will be addressing both negative and positive impacts. Negative impacts are avoided by preventing poverty wages and wage discrimination. Positive impacts are pursued because having enough money is an enabling right and wage equity is key to seeing all people thrive in the workplace.

If I’m a current B Corp, or seeking to become one, where should I focus my impact efforts for this core topic of Fair Wages?

Two areas in particular will see increased expectations from companies.

First, there are higher expectations of wage transparency and addressing pay gaps. For example, the largest companies will not only have to calculate their gender pay gap, they will also have to make concrete steps to close it and calculate another type of pay gap - equal pay for work of equal value - which concerns all social identity groups beyond gender alone.

Second, there are higher expectations of advancing living wage/income with suppliers. Crucially, we refer here to ‘suppliers’ because there’s an expectation to work on living wages with service providers as well, meaning it’s not only about the supply chain. This reflects the growing realization that pushing requirements and commitments onto suppliers without factoring in the buyer’s purchasing practices is unfair and futile.

Want to learn more about the other Impact Topics in the draft standards?

🪧 Purpose & Stakeholder Governance

🪧 Human Rights

🪧 Climate Action

🪧 Fair Wages

🪧 Environmental Stewardship & Circularity

🪧 Workplace Culture

🪧 Government Affairs & Collective Action

🪧 Justice, Equity, Diversity & Inclusion

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