Where Sainsbury’s pay defence doesn’t add up

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83 shares, 144 points

Sainsbury’s investors will this week vote on whether the supermarket should commit to paying its staff the living wage.

This question has degenerated into a convoluted debate about decision-making, governance and fairness. This is largely symbolic: the resolution needs 75 per cent to pass, which given the presence of Qatar’s investment fund and Czech billionaire Daniel Kretinsky on the shareholder register with 24 per cent between them is a vanishingly unlikely outcome.

Sainsbury’s board has recommended voting against the proposal after shareholders led by ShareAction asked the supermarket to become an accredited Living Wage employer. But it is noticeable that its arguments gloss over exactly the people the motion is most trying to help.

The living wage, overseen by the foundation of the same name, is set above the legal minimum at £11.05 an hour in London and £9.90 outside the capital. It is designed to reflect what is required to live a decent life in the UK.

The irony is that Sainsbury’s can claim to be doing largely the right things. After discussions with campaigners, it increased pay so all 170,000 employees were earning the living wage, at a cost of £100mn. Over five years, pay for Sainsbury’s employees has risen 25 per cent, and at Argos by 39 per cent. It has increased staff discounts.

Sainsbury’s may have been seen as a soft prospect. The aim was to sign up a supermarket, planting a flag in a sector that has large numbers of low-paid staff in the hope the rest would follow. Sainsbury’s median base salary was £19,588 according to its annual report.

But the company has argued that it would be irresponsible to hand over control of its £4bn wage bill to an unaccountable third-party. It is a business with 3 per cent margins, in a cut-throat industry. Sainsbury’s could be left at a disadvantage, particularly against privately owned rivals, were it to commit to following accredited wage levels in future.

This is fair — up to a point. Sainsbury’s has effectively conceded that there is merit in the framework and that the legal minimum is insufficient. It would face a backlash were it to fall below the living wage levels, accredited or otherwise.

There is, however, also rising resistance among investors to the idea of micromanagement by the ESG directive. And while ShareAction argues that research shows higher wages mean better staff engagement, higher productivity and reduced turnover, Tom Gosling at the London Business School disputes that this is a win-win: if there are trade-offs between employees and other stakeholders, he says, institutions with a fiduciary duty to clients must consider whether they are in a particular position to take action, and its likely impact.

There is one area of impact, however, that’s been rather glossed over. Sainsbury’s directly-employed staff earn the living wage but its contractors and agency staff don’t. Accreditation gives three years to bring those workers up to the required pay levels. Sainsbury’s discloses very little about this workforce, which includes outsourced services such as cleaning and security.

A rough guess — based on its £500mn contractor budget against its £4bn wage bill — puts their number at more than 20,000 (likely higher as they are the lowest paid staff). Sainsbury’s boss Simon Roberts said their pay was a “key focus” but stopped short of giving more information or assurances. The company has variably said that the “majority” or “vast majority” earn the living wage.

That is entirely unclear but not unusual. In the latest Workforce Disclosure Initiative, only half of respondents said anything about working to improve contingent workers’ pay (and this is data that isn’t even made public). Living wage accreditation includes these staff precisely so that more workers aren’t pushed on to cheaper contracts. And so that they — already the people in the most precarious position — don’t bear the brunt when times get tough.

Sainsbury’s will win its vote, and a victory of sorts for board discretion. But remember when the supermarket talks warmly about “colleague pay” that expressly doesn’t include the cleaners and security workers without whom it couldn’t operate its stores.

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Source: Financial Times

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