The world had barely begun its recovery from the devastating human and economic effects of Covid-19 before the conflict in Ukraine triggered a spike in commodity, fuel and food costs. More than 70-million people around the world could be pushed back into poverty as a result, the UN has estimated. Inflation in major economies is at the highest levels in three decades, which is putting disproportionate pressure on the poorest in society.
This is reflected in markets, with investors recognising that governments have little fiscal room to manoeuvre. Against this backdrop, the pressure on companies to support vulnerable or lower-paid workers has intensified. At the same time, their financial flexibility to do so has shrunk. However, companies increasingly recognise the importance of supporting their key assets – employees – through these difficult times. Many have chosen to take a long-term view of their business by investing in their people. To better understand the challenges facing businesses and the choices they face, we have recently engaged with leading organisations in the field, with some of those conversations preserved through podcasts.
Through those engagements and the weight of academic research, it’s clear that investing in workers’ wages can bring material business benefits. Lower staff turnover and more productive workers both make for more profitable and durable businesses. Companies must be sensitive to the competitive pressures of their industries, and blanket demands or approaches can be counter-productive if they result in reductions in workforce or increased costs of products, for example.But we consider the long-run benefits an important goal all companies should work towards. The investment benefits of paying a living wage are also clear. The chart on the right plots the returns of UK-listed companies, separated into those that have paid higher wages than the average of their sector peers over the last five years and those which have paid less. Higher-paying companies have outperformed lower-paying competitors by over 3% annually over the past five years.
More and more companies seem to agree. In the UK, our analysis shows that more companies have become accredited Living Wage employers over the last year than over the previous five years combined. We have engaged with portfolio companies to encourage fair wages for many years. Our Engagement Blueprint, published in 2022 laid out that expectation in detail. We will continue to use our voice and influence to encourage companies to continue to invest in their most important assets.
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