Why does KPMG love the living wage?

It cuts sick days, improves performance and cuts costs

They’re the definition of corporate, not some feel good co-op, so why does KPMG love the living wage?

Sure, it’s the moral thing to do, but above all, the accountancy firm thinks that the new hourly rate of £8.55 in London is good for business. Since introducing the living wage increase for its support staff back in 2006, KPMG has managed to reduce staff turnover by 40% at the lowest echelons of the company.

Knowing, in turn, that they could negotiate for longer contracts, KPMG found it could slash its service contract margins substantially, while helping its workers attain a better standard of living.

The improved staff retention rate also meant that employees stayed on long enough to be trained properly. This lead to improved services and lowered the number of complaints.

KPMG quickly discovered that it didn’t need as many managers to supervise staff because their living wage employees began taking on more responsibility and personal initiative. So the employment costs were cut and despite an initial hike wages KPMG services - like the in-house cafés and catering – soon began turning a profit.

The company then culled its subsidy for these perks and managed to cut overall costs. The product was a better company all-round, with happier employees.  

“There are hundreds and hundreds of thousands of people who are vital to the smooth running of businesses like our own here at KPMG,” says KPMG London chairman Richard Reid. “They’re a bit more than a small army, those who are in the front office dealing with people as they come in… the people who serve us tea and coffee who are on the security side.

“All these people make the smooth running of our company and thousands of other companies so much easier and they are so important,” he adds.

Since 2006, staff turnover has almost halved, the morale has been raised, the amount of sick days has fallen, productivity has improved and attitudes have improved, Reid explains.

“From a business point of view it has not cost us and overall it is not a question of cost. I believe that in a year or two the other benefits will really materialise,” he says.

KPMG is so committed to the living wage that it is sponsoring Living Wage Week, concluding Saturday. It is also acting as a corporate spokesperson working to spread the word among financial services firms. 

While the minimum wage of £6.19 an hour is negotiated by the government and unions, the living wage is calculated based on an evaluation of basic services and goods. It stands at £8.55 in London and £7.45 elsewhere in the UK.

Rhys Moore, director of the Living Wage Foundation says that 80% of businesses that have signed up to the living wage reported an increase in the quality of work, while absenteeism fell an average of 25%.

The wage increase is also helping recruitment, as graduates in particular are drawn in by the prospect of working for an “ethical” employer, Moore explains.

But if it’s so good for business, why are so few people doing it?

According to KPMG reports released earlier this week, around a fifth of the UK workforce is paid less than the living wage. Scotland and Northern Ireland are the worst affected regions, but London has the highest number of people (570,000) working for less than £8.55.

Logic dictates that lower wages allow businesses to cut costs. Pubs and retailers, hard-hit by the recession, have been particularly bad considering an introduction of the living wage.

But the “assumption that if you pay people less you will get the same level of service, is not true,” says a London deputy mayor Kit Malthouse.

If Olympic service providers G4S had got their pay incentive structure right, they might have been spared the disastrous consequences that followed, he explains.

Malthouse, London’s first deputy for business and enterprise, is part of London mayor Boris Johnson’s drive to pay City Hall employees the living wage.

The living wage was one of Johnson’s key campaign pledges in 2008 but was only introduced on Monday at the start of Living Wage Week. The policy quickly drew criticism from Downing Street which said that the move may be illegal to require contractors to pay it.

Leaving the feuding of politicians aside however – Ed Miliband has also suggested he supports the introduction of the living wage in Labour councils – businesses are going it alone.

The number of businesses signing up to for living wage certification is growing despite the voluntary nature of the programme. Intercontinental Hotels is the latest to come on board.

Pockets in London are also marched ahead. The Living Wage Foundation estimates that the majority of companies working in Canary Wharf already pay the living wage, even if they are not officially certified. Aside from KPMG, Clifford Chance and JP Morgan are also subscribers.

The Foundation has set an ambitious pledge to make Canary Wharf the UK’s first living wage zone by this time last year, although it freely admits it has a tough task at hand. While the financial firms are proving relatively eager, retailers are a long way behind.

Moore also acknowledges that tax reforms, such as reducing national insurance for the poorest paid workers, have the potential to increase the amount of cash that goes to those on the minimal wage. But for now, his organisation plans to keep focusing on its tactics of “persuasion” which have been so successful in getting businesses, contractors, not to mention Boris Johnson, to sign up.

Sounds like the living wage might be good for capitalism after all.

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