Workers in the Supply Chain

The idea of a living wage is that workers – and their families – are able to afford a decent standard of living that is considered acceptable by society at its current level of economic development. A fair compensation approach goes further than this. It considers the fairness of the wage that a worker is paid by benchmarking whether wages meet all legal requirements, are paid in full and on time, reflect a worker’s performance and skills, follow price increases paid for the products they make, are linked to their employer’s profits and sales, are negotiated individually or collectively with the workers and are clearly and formally communicated to them, among other factors.

The workers employed in our supply chain should not have to face hardship in their daily lives. Our aspiration as a responsible business – and as set out in the core principles of our Workplace Standards – is that workers earn enough for themselves and their families’ basic needs and have income remaining to cover discretionary spending as well as savings. We seek business partners who progressively raise employee living standards through improved wage systems, benefits, welfare programs, and other services which enhance quality of life. Our ambition is to see progressive improvements across all fair compensation benchmarks and achieve gender wage parity for workers in each of our strategic Tier 1 suppliers by 2025.

Calculating and paying fair compensation within global supply chains is complex. Wages are determined by the general economic conditions and cost of living in a country, by national laws and government policy, and a number of other variables. We recognize we cannot do this alone, and continuously seek to work and collaborate with other entities to make fair compensation a reality for workers in the supply chain.

As a member of the Fair Labor Association (FLA), we have aligned our fair compensation approach and strategy with FLA Benchmarks and their Fair Compensation Methodology. Additionally, we have joined the Anker Research Institute (ARI) as a Corporate Sponsor to learn from ARI’s technical expertise and the larger living wage community that ARI brings together. As part of our fair compensation strategy, we have also adopted ARI’s living wage definition, which includes living wage components such as food, water, housing, education, health care, transportation, and discretionary income to help deal with unexpected life events. These parameters inform ARI’s living wage estimates, which are incorporated into the available the Global Living Wage Coalition benchmarks, which we use to measure and track wage progress.

Our approach to the payment of fair compensation in our global supply chain is built around five levers that influence wage development: legal obligations, responsible sourcing and purchasing practices (RPP), productivity, government engagement, and industrial relations. For each lever, we have a program of work to support fair compensation and wage progression. To measure and track wages, we use the FLA Fair Compensation Assessment Tools and guidance to assess our suppliers. Finally, we will also build on our existing efforts with a focus on gender equality, pay equity, and responsible sourcing practices.

DATA COLLECTION

To measure and track wage progress over time, we will use the FLA’s Fair Compensation Data Collection Tool to collect wage data from a sample of our key global suppliers. Data will be collected and compared in three different years: 2020 (our baseline year), 2023 (our mid-point year), and 2025 (our final year). The results of these wage assessments will be used to help evaluate the links between wage progress and our five levers.

Due to the global pandemic, we extended the collection of our 2020 baseline wage data in phases through to 2023, the results of which are published below. For 2024, we will be collecting 2023 wage data from our selected suppliers; this data will be compared to our 2020 wage data and results will be disclosed in 2025.

BENCHMARKING RESULTS

The figures below illustrate the full results of our 2020 wage benchmarking of our selected strategic suppliers in the six countries below. The scope of our benchmarking includes workers’ net average wage and excludes consideration of any overtime income. Workers’ total take-home pay can be higher than the wage data presented below. It is important to note that the figures below are based on factory averages, therefore, some workers may earn higher wages, while others may earn lower wages; however, under no circumstances will a wage below the minimum wage ever be acceptable, and none were found in our wage assessments.

For these results, we compared the collected wage data against external benchmarks, such as the applicable legal minimum wage and the FLA Country Average, which represents the industry average. The FLA Country Average Benchmark is only available as a country-wide average, and not for each applicable minimum wage group and/or region in countries with multiple minimum wage requirements. To avoid inaccuracies, we will only apply this benchmark in countries where the minimum wage is calculated for the entire country and not by various regions or groups. For our living wage benchmark, we have selected the GLWC benchmark, whenever available. Finally, we are using the World Bank’s International Poverty Line as a constant benchmark in all applicable countries. In the future, we will be able to compare wage progression across our benchmarked countries by tracking and measuring the relationship between factory wages and the World Bank International Poverty Line. Our goal is to move wages away from this benchmark. All amounts below, except for the minimum wage and World Bank International Poverty Line benchmarks, are in their net format (excluding legal deductions).

Cambodia (ten factories/33,719 workers):

• There is only one applicable minimum wage requirement applicable for factories in Cambodia.
• All factories met the minimum wage.
• 90% of our factories are unionized; 10% have a Collective Bargaining Agreement (CBA) in place.

China (14 factories/31,851 workers):

• Factories in our data collection scope fall into 10 different minimum wage requirement groups.
• Across all minimum wage groups, factories’ net wages surpassed their applicable minimum wage requirement by between 13% and 159%.
• 79% of factories in China have a state-backed trade union and 43% have a CBA in place. The average net wage of all factories met the applicable minimum wage.

Indonesia (13 factories/103,763 Workers): 

• Factories assessed in Indonesia fall into 10 different legal gross minimum wage groups, with widely varying minimum wage requirements.  

• Across all minimum wage groups, wages paid surpassed the legal minimum wage by between 9% and 66%. 

• 92% of factories are unionized and have a CBA in place. 

Pakistan (two factories/10,455 workers):

• The factories in our sample are located in the same province and must adhere to the same minimum wage requirement.
• Factories in Pakistan within scope are not currently unionized.

Thailand (four factories/8,072 workers):   

The minimum wage in Thailand is officially calculated as a daily wage. For reporting and tracking purposes, we have calculated a monthly wage based on the daily wage using the same formula as FLA: [the number of working days in the year multiplied by the daily rate] divided by 12 months in a year.  

• Our applicable factories in Thailand are located within 3 different legal minimum wage groups.  

• Across all minimum wage groups, wages paid surpassed the legal minimum wage by between 36% and 44%. Currently, none of the factories are unionized.  

Vietnam (17 factories/113,776 workers):

• Our factories are located within three legal gross minimum wage zones.
• Factories surpass the minimum wage by between 72% and 78%, and the Global Living Wage Coalition benchmark by 18% where applicable (Zone 1 only).
• 100% of our factories have a state-backed union and a CBA in place.

APPLYING OUR LEVERS

Legal Obligations

Fair compensation cannot be achieved without first ensuring factories meet the legally required minimum wages and benefits. We demand that our suppliers, as employers, pay the legally required wages and benefits, on time and in full, and we monitor our suppliers to ensure this. We expect there to be equality in pay for men and women. We verify the compliance status of our suppliers with the expectations outlined in our Workplace Standards through internal and third-party audits, worker hotlines and grievance processes. Where we find evidence of non-compliance, we recommend remedial steps and actively engage with our suppliers to implement corrective action, drive improvement, and prevent recurrence. However, where a supplier fails to meet our expectations or take the necessary remedial or preventive steps, they will be subject to enforcement action, up to and including termination of the business relationship. Wherever new and higher wages are established (whether by collective agreement or government minimum wage adjustment), we require our suppliers to meet those wages and any other legally mandated allowances and benefits. Our purchase price is adjusted accordingly, within the normal cycle of price negotiations, to reflect our business partners’ costs of doing business.

Below are examples of the activities we have performed to support our legal obligations lever:

• We worked on the remediation and/or advancement of country-specific issues such as:
• Karnataka, India – Minimum wage requirement: Our team worked with our licensees and other buyers at three supplier factories to ensure workers were paid back wages after the local labor court ruled in favor of a new minimum wage that factories had previously challenged in court.
• Mexico – Overtime (OT) pay: Together with other participants in the Americas Group intitiative, we supported the drafting and implementation of an OT memo brief requiring OT premiums to be based on full integrated wages, including incentives and benefits, rather than just hourly wages as per legal court precedent. We have verified factories are all in compliance with the memo brief and will continue to monitor factories against this court decision.
• Pakistan – Minimum wage implementation: We worked with suppliers to implement the new minimum wage quickly, given previous delays in its approval. Two-thirds of our factories implemented the new minimum wage before it was officially announced, allowing workers to receive their minimum wage as soon as possible.

Responsible Sourcing & Purchasing Practices (RPP):

At the end of 2017, we launched our Responsible Sourcing & Purchasing Practices Policy to ensure our sourcing and purchasing decisions do not impede or conflict with the fulfillment of the adidas Workplace Standards, including the payment of wages to workers. To complement this policy, we added 10 Buyer Commitments in 2020 to guide our responsible purchasing.

To better understand the potential impact of adidas’ purchasing practices, we have sought feedback from our manufacturing partners, both anonymously and openly, through our subscription to the Better Buying Institute, an independent organization that assesses and reports on the purchasing practices of participating brands, and through our own engagement with our suppliers. Based on this feedback, we have continued our efforts to improve our purchasing practices. Some of the RPP improvements related to fair compensation are:

• Enable greater transparency on demand forecasts to help suppliers plan ahead. In addition to providing refreshed market forecasts at the article/model level on a monthly basis, we also engage directly with suppliers to provide a qualitative outlook and visibility on the inventory situation and consequential demand trends beyond the forecasts. Furthermore, we also provide an annual capacity roadmap with at least two seasons of forward-looking capacity expectations. These detailed demand and capacity forecasts help suppliers to plan their financials much more effectively, which impacts their ability to pay their workers on time and in full.
• Adjusting delivery KPIs to remove one-size-fits-all approach. Lead time expectations are now driven by product complexity.
• Revised costing framework to better reflect inflation in overhead calculations.
• Provide greater visibility into existing financial support programs such as prepayment options and vendor financing programs.
• Adopt new ways of working from 2023 that give suppliers greater ownership and self-governance, along with clear expectations and transparent guidelines.

Furthermore, in partnership with Better Buying, we expanded our e-learning training on responsible purchasing practices to over 4,000 employees in Global Operations. In 2023, the training was also shared with the US Demand Planning team and adidas strategic licensee partners to further improve their understanding of effective responsible purchasing policies.

Productivity

The issue of calculating and paying fair compensation within global supply chains is complex and often linked to productivity and efficiency. We support productivity initiatives and technologies to reduce work hours and improve pay for performance. Additionally, as we look to the future, we believe that technology and automation will increase the demand for skilled workers, creating an opportunity for improvements in wages and benefits. However, automation may also reduce the overall demand for workers. As a result, we need to capitalize on the positive impact of technology and automation, while also being sensitive to the impact on employment that comes with new ways of working. In late 2022, we participated in a fair compensation pilot in Vietnam to assess and understand how purchasing and production practices, compensation systems, and opportunities for worker engagement can improve wages for workers. The project is scheduled to run through mid-2024, and we hope it will help us identify ways to link productivity gains to fair compensation.

Government Engagement

Governments play a key role and have a responsibility in protecting and promoting human rights, including upholding the ILO (International Labour Organization) labor conventions and fundamental principles and rights at work. Governments can also help normalize industrial relations and workers’ ability to organize and bargain collectively. If we want to see long-term and sector-wide improvement in wages and worker welfare, we need to engage with policymakers and national governments.

Below are some examples from the past calendar year of our government engagement efforts in support of fair minimum wage setting mechanisms and long-term social protection.

• Bangladesh: We were signatories of a multi-brand letter sent in October 2023 to the Bangladeshi Prime Minister calling on the government to ensure minimum wage negotiations include open dialogue and consultations with labor groups and trade unions, and that any proposed new minimum wage is sufficient to provide workers with discretionary income in addition to covering basic needs.
• Pakistan: In September 2023, together with FLA representatives, we met with the Punjab Secretary of Labor to raise our concerns about an ongoing delay in the implementation of the minimum wage, which was originally scheduled to take effect in July 2023. The new minimum wage was implemented shortly after.
• Myanmar – MADE in Myanmar: The EU-funded Multi-stakeholder Alliance for Decent Employment in the Myanmar apparel industry (MADE in Myanmar) was launched in December 2022. The initiative aims to raise higher wages for workers, with the ultimate goal that all workers are paid at least a living wage. To support this process, participating companies in MADE commit to sharing a self-assessment of the actions they are taking toward wage improvements, including wage surveys.

Industrial Relations

Strong and effective industrial relations foster dialogue, transparency, and problem-solving capabilities between employers and workers. They also provide a mechanism for workers to negotiate their working conditions through collective bargaining, which can lead not only to better wages and working conditions, but is also covered by two of the ILO’s fundamental rights at work conventions, the Freedom of Association and Protection of the Right to Organize Convention, 1948 (No. 87), and the Right to Organize and Collective Bargaining Convention, 1949 (No. 98). The path to improving the general welfare of workers is supported by the creation of wage-setting mechanisms that are transparent and have been developed with the direct input of workers. Ideally, this occurs through negotiation or collective bargaining with established and freely elected trade unions, or through alternative legal means such as workers’ councils or welfare committees. Below are some examples of some recent efforts:

• El Salvador-FOA Guidance: As a participant of the Americas Group, in 2023 we helped launch ‘The Employer Guidance: Ensuring Respect for Freedom of Association in El Salvador,’ drafted by local experts, in consultation with local labor stakeholders. The aim of the guidance is to provide factories in El Salvador with clear guidance on the policies and practices that are to be adopted to ensure workers’ FOA rights are respected. The Guidance was issued in October 2023 and introduced to suppliers in an in-person training session in November 2023 hosted by the Americas Group. Since 2024, we have been working individually and collectively with other buyers to implement the Guidance in our supply chain.
• Mexico-CBA Authentication Reviews: i. We continue to engage with the Americas Group Mexico Committee to leverage collective action to advance freedom of association. ii. We have worked to verify that all applicable suppliers are in compliance with the 2019 Mexican Labor reform’s CBA Legitimization processes.
• Türkiye: In 2023, we partnered with a local industrial relations expert to provide training to workers at a key manufacturing partner. The aim of the training was to raise workers’ awareness of their FOA and CBA rights under Turkish law, as well as adidas' approach to protecting and upholding these fundamental rights.
• Vietnam FOA Training: In late 2022 and throughout 2023, over 20 strategic suppliers enrolled in a three-module training series sponsored by Better Work Vietnam. The training focused on: i. Trade unions rights and responsibilities and industrial relations management; ii. Grievance mechanisms; and, iii. Collective bargaining agreements.

Finally, we also seek to leverage freedom of association/social dialogue among our own suppliers. The case study below highlights industrial relations at our owned facilities in Scheinfeld, Germany:

Industrial relations at Scheinfeld: Fostering Collaboration for Fair Compensation 

At the adidas-owned factory in Scheinfeld, Germany, robust industrial relations mechanisms are in place to ensure transparent and equitable processes, particularly regarding wages and benefits setting. In line with the German Co-Determination Act (Betriebsverfassungsgesetz – BetrVG), the factory engages in formalized communication and negotiation with the adidas Works Council, adhering to both legal requirements and voluntary agreements. The dialogue between factory management and the works council is structured around key principles such as information sharing, consultation, and participation. Through regular face-to-face meetings and ad hoc consultations, topics ranging from workplace changes to personnel planning are discussed. In particular, the Works Council has the right of initiative and veto to ensure a balanced decision-making process. 

When it comes to compensation, Scheinfeld navigates a complex landscape of centrally negotiated collective agreements with industry bodies and individual company agreements. While exempt employees negotiate individually, non-exempt employees benefit from collective agreements, with the Works Council ensuring compliance and fairness. Moreover, the Works Council actively negotiates local agreements, such as adjustments to working hours and shift systems, demonstrating a commitment to tailoring compensation to local needs. With regular negotiations and agreements subject to review, Scheinfeld prioritizes ongoing dialogue and collaboration to uphold fair compensation practices. 

OUR PROGRESS 

2023 | We complete our 2020 benchmarking of strategic suppliers across six countries – a three-year effort. And we begin to publicly disclose our 2020 wage data collection.   

2022 | We complete 2020 data collection across our three primary sourcing countries of Cambodia, Indonesia, and Vietnam. We join the FLA’s fair compensation pilot in Vietnam and continue to support the FLA in their improvement to the Fair Compensation Dashboard. We pilot freedom of association training in Vietnam to support our industrial relations/social dialogue lever. At the end of the year, we become a corporate sponsor of the Anker Research Institute.  

2021 | We revise our Fair Compensation Plan by identifying two primary goals and five wage levers and incorporate Fair Compensation into our 2025 strategic priorities. We publish the adidas 10 Buyer Commitments as part of our Responsible Sourcing & Purchasing Policy on our website. 

2020 | In response to covid-19, we commit to pay for all completed or in-process orders. We join the ILO Call to Action to help address the impact of covid-19 on the garment industry and workers. We integrate our 10 Buyer Commitments into our existing Responsible Sourcing & Purchasing Practices Policy. 

2019 | Through our continued participation in the FLA’s Practitioners’ Working Group, we support the FLA’s efforts to improve its wage collection tools and online dashboard to facilitate the collection and analysis of wage data. We review and analyze the data collected and share the insights gained from our Better Buying report with our internal sourcing partners. 

2018 | We publish our Responsible Sourcing & Purchasing Practices Policy. We participate in the Better Buying survey to gather supplier feedback. We complete wage data collection in two of our largest sourcing countries, Indonesia and Vietnam. 

2017 | adidas joins the FLA’s Fair Compensation Practitioners’ Working Group with the aim to improve the FLA’s wage collection methodology and tool. We collect data in Cambodia, Honduras, and Ukraine to test the upgraded FLA Fair Compensation Wage Data Collection tool and begin conducting wage analysis in our supply chain. 

2016| Our Workplace Standards are updated to include additional commitments related to human rights and to various code provisions, including wages and benefits. We conduct initial pilots of the FLA’s Fair Compensation Wage Collection tool in Brazil, Cambodia, China, Honduras, Indonesia, Mexico, Türkiye, and Vietnam. 

2015 | We adopt our Fair Compensation Strategy based on the three pillars of the UN Guiding Principles and aligned with human rights concepts. We begin working in tandem with the newly adopted FLA Fair Compensation Strategy. 

2013 | We share our work and experiences on fair wages at the European Conference on Living Wages in Berlin, Germany. 

2012 | We extend the Fair Wage Network assessment to include a quantitative evaluation of the outcomes of assessments at four suppliers. 

2011 | We engage with the Fair Wage Network to assess the fairness of wages paid by 26 suppliers in seven countries. 

2010| We revise and update our Employment Guidelines to include language on fair compensation. 

2009 | We provide access to selected factories in Asia as part of the initial research into fair wage concepts conducted by Professor Daniel Vaughan-Whitehead and the Fair Wage Network. 

2007 | We issue a new set of Workplace Standards with updated wage provisions, highlighting the need for discretionary spending and savings. 

2005 | We commission an econometric study for a cross section of footwear and apparel suppliers in China to examine wages, productivity, and incentive payments for workers. 

2004 | adidas hosts the first-ever MNC-led fair wage workshop bringing together government, manufacturers, and trade unions to discuss living wage concepts, wage growth and the impact of wages on employment. We publish a guideline on worker cooperatives to support savings and loans for housing and the establishment of worker food cooperatives. 

2003 | We commission a two-year study on fair wages in Indonesia that examines different living wage methodologies. Also in 2003, we appoint a leading economist to review the research output from the Indonesia Living Wage Study and advise on wage benchmarks for Indonesia. 

2001 | We publish our Employment Standards to explain how wages and benefits (and a range of other labor rights) should be respected and delivered. 

1998 | adidas publishes its Standards of Engagement, which include wage and benefit expectations for suppliers. 

FAIR COMPENSATION GLOSSARY 

Cash benefits: Cash payments made by the employer that are not linked to performance or productivity. Examples: housing allowance, transport allowance, any non-production-related bonus. Vacation, hardship/hazard and profit-sharing bonuses are also included. This may also include legally required benefits such as 13th month pay, national and holiday cash bonuses if received during the year. 

Fair compensation: Compensation that ensures that workers earn enough to meet the basic needs of themselves and their families, and have income left over for discretionary spending and savings.  

In-Kind benefits: Goods and services provided by the employer to the employee as part of the compensation package. These goods and services should be provided free of charge or at a reduced cost to the employee. Examples: housing (such as a house or apartment), utilities for housing (such as water or electricity), meals, food rations, goods provided at a discount, transportation, childcare, education for workers' children, and private health insurance if not required by law. 

Living Wage (as defined by the Anker Research Institute): remuneration received for a standard work week by a worker in a particular place sufficient to afford a decent standard of living for the worker and her or his family. Elements of a decent standard of living include food, water, housing, education, health care, transport, clothing, and other essential needs, including provision for unexpected events. 

Minimum Wage (as defined by the ILO): The minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract.  

Net Wage Formula (as defined by the Fair Labor Association methodology): Net wage includes the basic contracted wage, in-kind and cash benefits, and deducts taxes and other deductions. Net wage does not include incentive or leave wages, unless otherwise specified, and never includes overtime wages. 

Wage benchmarks: A wage or economic indicator used for comparison purposes. Examples of wage benchmarks include the minimum wage, a living wage benchmark, international poverty lines, etc. Throughout the strategy, we will compare factory net wages to various wage benchmarks to track and measure wage progress. 

Although everyone’s human rights and fundamental freedoms must be respected and upheld, particular attention must be given to vulnerable groups, minorities, or those whose circumstances open them up to exploitation or the abuse of their rights. It is for this reason that we have developed specific programs and initiatives to address topics such as child labor, migrant labor, forced labor, trafficking and women’s rights. These initiatives are summarized below.

As a responsible business, we believe that worker-management communication is vital for the success of any business enterprise. Workers must have access to effective communication channels with their employers and managers, both as a means of exercising their social and economic rights and to help them resolve workplace issues and disputes.

One important channel for worker-management dialogue is through trade union representation. Our Workplace Standards clearly emphasize that our supplier partners must recognize and respect the right of their employees to join associations of their own choosing and to bargain collectively. Our business partners must also develop and fully implement mechanisms for resolving industrial disputes, including employee grievances, and ensure effective communication with employees and their representatives.

Our approach

A worker’s right to freely associate must be protected. No employee should be discriminated against because of their trade union affiliations. Our approach to effective workplace communication and ensuring freedom of association (FOA) in our global supply chain is built on three pillars and aligned with basic human rights concepts.

Workers in factories face risks from fire, accidents, and toxic substances. Our Workplace Standards are explicit about the need to protect workers from these risks and ensure they have a right to adequate lighting, heat, and ventilation as well as access to suitable sanitary facilities. Taking a structured approach is the best way our suppliers can ensure workers’ health and safety. We require them to establish a health and safety management system that adheres to the standards and procedures of the international standard OHSAS 18001.

We are committed to tracking and reporting health and safety incidents in our supply chain. In 2018, we started to track the incident and severity rates across our strategic suppliers globally, and plan to report this figure in the coming years. In addition, we have initiated a machine safety project at major footwear suppliers in Indonesia, one of our main sourcing countries. The aim of this is to precisely assess machine safety conditions and associated risks, as the majority of accidents in footwear factories are caused by machines. We have expanded the project scope in 2019 to cover additional suppliers and sourcing countries. 

Through our own monitoring, we are aware that breaches of good health and safety practices have historically been responsible for approximately half of all cases of non-compliance with our Workplace Standards. We therefore remain diligent in supporting suppliers to establish health and safety management systems by producing guidelines and training modules that help to meet the requirements of our Workplace Standards. We also support an academy to increase the pool of qualified environment, health and safety managers in southern China.

Managing chemicals

Chemicals are widely used in global textile and apparel supply chains: from the cotton fields to the mills and dye houses that make the fabric and the garment production. It is our goal to work with our suppliers and the chemical industry to eliminate and to reduce the discharge of hazardous chemicals in our sphere of influence as far as possible. But the management of chemicals in multi-tiered supply chains is a complex challenge, requiring many stakeholders to play a role in achieving effective and sustainable solutions.

Chemical management at adidas

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