Professionalising FM: How the Living Wage can improve the image of FM
Last year, the Royal Institution of Chartered Surveyors (RICS) launched the second edition of Strategic Facilities Management (FM) case studies – focusing on the theme of professionalising FM. The case studies, authored by International Workplace are still available to download here, but over the course of the coming weeks, we are also going to be featuring the case studies on our website for the very first time.
The first one we are showcasing here looks at the Living Wage with Guy Stallard, Head of Facilities at KPMG.
The Living Wage – the issues
Britain’s National Minimum Wage (NMW) is the statutory minimum salary per hour that most workers are entitled to, a legal floor enforced by HM Revenue and Customs (HMRC).
Set by the Chancellor each year on the advice of the Low Pay Commission, the first NMW rate was set in April 1999 at £3.20 per hour for adults over the age of 21. Since then it has risen each year to reach £6.50 per hour for adults, with the next rise scheduled for 1 October, 2015.
Research has shown that the NMW rates reflect an assessment of ‘what the market will bear rather than what is actually required to live’. In contrast, the Living Wage is an hourly wage rate that is set independently and is based on the basic cost of living in London and the rest of the UK.
Following research commissioned by the public service trade union, UNISON, a group of parents called London Citizens first calculated a 'Living Wage rate' in the early 2000s. Their calculations showed that in order for a family of two parents and two children to have a modest living standard, independent of benefits, bothparentswouldhavetoearn£6.30anhour, rather than the minimum wage rate. They launched a campaign to demand employers pay this more sustainable living wage.
In May 2011, the campaign had developed sufficiently to launch a national Living Wage Foundation (LWF). The LWF aims to promote the Living Wage, affirm Living Wage Employers, and support the integration of the Living Wage into organisational structures in the long term with the use of a Living Wage Employer accreditation system and the Living Wage Employer mark.
Over 1,000 organisations are now accredited Living Wage employers. Accreditation is auditable and awarded following signed declarations from senior management to ensure that Living Wage is actually paid rather than promised.
In addition to the accreditation system, the LWF provides assistance and intelligence for employers to implement the Living Wage, promotes the Living Wage through different mediums, and organises a series of events during Living Wage Week (the first week of November every year).
There is also a Living Wage supplier recognition scheme, which acknowledges suppliers who actively encourage their clients to pay Living Wage. This is particularly attractive to smaller organisations offering a quality product and looking to differentiate themselves in the market.
The Greater London Authority (GLA) sets the Living Wage rate in London, where the current rate is £9.15 per hour. The Living Wage rate for outside London is calculated by the Centre for Research in Social Policy at Loughborough University, based on its research into the Minimum Income Standard for the United Kingdom. The current rate is £7.85 per hour.
Paying the Living Wage is voluntary and a recognised sign of good practice in employment.
The Living Wage presents both a major opportunity and a challenge to facilities management suppliers and clients. This is because according to research, low-skilled service sector jobs predominate in terms of having the greatest proportion of people earning below the Living Wage – which includes staff who typically provide FM services such as cleaning, catering and other service activities.
Despite an increasing body of evidence suggesting that firms that pay their staff the Living Wage increase their productivity and service quality, there are concerns about how a facilities management budget could support a Living Wage programme.
Richard Sykes, Chief Executive Officer for leading services supplier, ISS, a recognised Living Wage supplier, says there is a challenge for FM in increasing the level of awareness of the benefits in paying a Living Wage and in pushing procurement departments to meet targeted savings to keep within budget.
But he believes it also presents something of an opportunity:
“Facilities management is becoming a bit of a trailblazer in adopting the Living Wage and it’s highlighting the good ethical companies that we do have in our sector. So I think in this way FM is helping to make an impact across UK Plc."
On the client side, KPMG is one of the founding partners of the LWF, where Guy Stallard, Head of Facilities, is also a business representative on the Living Wage Commission.
He believes that offering a Living Wage benefits those who receive a more sustainable standard of living; that employers benefit from enhancing their CSR reputation; and that in taking a strategic approach to offering the Living Wage, facilities management can play a key strategic role in helping to reduce costs to the whole business, improve competitiveness, market position and profitability.
KPMG in the UK is part of KPMG Europe LLP – the largest integrated accounting firm in Europe, and a leading provider of professional services. KPMG in the UK has over 11,000 partners and staff working in 23 offices and is part of a strong global network of member firms. Its vision is to turn knowledge into value for the benefit of its clients, people and capital markets.
Obviously, services such as cleaning, catering, reception and security are not in the company’s core capabilities as a professional services firm, so it uses FM experts in each of these areas to carry out these services. The firm has over 700 outsourced on-site supplier staff, many of whom are directly serving KPMG clients.
One of KPMG’s core values is that everyone who works for KPMG is paid fairly. As part of this, the firm has paid the Living Wage to outsourced staff since 2006, a measure that forms one of the core pillars of the organisation's Sustainable Procurement Programme – carbon, supplier diversity, and the Living Wage.
KPMG is a principal partner of the Living Wage Foundation and was one of the first organisations to become an Accredited Living Wage employer; pushing the strategic facilities management message into the heart of its own organisation and the wider business community.
In 2006, when Deputy Director of Finance at KPMG, Guy Stallard, took over as Head of Facilities, staff turnover amongst the services staff was high. Those in low paid jobs such as cleaning and catering were unmotivated and not loyal to the company – they’d go elsewhere for a slight increase in pay.
KPMG made the decision to carry out extensive research into the London Citizens First campaign, and in particular the benefits (or otherwise) of paying its core service staff the Living Wage. Stallard then went to the CFO and the Chief Operating Officer of the company with the proposal that KPMG start to pay its services staff the Living Wage.
This was agreed, but recalls Stallard, with a caveat – the company did not want to increase its costs. He was requested “as an accountant and Head of Facilities”, to “go away and work out how you can change the nature of how we deliver our services”.
It was not, says Stallard, feasible to expect the contractor to take a financial hit, so in terms of their margins they were protected. Because the contract would operate for the same cost, it was KPMG as the client that needed to change the parameters on how they wanted that contract to be structured.
There were a number of challenges to meet so KPMG – with the buy-in and support of its key suppliers – set out to:
- re-evaluate the service provided and the models used for delivery;
- identify opportunities for service refinement;
- motivate staff by developing skills and increasing responsibility in line with increased salaries; and
- gain commitment from contractors, KPMG's FM department and senior board members.
The process began with a re-evaluation of cleaning services. In March 2006, it was decided to pay the cleaners in the London offices the Living Wage. By October 2006 this was extended to all KPMG's cleaning staff across the country.
During that six-month period, KPMG, along with its then cleaning contractor, ISS, looked closely at the costs of running the cleaning services, to ensure wages could rise without impacting the services budget. It soon became apparent that one effective cost saving exercise would be to reduce the amount of night-time cleaning and bring in cleaners who worked during the day.
This also, explains Stallard, gave the cleaning staff a ‘double win’, as it meant that instead of having to work short shifts at unsocial times they actually had a more regular day job. The challenge, however, was in convincing staff and clients that this approach could work, as the assumption was that cleaning had to be carried out at night because no one would be happy to have it done in the day.
"When I started the conversation around daytime cleaning the first response from people was, 'How can I have a Hoover going under my desk when I’m in the office?'
"We assured them that vacuuming only accounts for a minor amount of cleaning time. We ensured that the stuff that shouldn’t be done in the day (such as vacuuming) was carried out after 6pm, and with regards to the client areas, we actually found they were much happier seeing the toilets being cleaned regularly, throughout the day."
Along with changing the hours during which the offices were cleaned, the FM team took a strategic look at exactly where the cleaners' time was being taken up. One of the most time-consuming activities, it emerged, was emptying the staff's individual desk side bins.
It was also one of the cleaners' least favoured jobs, involving food waste that would often spill on to the floor. Individual bins were also bad for the environment because they involved a lot of mixed waste.
It was decided to switch to a central recycling process, with desk side bins removed, and staff told to use appropriate bins for particular types of waste. This also had the knock-on effect of being better for staff health as they had to walk away from their desks to deposit waste.
The change was also better for security because, despite confidential waste being designated for confidential waste bins, people had occasionally been tempted to drop these documents into their desk side bin.
Although in the early years, KPMG was, in the words of Stallard, ‘very much on its own’ in offering a Living Wage, the initiative was extended later in 2006 to cover other low paid service staff, such as catering and mailroom workers. A small number of other proactive organisations contacted KPMG to ask about what they had done and what the benefits were of adopting the scheme.
Again, in order to help keep the costs down, other working methods were explored, such as offering catering staff more flexible hours and engaging them to take on additional responsibilities such as serving drinks and snacks to presentation rooms. Some innovative solutions were found for the mailroom staff. Says Stallard:
"By paying our mailroom staff more we were able to increase their responsibilities. So, where previously the mailroom staff might only have sorted and delivered the mail before 9am, lunchtime and at the end of the day – which was neither an enjoyable job nor a sensible use of labour – instead we got them to take on a wider role.
"This meant that in the middle of the day they could start doing other things like filling up stationery cupboards and setting up materials for conference rooms – so they got a more varied job and were paid better."
When KPMG consolidated its five London buildings into two in 2010 the fact that the firm had ‘the right people with the right attitude’ meant it could rely on the flexibility of its outsourced staff to continue to deliver a seamless service.
"Many of our contractors thought we were mad," jokes Stallard, looking back to around 2006, but they were reassured by KPMG's plans to cover the additional salary costs by carrying out a strategic analysis of their services delivery.
The process also led the firm to look more closely at the output specs for its services procurement process. For example, instead of asking a contractor to provide 1,000 hours of cleaning overnight, they would be asked to provide a clean space to an agreed standard. And if KPMG as the client asked the contractor to pay staff a Living Wage the contractor would help them find innovative ways to deliver this in a ‘cost neutral’ way.
Aside from the Corporate Social Responsibility (CSR) benefits of paying the Living Wage, contractors have found that Living Wage accounts are in fact, easier to run, with better retention rates, happier clients and more motivated staff, which all goes to help boost the bottom line because staff turnover is much lower.
Richard Sykes, Chief Executive Officer for leading services supplier ISS, agrees with this analysis. ISS figures show that contracts that include a Living Wage have a staff churn rate that is a third (36.9%) lower than comparable contracts not paying the Living Wage.
According to Sykes, 83% of ISS’ contracts on the Living Wage have a (on average 8%) higher level of employee engagement than comparable contracts not paying the Living Wage.
"Whilst pay itself is not directly a driver of engagement, a bi-product of the Living Wage is reduced staff churn, creating a more stable team, more time to invest in that team, and a greater sense of wellbeing."
About half of the ISS customer base now pays a Living Wage, which according to Sykes is "quite a push from where we were even a year ago when it only accounted for around 10% of customers."
"We were the first services company to join the Living Wage supplier recognition scheme, and it's been a case of then going slowly round our customers, describing the benefits of the programme to them and to us, and seeing if we can slowly move them on to paying the Living Wage in time."
Aside from the realisation that there are practical benefits to providing a Living Wage, its increasing support has also been due to the work of the Living Wage campaign, of which KPMG has been a principal partner, and has propelled strategic facilities management into the spotlight.
Benefits of the Living Wage
Although, as Stallard points out, KPMG believes that paying the Living Wage is the right thing to do, it is not just a moral matter but a very sensible business move.
The main benefits to the firm have been:
Better performance and motivation: KPMG's own experience and other studies have shown that employees in receipt of the LW feel more valued, no longer feel ‘invisible’ and demonstrate higher motivation and perform better.
Reduced turnover and absenteeism: Staff receiving the LW are more motivated to come to work and keep their jobs. At KPMG, turnover of contract staff has roughly halved since it began paying the LW.
Leading to cost neutrality: The savings made through lower recruitment churn, reduced absenteeism and better performance mean that the Living Wage can be cost-neutral or even lead to savings.
Responsible business: If business is to restore trust, then it needs to look after the welfare of its staff. The minimum wage simply does not pay enough for families, in particular, to live on.
Unlocking potential: KPMG's relationships with schools, colleges, charity partners and the KPMG Foundation have shown that the issues that prevent individuals from reaching their potential inter-lock. In-work poverty is one such issue. Enabling people to earn a little more can help them in their struggle to improve their standard of living, to meet their potential and develop a future.
Professionalise Facilities Management: Paying anything less than Living Wage in the FM, currently the fastest growing industry, is unrealistic if the brightest and most engaged employees are to be retained.
Improvement in the quality of service: as illustrated by the KPMG facilities help desk reporting far fewer complaints.
Increase in positive feedback from clients: Clients notice the difference in the quality of customer service they receive when they come to the head office at 15 Canada Square. In the client areas of this and other KPMG buildings, the outsourced staff deal confidently directly with clients as they are enthusiastic about projecting the best image of KPMG.
As a result of these benefits, Stallard reports:
"My in-house Facilities team spends less time worrying about micro-management of service issues and instead concentrates on areas such as service enhancement and strategic planning."
He explains that this enhanced level of service is exemplified in the firm's catering operations, where it now has an improved menu offer and flexible, committed staff, which benefits all parties.
The firm's in-house coffee bars now run at a profit, meaning that the FM team has been able to remove a material subsidy from the catering contract.
The benefits to the wider FM sector are also considerable, because in short, the Living Wage is helping the FM sector become more sustainable.
It is Stallard’s belief that FM cannot be a sustainable sector if half of its people are working 80 hour weeks to earn enough to live on.
"The big challenge for the facilities management sector is actually around professionalisation. Are we just trying to say that we can outsource stuff and save you money? Because that is a no win gain for all of the FM providers because they’ll just drive each other’s margins lower and lower and no one will benefit.
"What they need to do now is to say, 'We’re proud of being outsourcers, we provide you a quality offering that you cannot get by doing it yourself in-house’, and a part of that is actually having sustainable salaries for the people who deliver these services."
Aside from the initial challenge of getting his own team to believe in the feasibility of adopting a Living Wage, Stallard says it was important to re-evaluate the FM service delivery models to help finance the increased salaries.
The successful implementation of the Living Wage has been achieved because he has been able to partner with “forward-thinking FM contractors who are positive about paying the Living Wage and who readily identified structural and service opportunities to make operating changes to finance the salary effect of the Living Wage".
He adds that working with suppliers and contractor staff to develop their skills and responsibilities should form a key aspect of Living Wage preparations for all organisations.
Stallard warns that, without these considerations, it is likely that contract costs may initially rise during the move to a Living Wage, but argues that when changes are put into action, these costs can be mitigated in the medium- and long-term.
The KPMG Board tasked the FM team to keep the effect of implementing the Living Wage at worst cost-neutral, and, says Stallard, "thankfully I have succeeded and now actually have FM costs which are lower than in 2006". He says:
"I re-emphasise the support and expertise of my suppliers was an important part of our success in making the Living Wage a cost-effective change, whilst simultaneously providing a greater quality of service delivery."
Government support has also played a significant role in raising awareness of Living Wage and we may eventually find that politicians will show a strong preference for only working with Living Wage suppliers. Measures must be taken to rectify the fact that the majority of those living in poverty in the UK are actually in employment.