Given the casual dress code, the big black dog resting in front of the bar and the beautiful interior of glass, wood and steel, the brewery appears a nice place to work. So do the other boutique businesses on this trendy stretch of Toronto’s Ossington Avenue. What makes the brewery different is the formal commitment made to its workforce as one of the original signees of Wagemark – a recently launched international standard for workplace wage ratios.

To receive Wagemark certification, an organization’s top-paid employee cannot make more than eight times the average compensation of the bottom 10 per cent. The foundation of research the non-profit builds on suggests the wider the income gap, the poorer the performance of both companies and countries. But will the idea sell?

“We actually are pro-capitalist,” says Peter MacLeod, Wagemark’s founder and interim executive director. “We just want everybody to enjoy the fruits of their productivity. It’s about competitiveness. It’s about business, sustainability, the durability, the resilience of an organization.”

MacLeod argues places such as Scandinavia and Japan are examples for the rest of the world. “You look to societies with low income disparities and you see that they not only outperform us around [quality of life], they also outperform us on some important economic indicators, whether it’s productivity, whether it’s a social-economic indicator, like generational mobility.”

In a report published by the University of California, Berkeley, in September, economist Emmanuel Saez found that post-recession income gains made in the U.S. from 2009 to 2012 were 31.4 per cent for the top 1 per cent compared to 0.4 per cent for the remainder. Bloomberg reported in April that J.C. Penney’s CEO had been paid 1,795 times as much as the average company employee.

MacLeod says Wagemark isn’t about “naming and shaming” companies and their leaders, nor does he expect such companies to sign up. But J.C. Penney could learn something from the fallout after its CEO’s golden parachute, when the company’s share price slid, MacLeod points out. “The company has rarely been in a weaker position. They can take whatever lesson from that they like.”

Income disparity has received increased political attention in the United States lately. The Securities and Exchange Commission (SEC) is preparing to vote on a proposal that will require companies to reveal the pay gap between CEO compensation and the median compensation of their workforce, based on a sample of employees. The proposal is a mandate of the 2010 Dodd-Frank Act and expected to pass with three out of five SEC votes; two Democratic and one independent versus two Republican.

While not as extreme as those in the U.S., pay gaps in Canada have also increased. According to the Canadian Centre for Policy Alternatives, the 50 highest paid CEOs made over 200 times as much as the average Canadian wage in 2011, compared to 85 times in 1995.

Wagemark, which is Toronto-based, was inspired in part by The Spirit Level, a book written by British epidemiologists Kate Pickett and Richard Wilkinson. The two researchers argue that equal societies are better for all who live in them. Wilkinson has served as an advisor to Wagemark. “It’s at work we have most to do with each other, yet it’s at work we are most divided by hierarchy. We can change that,” says Wilkinson on the phone from London. “Work ought to be the place where we can get our sense of purpose and our sense of self-worth and appreciation by others.”

Taking a step back, Wilkinson argues, “The big, long-term objective for progressive politics, as well as dealing with sustainability, has got to be to democratize our economic institutions, to extend democracy by pursuing all forms of economic democracy. I do regard the bonus culture as an indication of a lack of any democratic constraint on people at the top. They think they can do just what they like.”

When The Spirit Level was published in 2009, it was predictably lauded by the left and lambasted by the right. As Pickett and Wilkinson write in a postscript to their 2010 edition, the criticism has often been political, not scientific. They maintain that mental health, physical health, obesity, educational performance, teenage births, violence, social mobility and imprisonment all relate to levels of inequality.

The authors dedicate a chapter of their book to the connection between inequality and sustainability. “Given what inequality does to a society, and particularly how it heightens competitive consumption, it looks not only as if the two are complementary, but also that governments may be unable to make big enough cuts in carbon emissions without also reducing inequality,” they write. Interestingly, according to data cited in The Spirit Level, business leaders in more equal countries tend to be more positive towards public policy that complies with international environmental agreements than their peers in more unequal countries.

MacLeod says he doesn’t expect every company to agree with the worldview Wagemark represents, but he’s not necessarily going after the Fortune 500. His focus instead is on medium-sized organizations that have hundreds of employees, not tens of thousands; that have tens and hundreds of millions of dollars in revenue, not billions; and that have strong corporate cultures where people still have a sense of being a part of the same organization.

He also doesn’t expect Wagemark to be a silver bullet for workplace inequality, but more of a long-term contribution to a broader movement for societal equality. Included in this movement are Pickett and Wilkinson’s organization, the Equality Trust, and other national and international advocacy groups and policy initiatives, such as those pushing for increases to minimum wage or “living wage” levels.

It’s a work in progress, and adjustments could become necessary in some scenarios. Take outsourcing. What if a profitable company meets Wagemark’s standard within its own facilities, but not when taking into account the factory workers who produce the company’s product through a contractual arrangement?

“We can’t write a licence that prohibits explicitly all sorts of business activities,” says MacLeod. “But to be perfectly frank, I don’t think those kinds of businesses are going to be attracted to Wagemark initially.”

Some big American companies, on the other hand, have demonstrated a commitment to maintaining modest wage gaps relative to others in their industries since long before Wagemark. Costco is one frequently cited example. In the midst of the economic downturn, while competitors struggled and tightened belts, Costco raised employee salaries, which are over double minimum wage – yet the company has thrived. According to Businessweek, the company plans on expanding internationally, opening outlets in France, Spain, Japan, Taiwan and South Korea over the next five years.

But falling within Wagemark’s 8:1 pay ratio will be a huge challenge for big companies, more so in specific sectors that have a proportionately higher number of low-skilled, lower-paid workers. According to data compiled by Corporate Knights Capital – which looks at CEO compensation relative to a company’s average worker pay (as opposed to an average of the bottom 10 per cent) – the global average ratio is 133:1 and 113:1 for consumer discretionary and consumer staples, respectively.

At 139:1, Costco is above the global average, according to U.S. union federation AFL-CIO. But compared to Walmart, which comes in at 597:1, Costco still looks like a champion of the people. On the other hand, ratios for the high-skilled utilities and health care sectors are 57:1 and 53:1, respectively.

“We completely accept that in different industries it could be more difficult,” says MacLeod. “We’re starting with 8:1, and it’s our hope and intention over the next two years to bring on several thousand organizations. On the issue of how we evolve the standard, it’s a question we’ll have to pose to our membership, so stayed tuned.”

Already, Wagemark is preparing this fall to unveil its Tier 2 certification designed to appeal more to larger companies. The pay ratio standards would range from 9:1 to 30:1 depending on a company’s revenues. The higher the revenues the wider the allowable pay gap.

Small and medium-sized companies, meanwhile, continue to sign up to Wagemark. Mike Clark, co-owner of Bellwoods Brewery, doesn’t see the current standard too much of a burden. As one of the more than 20 companies that have so far joined, the brewery is aiming to have a pay gap of between 3:1 and 4:1 over the next few years. Today, it has 35 employees, but Clark has plans to expand. Complying with Wagemark, he says, shows employees they are being treated fairly and with respect, and helps retain them.

“It just makes me feel so good about the people that I’m working for and the fact that they’re conscious of building a team that’s going to progress together,” says Bellwoods staffer Kristi Porter.

The post Corporate pay pals appeared first on Corporate Knights.

Enter the Sustainable Purchasing Leadership Council (SPLC), launched this past summer. The non-profit’s mission is to provide a space for measuring, guiding and recognizing leadership in sustainable purchasing. One of its greatest strengths, the broad stakeholder representation, also provides one of its greatest challenges: How to prioritize so many different interests? It’s a challenge the council’s interim executive director and members say they’re eager to face.

According to SPLC executive director Jason Pearson, the council’s ambitions within sustainable, institutional purchasing are analogous to the accomplishments of the Leadership in Energy and Environmental Design (LEED) standards established by the U.S. Green Building Council (USGBC).

“One of the reasons that USGBC has been successful is that it has identified a place in the marketplace where some very important decisions are made by a relatively small group of people,” says Pearson. “We see the decisions that are being made by the procurement profession as a similar type of decision, a very important decision that once made has significant economic, social and environmental consequences.” By the council’s calculations, institutional purchasing in the U.S. alone accounts for 10 per cent of global greenhouse gas emissions.

The SPLC grew out of an earlier initiative, the Green Product Roundtable, which focused on two questions: What is a green product? And what is a credible green product claim? The results of those discussions became the intellectual framework for the council, which is made up of 33 initial members – 15 institutional purchasers, 11 suppliers and seven advisors.

Pearson says one half of what the council will do is coordinate, support and enhance the activities of its members. Second, it will build resources, including a set of principles for leadership, a global survey of existing resources in the short term, and a rating system expected to be in testing by 2015. Although the council is global in aim, the initial system will focus on North America.

To create these resources, the council will have to prioritize the varied interests of its membership. Pearson says the SPLC will likely identify some broad categories of particular importance. “Some examples that I think are obvious would be electricity purchasing, purchasing of food and food services, construction, fuels – we know that these are very important categories to understand and focus on.”

Pearson uses institutional food purchasing as an example of how prioritization will also need to be done at a sub-category. Some organizations might be inclined to focus on whether food is organic, others on whether it’s local and still others on how much food is being wasted, he says. “The question of what leadership looks like and how much weight you assign to any of those actions – buying organic, buying local, reducing food waste – will be an interesting conversation,” says Pearson. “One that we look forward to, but one that will be challenging to resolve.”

From a seller’s perspective, a major challenge in the past has been what CarbonNeutral’s Mark LaCroix calls the “institutional inertia” of large, bureaucratic organizations. “My hope is that we stop looking at sustainability as this separate department or program and we start integrating it into the lens through which we view the entire business,” says LaCroix. “We offer a service or a product that is, frankly, not well understood,” he says, referring to environmental credits. A typical corporate procurement group, according to LaCroix, won’t know what questions to ask.

“We need help,” agrees Kent Allin, chief procurement officer for the state of Minnesota. “Cleaning products is one example of where you start looking at those environmental labels and your head starts to spin.” Without support, Allin says, “The issues get so complex that the buyers really can’t be experts in all the things they need to know.”

Billy Goldsmith, U.S. national coordinator for Fair Trade, a founding member of and market advisor to the SPLC, describes the council’s challenges as opportunities. “I have not seen a more diverse, yet focused group of stakeholders come together for something like this before,” Goldsmith says. “In my mind, the challenge is really going to be navigating all those opportunities and just figuring out the most strategic steps forward.”

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The Alberta Heritage Savings Trust Fund has grown by less than $5 billion since the late 1980s, equivalent to an increase of about 25 per cent. Norway’s “oil fund,” as it’s best known there, is the largest sovereign wealth fund in the world, passing 4,000 billion Norwegian krones earlier this year (over $680 billion) and amounting to a 25 per cent increase since only 2010.

A closer look at the Norwegian fund, however, reveals a bubbling controversy.

From a solely financial perspective, concerns over the fund are anchored in 2025, when interest is projected to hit a peak and begin declining. In 2001, the Norwegian government implemented “the fiscal rule,” which limits use of the fund in the national budget to 4 per cent. The rule was intended to keep fund withdrawals lower than interest – around 4 per cent at the time – ensuring continued growth. Today, Norwegian economists and other experts in the field are speaking out against the rigidness of the fiscal rule and what they argue is an overall inefficient and unsustainable spending strategy.

“It seems to be a plan that is giving this current generation all the benefits and future generations more of the costs,” says Hilde Bjørnland, an economist at BI Norwegian Business School in Oslo. In January, Bjørnland gave the keynote address at the annual general meeting of the Confederation of Norwegian Enterprise (NHO), where she warned against a swelling oil dependency. In 2009, the Norwegian government increased use of the fund in the national budget to about 5.5 per cent to mitigate for the international financial crisis – a move Bjørnland says most economists agreed made sense, and which the fiscal rule allows for during economic downturns.

The issue, Bjørnland told the NHO conference, was that while the percentage of the fund being used has been cut back to around 4 per cent, the absolute amount being used has not. On the contrary, that amount has ballooned as the fund continues to grow. A large portion has gone to boosting public employment, while jobs in the private sector have dwindled. Under the current government, now at the end of its second four-year term, the number of public employees has risen by more than 10 per cent, with soaring salaries to boot.

Hence, once interest on the fund begins to decrease around 2025, Bjørnland explains, something will have to give. That something could mean tax hikes or depleting the oil fund, but it could also mean cuts to public employment and to the famously comprehensive Norwegian welfare system, which has helped put Norway at the top of the United Nations’ Human Development Index every year since the UN began releasing the ranking annually in 2000. Combined with productivity loss and public health and pension expenses from an aging population of baby boomers, a decline of the oil fund hints at austerity for today’s Norwegian youth.

Bjørnland is far from the only one in her field to raise alarm. She is joined by, among others, the head of Norway’s central bank, Øystein Olsen. In his last annual address, Olsen said the limit should be reduced from 4 to 3 per cent.

“[The fiscal rule] is first and foremost a symbol,” says Hans Henrik Ramm, a deputy minister at the ministry of oil and energy during the early 1980s and currently a financial consultant to the energy sector. The rule, he says, “is defended by economists and very many politicians who think it was difficult enough to get it established and to get people to understand that there are limits to how much money can be used.”

Environmentalist criticism of the fund’s use now also frequently includes an economic facet. This summer, the Norwegian wing of the World Wildlife Foundation published a map showing the fund’s investments in 147 of the world’s largest fossil fuel companies. Together, these companies produce over a hundred times as much carbon emissions as Norway itself.

Clearly there is a contradiction. The Norwegian government, on the one hand, leads the world in climate-friendly public policy. On the other hand, it finances its operations in part through investments in the world’s most climate-unfriendly companies – not to mention companies with poor human rights records. WWF and other NGOs also point to the financial risk of heavy dependency on oil.

“It means that you basically have more eggs in the same basket, and the eggs are growing larger, which means a higher possible downturn,” says Lars Erik Mangset, an economist and head of WWF’s oil fund divestment campaign. Mangset says Norway should be looking to other large investment funds at home and abroad, national and public, which are reducing their holdings in companies that rely on high fossil fuel production and price levels to be profitable, while investing more in renewable energy.

WWF proposes that 5 per cent of the fund be invested directly in renewable energy projects and that investments in the most carbon-intensive parts of the energy industry – Canadian oil sand ventures, for example – be withdrawn. They are also calling for Norway, which thanks to the oil fund is the world’s largest state investor, to use its ownership more actively in pushing companies to go green.

In June, Former Norwegian Prime Minister Jens Stoltenberg agreed that the spending limit on the oil fund should be reduced from 4 to 3 per cent. This was a break from years of the political parties in power refusing any notion of tampering with the fiscal rule.

With federal elections having occurred in September, however, none of the biggest parties campaigned for an overhaul of the fund to the extent that experts like Bjørnland, Ramm and Mangset are calling for. Not when less complex, more populist causes, such as road improvements, were competing for voters’ attention.

One thing, though, is clear: Unless Norwegians and their elected officials acquire a sense of urgency about adjusting use of the oil fund soon, what has been a blessing to past and current generations may turn out to be a curse on the next.

The post Norway’s dirty secret appeared first on Corporate Knights.

Although her charm goes a long way, Lee-Brewster also has a compelling pitch. Open an account, she tells them, and have a chance to win a big cash prize. The concept is called prize-linked savings, and it’s capturing the attention of more financial institutions.

With prize-linked savings, a lottery layer is added to a savings product. In the case of Lee-Brewster at Michigan’s Communicating Arts Credit Union, that product is an account with the Save to Win program. The minimum monthly deposit is $25.

Members of the program are awarded the equivalent of a lottery ticket for every $25 deposited, including entry into an annual jackpot of $100,000. Members are free to make one withdrawal every year after the first. “That’s my selling point. You’re not losing anything. You can win just by saving,” says Lee-Brewster, the credit union’s top seller of the unique accounts.

Save to Win is a four-year-old program, unique to North America. Yet it builds on a centuries-long, international line of prize-linked savings products. The combined track record of these products and the research indicate they’re an efficient way to encourage personal savings – especially among those least likely to put money away for a rainy day, but who are most in need of doing so. Despite the historical and academic evidence, and the need in North America for savings innovation, regulatory barriers have prevented testing the concept’s full potential in the U.S. and Canada.

Before taking a closer look at prize-linked savings’ past, it’s important to consider two current financial trends. First, both Americans and Canadians are big into lotteries. In fiscal 2010, according to the Rockefeller Institute, the 43 state lotteries in the U.S. were the main source of state gambling revenue, bringing in about $18 billion. Surveys by the Consumer Federation of America and the Financial Planning Association released in 2006 found nearly 40 per cent of Americans with incomes below $25,000, about a fifth of the general population, thought winning the lottery was the most practical way for them to accumulate hundreds of thousands of dollars.

North of the border, the 2010-2011 Gambling Digest published by the Canadian Partnership for Responsible Gambling reported that the four largest provinces – Ontario, Quebec, British Columbia and Alberta – had all taken in nine-digit net lottery revenues in the previous fiscal year. Ontario led the pack, raking in over $900 million. According to the digest, lotteries were the most popular form of gambling in almost every province.

While money has flowed into lotteries in the U.S. and Canada, savings rates in both countries have dried up. In their Assets & Opportunity Scorecard for 2013, the Corporation for Enterprise Development found nearly a third of American households had no savings account. A survey released in May this year by the Financial Industry Regulatory Authority (FINRA) found 40 per cent of respondents would probably or certainly not be able to come up with $2,000 in case of an emergency. Meanwhile, in Canada, at around the time FINRA released its data, Certified General Accountants Association of Canada noted Canadian household savings rates had dropped from a peak of about 20 per cent of disposable income in the early 1980s to less than 4 per cent by the end of 2012.

What more people do have today is ballooning levels of personal debt, and servicing that debt makes it difficult for individuals to save money. Canadian economist Mark Anielski makes the link to sustainability, equating rising debt levels and the “chronic societal stress” it creates to cancer cells that “grow out of control until they finally consume or destroy their host.” Debt can become the antithesis of wellbeing. Personal savings, to stick with Anielski’s analogy, can be viewed as antioxidants that boost household resilience.

Enter prize-linked savings, which turns the consumer’s weakness for lotteries into saving strength. “That’s precisely what appealed to me about these products when I first heard about them, when I studied them in England and South Africa, and ultimately tested them in the U.S.,” says Peter Tufano.

Currently dean of the Saïd Business School at the University of Oxford, Tufano is a prolific researcher and founder of the Doorways to Dreams (D2D) Fund, a non-profit that supports savings innovations for low-income consumers. In 2009, D2D helped the Michigan Credit Union League launch Save to Win. A year later, 87-year-old Billie June Smith won the first $100,000 grand prize thanks to a $75 deposit.

In order for its credit unions to offer customers such as Smith a Save to Win account, Michigan first had to create a legislative loophole. Without one, the product would have been an illegal lottery. Nebraska and North Carolina followed suit, and this spring Washington became the fourth and latest state to join the Save to Win program after passing its own amendment. Initial results are promising. In April, the D2D Fund reported that the number of credit unions offering Save to Win had increased from eight to 62, serving over 40,000 account holders – mostly with low or moderate incomes – who had saved more than $70 million from 2009 to 2012.

Save to Win’s success comes as no surprise to Tufano. “This is a product that goes back to the 1700s and has succeeded in country after country after country since then,” he says. They include England, South Africa, Sweden, Japan, Indonesia and several countries in South America.

With regards to the U.K., Tufano points to Premium Bonds offered by National Savings and Investments (NS&I), the British government’s savings arm. In 2006, NS&I celebrated 50 years of offering the bonds, which at the time were held by over a third of the population. The first national prize-linked savings program in the U.K. – the Million Adventure – was launched more than 250 years before Premium Bonds as a strategy for coping with debt from the Nine Years’ War.

South Africa is another prize-linked savings success story, albeit one that only lasted three years. Starting in January 2005, the private First National Bank of South Africa (FNB) began offering what was called the Million a Month Account (MaMA). The account included a chance at winning monthly lotteries of up to one million rand, or around $100,000 at today’s rate. Nearly three quarters of South Africans were unbanked at the program’s outset. In mid-March 2008, FNB had opened over a million MaMAs and executives estimated the program stood for just over 7 per cent of all banked South Africans. By the end of that March, however, MaMA was no more. The South African lottery board sued to have the program closed as an illegal lottery, and won.

Unlike the active opposition faced in South Africa, the main obstacle for prize-linked savings in the U.S. has been regulation, or as Tufano puts it, “a history of inertia.” Decades-old legislation intended to protect state lottery franchises and to inhibit banks from taking part in gambling stand in the way. As Tufano has pointed out, these laws were never intended to stop banks and credit unions from offering products such as Save to Win accounts.

The Canadian legal waters for prize-linked savings are largely uncharted. As Toronto-based gaming lawyer Michael Lipton explains, a lottery has three defining legal features: prize, risk and consideration. To not be seen as a lottery in the eyes of the law, at least one of these must be eliminated. In terms of prize-linked savings, this would be consideration, according to Lipton. “If you’re losing nothing by participating in the activity, then that would go a long way to establish there is no consideration,” he says. However, court decisions from opposite ends of Canada suggest a legal battle over prize-linked savings could go either way.

Whereas the legality of prize-linked savings in North America is somewhat untested, the concept’s incentive power has recently reached new empirical heights. Results from the first two lab studies of prize-linked savings accounts were both published in the last year. The independent Institute for the Study of Labor (IZA) in Germany published the first in October 2012, and found the availability of a prize-linked savings account led to a significant savings increase across demographics. The average increase was 12 per cent, with demand coming mainly from reductions in lottery play and general consumption, but also some from traditional saving. The highest rate of increased saving occurred in the low-income bracket. Results from the second lab study, published in the U.S. in June by the National Bureau of Economic Research, were similarly positive.

The high appeal of prize-linked savings to low-income consumers demonstrated by research, as well as Save to Win and other applications of the concept, is an important point. These are the people who stand to benefit the most, dollar for dollar, from saving more and wasting less. Unfortunately, they are also those with the lowest levels of financial literacy and political influence. In other words, they are in no position to demand, say, that the Save to Win program be expanded in the U.S. or an equivalent product be offered in Canada. Rather, this group makes up a disproportionate number of participants in large lotteries, which are informally known as a tax on the poor.

“Savings by low-income families is inherently difficult, receives relatively little government incentives, and is – at best – tolerated by the financial sector,” wrote Tufano and Princeton University professor Daniel Schneider in 2007. They noted that economists often speak of “diminishing marginal returns” and that from the perspective of big banks the poor are beyond the profitable edge of these returns. However, from a wider, societal perspective, Tufano and Schneider wrote, “We may have the margin completely backwards.” Adding $100 or $1,000 in savings to a low-income family, they argued, “will surely have a bigger impact on their lives – and on society – than adding the same amount to a wealthy family’s balance sheet.”

Despite the challenges, prize-linked savings is making headway in the U.S. In June, Connecticut created a legal opening for credit unions to offer Save to Win accounts. Maryland, Rhode Island and Maine had already done the same. “You can’t lose,” Lee-Brewster tells her clients in Michigan. “It’s not as if you’re throwing money away. You will have the money at the end of the day.”

In short, for both consumers and policy makers, giving prize-linked savings a chance is not much of a gamble.

The post The savings jackpot appeared first on Corporate Knights.