A Living Wage is not the same as a legal minimum wage, or per capita income in a country. As defined by Novartis, a Living Wage should be the minimum pay sufficient to enable employees and their families to meet their basic material needs.

This year Novartis will begin extending the Living Wage concept to third parties as well.

However, as one of the first major international industrial companies to implement such a commitment, Novartis was confronted with methodological challenges. Importantly, a Living Wage remains poorly defined and no international consensus about methods of calculation has been established so far.

As the first step in implementing the Living Wage standard, Novartis and Business for Social Responsibility (BSR), an international consulting firm, defined the components of a basket of goods and services representing the subsistence level for the family of an average worker. The basket includes reasonable housing, health care, clothing, nutrition and education for dependent children. A Living Wage also

Based on that basket, Living Wages were calculated for 60 countries. Novartis affiliates in each of those countries were asked to review the calculations.

In 38 countries – a clear majority – the initial calculation was accepted as the Living Wage standard. In another 15 countries, Novartis affiliates proposed a Living Wage higher than the initial calculation. Implementation of the new Living Wage standard began in 2005 and will continue with additional adjustments this year.

Some affiliates commissioned independent local studies to validate the initial proposals. A study on behalf of Novartis India documented significant variations in Living Wage between cities – with the Living Wage in Mumbai 70% above that in Bangalore and 61% higher than Kolkatta. The gap primarily reflected higher housing costs in Mumbai than other Indian cities included in the study.

Regional adjustments to the initial Living Wage calculation were also proposed by Novartis affiliates in Canada and the US. Implementation of the Living Wage standard promises to attract more skilled, productive and loyal employees, as well as contributing to stability and prosperity in communities in which Novartis operates.

Besides the direct impact on Novartis associates – as well as employees of major suppliers or service providers to Novartis – the principle of a Living Wage is expected to expand locally and regionally through the commitment of international companies to the UN Global Compact.