Foxconn staff to get second pay rise

PUBLISHED : Thursday, 03 June, 2010, 12:00am
UPDATED : Thursday, 03 June, 2010, 12:00am

Production line workers at Foxconn would be given pay rises of at least 30 per cent from Monday, the company told all its mainland workers yesterday, after a series of worker suicides at its main Shenzhen plant caused public concern over working conditions to boil over.

Foxconn put out a statement at its Shenzhen plants yesterday, saying that the minimum basic wage for production line workers would rise by 33 per cent, from 900 yuan (HK$1,025) to 1,200 yuan a month.

Senior workers and shift supervisors, whose basic salary was already higher than 900 yuan, will receive rises of 30 per cent.

Only last week Foxconn had announced pay rises averaging 20 per cent, saying they were due to the improved economy.

Factory workers in Shenzhen cheered the new increase, calling it a success in social supervision by internet users and the media.

'I may end up with a pay rise of 500 yuan or 600 yuan more per month than before,' said a female worker whose monthly income usually was 2,000 yuan including overtime pay.

'Three hundred yuan from the basic pay rise - and the overtime pay will increase. You know, when the river rises, the boat goes up, too.

'I've been working for Foxconn for five years. Before, I had to work about 70 or 80 hours of overtime per month to earn 2,000 yuan. Now I'll earn more if I keep working hard, or I can think of having one or two days off for fun.'

A spokesman for Hon Hai Precision Industry, Foxconn's parent company in Taiwan, refused to say why two rises had been awarded within a week but said the idea was to ensure the workers had more spare time to relax and enjoy life. 'After the pay rise, our workers can choose to decrease overtime while keeping the same incomes as before,' he said.

'The pay rise was not related to the extreme reactions of some activists against Foxconn but a show of caring to our workers that we do admit they need more time to relax.'

But another worker said the pay rises would not solve workers' problem of work overload. 'We still need to work overtime frequently,' he said. 'If we don't, we'll have only the basic salary of about 1,200 yuan per month. It's too little to support our basic expenses, let alone entertainment or sending money home to parents.'

The spokesman would not say whether Foxconn plans to ask workers to reduce their overtime but insisted the company never broke the mainland's labour law, which prohibits forcing people to work overtime.

'Also, the public should understand that doesn't mean our operational costs will increase greatly since we will see staff more stable and efficient than before the pay rise,' he said. But the staff turnover rate would also be lower and 'that could definitely save costs in recruitment and training'. The latest pay rise, 30 per cent, sounds high and would put the company's minimum salary about 9 per cent ahead of Shenzhen's minimum. City authorities had promised to increase this year's minimum salary by 10 per cent over last year, which would put it at about 1,100 yuan a month.

Analysts say the hefty wage increase at Foxconn may drive its competitors to also boost their mainland workers' salaries.

'The group's plan to implement a 30 per cent wage hike will create a domino effect,' analyst Edward Yen of UBS Investment Research in Taipei said.

Yen said a move to raise wages across the industry could also have an impact on the profit of all players as operating costs climbed.

That was because competitors needed to keep up with Hon Hai, the world's largest contract electronics manufacturer which leads both segments of its industry - electronics manufacturing services and original design manufacturing (ODM).

Yen said Hon Hai's competitors, such as world No 2 contract electronics manufacturer Flextronics International, would likely consider not only a wage increase to remain competitive, but increased automation to help lower their operating expenses.

Singapore-based Flextronics, which employs more than 100,000 mainland workers, had no comment yesterday.

Yen said higher labour costs would affect rival notebook computer ODM providers such as Compal Electronics, Quanta Computer and Wistron.

In a report, Bank of America Merrill Lynch research analyst Frank Lee said Hon Hai has been 'successful in grabbing 2011 orders away from its competitors in the notebook computer sector, with expectations of up to 20 million units next year'.

Yen, citing game console and metal casing specialist FTC as an example, said the 30 per cent wage increase could cut this Hon Hai's subsidiary's profit between 10 per cent and 15 per cent this year because the increase was being made in the middle of the year, and 21 per cent next year.

'Labour could account for 35 per cent to 40 per cent of operating expenses for FTC,' he said. 'We estimate that direct labour accounts for about 4.5 per cent of FTC's cost of goods sold [the expense representing the cost that a company expends to manufacture a product].'

Official group financial results indicate that labour as a percentage of Hon Hai's cost of goods sold last year was from 3.5 per cent to 3.6 per cent.

Analysts at Citigroup last week reported that a 20 per cent salary increase for what they estimated as Hon Hai's 900,000 employees on the mainland would result in about NT$2.7 billion (HK$652 million) in quarterly labour costs. That would erode its operating profit by 10 per cent to 12 per cent this year. However, Yen, said 'there are potential productivity gains', adding that greater competitiveness at recruiting the best skilled and migrant staff on the mainland would result in improved yield rates per worker.

Wage comparison

Foxconn is to increase the basic minimum wage to 1,200 yuan a month from next week

This would put the company's minimum salary about this much ahead of Shenzhen's minimum wage: 9%

Staff costs

Foxconn's parent, Hon Hai, has about 900,000 employees on the mainland

Labour cost as a percentage of cost of goods sold last year was about: 3.5%