NIKFAQ~.txt copied from Nike Inc/ web site; Created Friday, June 19, 1998 5:38:14 PM; Modifed Saturday, February 14, 1998 3:12:50 PM. By D. Boje saved as NIKfaqcompensation (File Origins).

Q.

"NIKE makes a lot of profits. Phil Knight is a

multi-billionaire. NIKE athletes like Michael Jordan

and Tiger Woods earn millions in endorsement dollars

from NIKE. NIKE spends $750 million a year or more on

lavish ads and promotional contracts for coaches and

teams. Why doesn't the worker get a fair share of

that?"

A.

He or she does. Michael Jordan and Tiger Woods are

compensated at levels commensurate with their unique

skills, and their unique ability to generate demand

for NIKE products. That demand for those products in

turn creates jobs in all aspects of the business. It

is a closely linked and unending circle. Product

demand created by good advertising and marketing that

links NIKE and its products to the consumer through

the performances of Michael and Tiger in turn creates

thousands of jobs which pay people at levels equal to

their skills -- from the least skilled worker just

entering the job market in Indonesia or Vietnam, to

the skilled longshoreman unloading those products on

the docks at Marseille or Miami, and the part-time

college student/retail clerk selling those products to

consumers.

Q.

"How can that be fair when the worker earns just a few

dollars a day making shoes that sell for $100 or

more?"

A.

The worker's labor is just one of many inputs that

impact the cost of a product. Typically labor is about

15 percent of the factory's price to NIKE, and about 4

per cent of the retail price. That is typical for

footwear and apparel. The cost of materials is far

greater -- usually in proportion about four times

greater than labor. Between the laborer and the

consumer there are a dozen or more inputs to price:

materials, factory overhead, factory depreciation,

factory profit (usually about 5% of the factory price

of the product); NIKE's shipping and handling costs,

insurance, storage and distribution costs, research

and development investment, marketing and sales costs,

administration and taxes.

Q.

"How much do workers earn in factories?"

A.

No worker earns less than minimum wage. Period. Most

workers earn significantly more. At Wellco, a footwear

factory in southern China, the average income for a

direct laborer was Rmb686 in the month of July. The

minimum wage is Rmb350. The average for cash wages

earned by direct labor worker in footwear and apparel

contractors in Indonesia, before overtime, measured by

an outside auditor in June and July of 1997, is Rp

(rupiahs)225,000. The minimum wage is Rp172,500. These

examples are typical of the worker's take-home

earnings, and they do not include addition salary and

benefits that include overtime pay, food, medical

care, some forms of insurance, and in some cases, free

or subsidized housing.

Q.

"Why does NIKE's Code only call for the least

applicable standard, that is, minimum wage?"

A.

NIKE's Code sets standards for contractors in 32

countries, each with its own unique blend of income

levels, productivity, investment levels and labor

compensation. The only effective way to delineate

global standards in one document such as a Code of

Conduct is to set such standards to the extent

possible that are measurable and quantifiable. Minimum

wage is a standard of measurement used by virtually

every responsible agency -- government and private --

in the world. However, NIKE's Code also calls for best

practices and continuous improvement in standards and

performance, and that includes compensation.

Q.

"Does NIKE pay the full legal minimum wage in

Indonesia?"

A.

NIKE is the only buyer to require full cash minimum

wage. Overtime allows additional earnings, but NIKE is

one of the few companies to require contractors to cap

mandatory overtime at 60 hours per week. NIKE's

corporate policy is to keep orders at or below the

level equivalent to 48 hours of work.

Truly independent assessments by outside experts have

determined that workers in NIKE factories are saving a

significant portion of their earnings, and have more

than enough to accumulate significant disposable

income, before any additional overtime is earned.

Independent monitors and sources are verifying these

issues on a routine basis for NIKE. These sources

include international auditing firms like Price

Waterhouse, Ernst & Young, the Harvard Institute for

International Development, the University of Economics

in Ho Chi Minh City, the World Bank and the Amos Tuck

School of Business at Dartmouth University.

Q.

"Is the minimum wage enough to provide for a

livelihood?"

A.

The picture of workers who are malnourished because

they can’t afford to eat is repeatedly refuted by

unbiased, tangible evidence. On the broadest level,

the research firm Jardine Fleming, a subsidiary of

Jardine Matheson, Hong Kong, has developed what it

calls its NIKE Index.

In simplest terms, the NIKE Index tracks a developing

economy's economic development by NIKE's activity in

each country. Economic development starts when NIKE

products are starting to be manufactured there

(Indonesia, 1989; Vietnam, 1996). The economy hits the

second stage -- development at a level where per

capita income indicates labor flowing from basic

industries like footwear and textiles to advanced

industries like electronics and cars (Hong Kong, 1985;

Korea, 1990); and an economy is fully developed when

NIKE has developed that country as a major market

(Singapore, 1991; Japan, 1984; Korea, 1994).

On the anecdotal level, Seth Mydans of the New York

Times, for example, followed workers from the factory

to the local shopping mall and described their

spending portions of their salaries on the usual

things young men and women with jobs buy all over the

world: jewelry, watches, even radios and televisions.

Keith Richburg of The Washington Post recorded savings

rates indicating income levels sufficient to cover

basic essentials and provide an opportunity to set

money aside as savings. The typical young woman in a

NIKE factory is 19-20 years old, wears neat jeans and

a pressed T-shirt to work, has jewelry and probably

shares a television or radio with her roommates.

Q.

"Why don't NIKE factories pay a living wage?"

A.

In most cases workers earn compensation and benefits

far in excess of the minimum wage, and by all

responsible measurements of need, earn sufficient

income to provide food, shelter, clothing and a

measure of discretionary items as well. Workers also

routinely save significant portions of their income --

as much as 30-40% for those who manage money well.

When critics call for a "living wage," here is how

that wage is commonly defined: sufficient income for

one earner to provide for the basic food, clothing and

shelter needs of a family of four, as well as

discretionary income and savings sufficient to

contribute to the sustainable development of the local

community. In no country in the world does a minimum

wage provide that level of income. The minimum wage in

New York City, for example, leaves a worker with about

$8,800 per year -- or below the poverty level for a

family of four.

NIKE factories pay at least the minimum wage that the

governments of the host countries have set to provide

for the needs of their people. Minimum wages are

usually set at a level sufficient to provide at least

for the needs of one person who is just entering the

work force and is relatively unskilled. As skills and

productivity increase, the worker's ability to earn

more and provide for more needs, or more people's

needs, rises as well.

Q.

"What is the labor cost of NIKE shoes?"

A.

The cost of labor for NIKE products varies slightly by

model, volume and source. As a general rule, labor

represents about 15% of the price NIKE pays the

factory for the product. Because NIKE’s cost is about

25% of retail cost, labor accounts for about 4% of the

retail cost. The breakdown is roughly as follows:

Consumer

pays:

$90

Retailer

pays:

$45 to NIKE, and then doubles

the price for retail.

NIKE

pays:

$22.50 and then doubles the

price to retailers for

shipping, insurance, duties,

R&D, marketing, sales,

administration and profits.

The $22.50 price paid the factory includes:

Materials:

$14.60

Labor:

$3.37

Overhead:

$3.41

Factory Profit:

$1.12

Total Costs:

$22.50

Q.

"Are consumers willing to pay more if NIKE raises the

wages of its workers?"

A.

NIKE is already absorbing the higher costs associated

with labor practice initiatives. We require the

payment of higher wages than the law stipulates in

Indonesia, our largest source for footwear and a

significant apparel source; we have shared in the cost

of capital investments for the Pakistani soccer ball

stitching centers, the industry’s first; we pay the

costs of independent auditing, also the industry’s

first.

In Indonesia, specifically, NIKE is to date the only

buyer requiring its contractors to (a) pay at least

full cash minimum wage, denying them access to

exemptions that are allowed by local law, and (b) to

abolish lower "training wages" allowed for new

workers.

As Indonesia represents 37% of NIKE’s footwear

production worldwide, and a smaller but substantial

portion of NIKE’s apparel production, the margin

impact has been pronounced. NIKE’s after-tax margins

of 8.3% are lower by almost a full point than five

years ago, and at least part of that decline is

attributable to the cost of leading the industry in

labor practices initiatives. Pakistani hand-stitched

soccer balls made in new stitching centers cost NIKE

10% more than a comparable ball made by competitors in

the homes and villages of home-work stitchers. We

think that’s a financial burden worth bearing.