How to pay Living Wages

In-depth study of the jewelry company, Pura Utz.

Introduction
Our agenda is to bust one of the most persistent myths: We cannot pay living wages because customers aren't willing to pay for it. We will be busting this myth with a real-life example, the company Pura Utz, and lay out its methodology in the hope that others can find the strength to pursue a similar path.

Understandig Pura Utz

What is Pura Utz?
Pura Utz is a Danish-Guatemalan company known mainly for its beaded jewelry. Its jewelry is made by Mayan tradition, which goes centuries back, and by Mayan people in Guatemala. The jewelry is sold worldwide as luxury items.

Founding Story
Pura Utz was established in 2018 by two women, who met while working for a local charity in Guatemala in 2015: Anna Waller Andrés (to the left in image), a Danish national, and Bernabela Sapalú (to the right in image), a Guatemalan national from the Tzʼutujil Mayan minority, who previously was a beadwork artisan herself. Pura Utz was founded not out of love for jewelry but to help give the highly stigmatized Mayan people dignified work and a living wage.

Ownership Structure

On a practical, emotional, and (might we say) philosophical level, Pura Utz is run as one company owned equally by Anna Waller Andrés and Bernabela Sapalú.

Legally, however, it consists of two entities: (1) Pura Utz ApS in Copenhagen, owned by Anna Waller Andrés, and (2) Pura Utz Guatemala in Santiago Atitlán, owned by Bernabela Sapalú.

The original idea was for the company to be only one entity, but because of many legal complications (which we will leave out, as that is an entire case in itself) in establishing a Danish-Guatemalan company, it didn't work out, and they chose the more simple solution: To have two separate companies. We will return to the ownership structure and possible solutions for how Pura Utz could pursue its original idea of being more integrated in Part 4.

Challenges in Guatemala: Battling corruption and stigmatization

Corruption: Pura Utz operates in a challenging political climate in Guatemala. The country's Corruption Perception Index (CPI) score hit an all-time low in 2022. Out of the 180 countries included in the CPI, Guatemala ranked 150. Not good.

Stigma - Fact 1: The Mayan people constitute almost 40% of the population, and mainly work in informal sectors with wages way below minimum wage standards - and it's important to know that the minimum wage is not even a living wage (we will explain why in a few pages).

Stigma - Fact 2: The 1960s civil war led to genocides in Mayan communities, resulting in many elders losing their children and, hence, their social security network in old age.

Stigma - Fact 3: Bead embroidery and bead weaving have constituted Mayan crafts for centuries, and their aesthetics speak for themselves. However, due to the Mayan stigma, beaded jewelry is devalued in Guatemala and hasn't constituted a reliable way to earn a living wage for decades.

Status: Size, stability, independence, and growth

Size:
In Copenhagen, Denmark, Pura Utz has 2 full-time employees and the founder, Anna Waller Andrés. In Santiago Atitlan, Guatemala, the workshop employs 16 artisans and Guatemalan founder Bernabela Sapalú, and her daughter Elisa Sapalú.

Stability and independence:
The business is selfsustaining at this scale of approx. 900K USD in annual revenue.

However, it's fragile because:
(1) It lacks a money buffer, and
(2) 75% of its revenue comes from B2B customers, which
(2a) have extended payment terms and therefore pressures its cash flow, and
(2b) make large markups to which Pura Utz responds by cutting its own margins to keep a competitive price, while always maintaining the piece rates paid to artisans.

Growth plans:
Pura Utz has three incentives to grow:
(1) To build a buffer and be less fragile,
(2) To employ more Mayan artisans, and
(3) To expand what in practice is a 'Pura Utz Foundation' (but legally is not) that, amongst other things, is developing a school project and finances employee education.

 

How to calculate a living wage

Understanding: Minimum Wage vs. Living Wage vs. Fairtrade?

Minimum wage: A minimum wage is a nationally set standard. Politicians may set it lower than one can live off to attract international businesses. It's a theoretical number based on what politicians think will make the nation competitive globally.

Minimum wage: GTQ 3,077.56*  (In USD: $393)

*The highest rate for merciladora in 'other departments': https://wageindicator.org/salary/minimumwage/guatemala

Living wage: A living wage is region-specific and calculated based on the cost of living: Housing, nutritious food, health care, education, transportation, and a small amount for savings. It's a concrete number based on what people can buy in their region.

Living wage, 2022: GTQ 3,374 (In USD: $431)

For example, it takes into account that people in Santiago Atitlán are not self-sustaining in regards to food, but go to the local market to buy groceries. Another element it takes into consideration is that adult women and men have children which their wages have to cover. 9

Minimum Wage vs. Living Wage in Guatemala
Guatemala has a relatively high minimum wage, approx. 90 percent of a living wage, but many workers, especially of Mayan descent, don't receive a minimum wage. One of the Pura Utz artisans reported that she only earned 1/10 of a living wage while producing for street vendors. That's only 374 GTQ! ($48)

What about Fairtrade?
Fairtrade International doesn't include beadworkers. It works with specific (predominantly agricultural) sectors. Moreso, Fairtrade is a "work-in-progress", and in many cases paying a Fairtrade wage could mean paying a wage below a living wage.

How has Pura Utz calculated a Living Wage?
Calculating a Living Wage is mainly done in two ways: Hourly rate vs. Piece rate. Despite its bad reputation, Pura Utz has chosen to use the piece rate methodology. 

A quick introduction to piece rate and its bad reputation
A piece rate is the price paid to workers per product/piece produced. This methodology has earned a reputation for being exploitative for two reasons:

Companies use it to anchor their prices around the lowest production costs possible. This disregards how many workers they need or how many working hours the workers need to put in (it often leads to too few people working too many hours for too low a wage).
You can combine piece rates with quota requirements, where workers see wage deductions if they fail to meet said quotas.

How Pura Utz (almost) got all piece rates right without the official tool
Pura Utz now calculates its piece rates based on: A fair estimation of production time pr. product combined with the living wage benchmark. Before this methodology was introduced, Bernabela Sapalú made these calculations based on her local knowledge, and when tested in a Time Motion Study in 2022, Pura Utz found that piece rates were in line with or above the living wage level. Only two products came in just below the living wage rate, for which Pura Utz increased prices to above the benchmark.

How Pura Utz used the official Time-Motion Study Method
The time-motion study and living wage tool was built upon the tools developed by Nest, a non-profit 501(c)(3) organization.

The study was conducted at Pura Utz by engaging several artisans across various skill levels. They produced a selected range of products, which Pura Utz used to calculate the average time spent per piece.

Time motion studies are usually carried out under strict supervision, which may include audiovisual recordings, which in turn may result in added stress and hence not indicative lead times. Pura Utz addressed this potential bias by engaging the artisans in timekeeping and encouraged them to work as they usually would.

The production time was then combined with the living wage set by the Global Living Wage Coalition benchmark for rural Guatemala to, in the end, set the different piece rates.

Why Pura Utz didn't use the "hourly rate" methodology, and why it has a cap on working hours
The piece rate structure is the preferred form of employment among the artisans because:
- Sometimes, they want to bring work home to swap between beadwork and caring for their families and neighborhoods. 
- Other times, they simply do not wish to work what constitutes a standard week - because they can make do with less.

In other words, it's more flexible; this way, the amount of work comes down to personal preference.
Artisans are, however, not allowed to take home more work than what can be translated into standard working hours. This is to ensure that work is not distributed to other household members (e.g. to avoid child labor). As such, there is no minimum but a maximum acceptable workload.
Doing this requires a local presence, local knowledge and a large amount of trust, which of course comes with the Guatemalan founder, Bernabela Sapalú.

Other essential contractual elements that are not about wages
1. The artisans' indigenous rights, as well as their workers' rights, are included in the contracts (available also as a recording in case of illiteracy);
2. A distinct code of conduct for the workshop, by international standards;
3. A simple union structure and complaints mechanism where a local NGO serves as a third-party mediator in cases of conflict.
4. Furthermore, the calculation tools have been made openly available.

Outlook: Who defines what a Living Wage is?
Many methodologies exist, but the most renowned are based on the so-called Anker methodology*, which considers regional differences in family size and employment pr. family. Global Living Wage Coalition (GLWC), which is behind the benchmark used by Pura Utz, works in partnership with the Anker Research Institute and utilizes this methodology. But there are other authorities out there. For example, the Asia Floor Wage Alliance proposes a different approach, which suggests a solidarity principle between countries.
Here, you harmonize wages across countries to ensure that brands do not simply jump ship when one country's wages are increased. Additionally, they work with a generalized family unit framework across countries, where the GWLC uses individual country estimates. Different regions may require different methodologies. *Read more about the Anker Methodology here: https://www.globallivingwage.org/about/ankermethodology/

Thoughts about next steps

We will keep this more lightweight than the rest of this case study, as these are mere thoughts. None of these thoughts have been implemented or tested, yet.

Agenda:
Thought #1: Building Resilience
Thought #2: Limits to Growth
Thought#3: Non-capitalistic Structure

Thought #1: Building Resilience

Status: Pura Utz has no investors and is currently selfsustaining. They are breaking even with approx. 900K USD in revenue in 2023, having had 50% year-on-year growth in the recent year.

Fragility: It is (1) sensitive to sudden falls in demand because of a lack of a money buffer, and (2) its cash flow is under pressure from long payment conditions from the (important for the brand) high-end retailers. 75% of revenue comes from retail, 25% from Pura Utz's webshop.

Creating resilience:
(1) Creating a money buffer must be a top priority, but balancing that and other priorities, such as education for the artisans and improving Pura Utz's sales channels to improve the cash flow, must be thought through. We hope to work on this with Pura Utz, using our War Chest Calculator, and to be able to report back to you on the process. But one starting point could be the same as we set for Post Growth Guide: Build a buffer of 1 year's fixed costs in 4 years, then calculate backward to see how much you need to grow to do that, and evaluate if that is realistic. A second option is to take in investors, and we will get back to that in our thoughts on a not-for-profit business structure.

(2) Pura Utz could increase its eCommerce revenue share to improve the cash flow. Cash is king, and all big companies know that, so they enforce these incredibly long (and unfair) payment conditions. Prioritizing that and building the money buffer is the key challenge going forward.

Thought #2: Limits to Growth
Pura Utz can and should grow now but shouldn't grow endlessly. It should grow to (1) build resilience (war chest and eCommerce revenue share). It also dreams of growing to (2) employ more Mayan women in the village, (3) to help further educate the Mayan women and be a stepping stone, and (4) to help channel money into the village (improving access to education, local employment opportunities, health services, etc.).

With this in mind, what meaningful and operational limits to growth can be defined? One suggestion is this: Pura Utz should limit its growth to what Bernabela’s village can support.

Why: Everything is built around Bernabela and her network of Mayan artisans in that village, who know and trust each other. Scaling that to another city, meaning Bernabela has to travel over there to start it up, quality check, and help the management, increases costs and takes precious time away from her being in her village.

As it is with many scaling stories, it risks undermining the whole operation, whereas they know that it works in Santiago Atitlan.

How to scale impact: "But isn't that unambitious? Don't they have a responsibility to help other Mayan artisans in Guatemala if they have a recipe for success?" says the corporate executive.

First, increasing your reach doesn't always improve your impact. You could water down your effects in your attempt to expand your operation. Secondly, there are other ways than (1) branching out, (2) buying up other artisan workshops to expand, and (3) opening up franchises.

You can instead (4) decide to open source your methodology and educate others. Less risky, less timeconsuming, and less top-down. And potentially a much, much more extensive reach.

Thought #3: A not-for-profit business structure
Defining ownership structures and governance rights depends on what you wish to achieve. In this case, we will highlight two possible scenarios for Pura Utz, which accomplishes two things.

(1) A larger and more complex project, which in turn eliminates personal profits and gives the women in Guatemala governance rights.
(2) A more straightforward project that takes Pura Utz in the right direction, prioritizing shared ownership. 

Important: Our two scenarios won't cover the specific corporate structure and legal mechanisms, as these are complex and country-specific.   

1. Create a not-for-profit structure.

Scenario: In a not-so-far future, a for-profit corporation offers to buy Pura Utz for $100M.  Almost impossible to say no, right?

Project objective: (1) Remove the incentive for Pura Utz and (2) Governance rights to the women in Guatamala.

Solution: Pura Utz creates a Steward Ownership structure with the women as a part of the steward committee. In Denmark, you follow the foundation ownership model: An independent non-profit foundation holding all the voting and economic rights of the company. This eliminates any direct personal profit gains at a sale, removing financial incentives.
Why would the artisans in Guatemala, Bernabela, or Anna accept a sale if there was no personal gain and no security to what happens with the company, risking their jobs?
This also makes it easier for a Pura Utz to balance longterm goals with short-term wins, as the individual monetary gains are eliminated.
It is a structure that removes personal incentives to maximize growth and profit and locks in Pura Utz' to prioritize the goals described in Thought #2: Limits to Growth. 

2. Shared Ownership and Governance.
Pura Utz is a relatively small business, and spending large amounts of time and money on creating a foundation structure might not be an excellent first step in their transition to a non-capitalistic structure.

So let's look at the same scenario as before, but instead of blocking the sale, we wish to share the profits benefiting everyone involved in Pura Utz, including the village in general.

In this scenario, we are not creating a not-for-profit business structure but rather sharing economic and voting rights with the community.

Project objective: Make sure the money goes to (1) the community and (2) the village (3) Governance rights to the women in Guatamala.

Solution: Create an Exit to Community strategy that includes employees (employed in Denmark), suppliers (in its current legal structure, this equals the artisans in Guatemala), and a non-profit organization as owners.

Remember: The purpose of Pura Utz is to (1) employ more Mayan women from the village, (2) help further educate the Mayan women, and (3) channel money into the village. Selling Pura Utz might conflict with the purpose of employing more Mayan women, but it could be argued that the profits the women would gain from a sale would balance this out. That depends on the offer and is a discussion to be had. The non-profit organization that owns a part of Pura Utz will cover points 2 and 3 with the high capital gained from the sale.

Alternative situations: It doesn't need to be a 100% sale of Pura Utz, it could be a majority stake or multiple buyers where Anna loses the majority. A key element of the Shared Ownership structure is that the Mayan women will have a say in the decision to sell and have an economic gain when that happens.

Addressing problems: This does not split the Economic and Governance rights, so there is an incentive to sell.

To minimize this, two things could be done:
(1) Define a split where the non-profit organization would receive the majority of the money from the sale. (2) Give an external organization veto rights on the decisions of a sale.  

Takeaway
Paying a living wage is possible, it is for Pura Utz at least. Special conditions play a great factor, such as the combination of the Mayan stigma and century long tradition for beadwork, the lifestyle factor enabling a high price on jewelry, and the local presence and knowledge of Bernabela enabling a flexible piece rate work methodology. But special conditions are always of big importance, and therefore we have done our best to outline them and the methodology behind Pura Utz's work, here. You probably cannot copy this 1:1, but you can be inspired. And let this be a clear example of it being possible to pay a living wage, despite it not being the standard in your industry.

Full disclosure
Pura Utz is a client of Founding Member and Policy Specialist at Post Growth Guide, Tanja Gotthardsen, who co-developed and co-authored both the time-motion study and living wage tool, impact report, codes of conduct, and contracts while working with Pura Utz in Guatemala in late 2022. The project was funded via the Danish public program SMV:Grøn.