When the French tire maker Michelin closed its factories during the coronavirus pandemic, Florent Menegaux, the company’s chief executive, took stock of the closures’ impact on employees worldwide. Thousands of workers in Asia, Europe and the United States at the lower end of the company’s pay scales could barely get by, an independent review showed. Michelin vowed to do better.
Last week, the 134-year-old company, which has 132,000 workers at 131 factories in 26 countries, announced that it would guarantee all of its employees a “decent wage” wherever they were in the world, part of a broader social plan intended to ensure that none of its workers would have to struggle to make ends meet.
“If workers are just in survival mode, it’s a big problem,” Mr. Menegaux said in an interview. “When the wealth distribution in a company is too unequal, that’s a problem, too.”
The announcement quickly ignited a debate in France over what exactly constitutes a decent wage and whether more French corporations should follow suit. Unions warned that the Michelin pledge would still leave some workers struggling and that it did not come with a guarantee against future layoffs or site closures.
Corporations worldwide are looking to meet environmental, social and governance targets. A lot of investors are backing away from E.S.G. criteria, but some companies are signing up to become living-wage employers, which commits them to pay salaries that correspond to the costs of rent, food, transportation and child care in the regions where their workers live.
In France, the cosmetics giant L’Oreal committed to a living wage and extended the pledge to its suppliers. Unilever is taking the same steps. Only 4 percent of the world’s most influential companies have made similar commitments, according to the World Economic Forum.
Michelin’s salary pledge caught the attention of President Emmanuel Macron of France, who had said he wanted companies to share more profits with workers. His government is facing a political storm as households struggle with a cost-of-living crisis. The share of workers who earn France’s gross monthly minimum wage of 1,766 euros, which is indexed to inflation, has surged to 17 percent of the work force from 13 percent just a few years ago.
The French prime minister, Gabriel Attal, has called for talks with trade groups and proposed tax changes to encourage businesses to pay more than the minimum wage, which social organizations say is often not enough for workers to get to the end of the month without government subsidies.
Mr. Menegaux declined to divulge how much Michelin’s lowest-paid workers around the world had been earning, but said their pay was higher than the local minimum wage, which he described as “not a decent salary.” He added that a living wage was a way to help move employees “at the bottom of the ladder up.”
He decided to take action, he said, when the closure of Michelin’s factories during the pandemic revealed weak social safety nets worldwide. In France, the government shielded workers from layoffs by paying companies to put them on partial furlough. But in other countries, such support either did not exist or was insufficient.
In creating its “decent wage,” the company, known for its rubbery Michelin Man mascot, referred to standards set by the United Nations Global Compact: a salary enabling a family of four to live “decently” in the city where they work. That means not running out of money before the end of the month after paying basic expenses and being able to save and spend modestly on goods or leisure activities, Mr. Menegaux said.
Michelin turned to the Fair Wage Network, a nongovernmental organization based in Switzerland, to assess its salary structure. The resulting study found that 5 percent, or around 7,000, of Michelin’s employees worldwide were not earning enough.
In response, Michelin adapted its salary scales to the cost of living in cities where its factories operated. In Beijing, the group increased the lowest pay level to 69,312 yuan per year, or a little less than €9,000. In Greenville, N.C., workers’ base pay rose to the equivalent of €40,000 per year.
In France, where the gross minimum wage is €21,203 per year, the company lifted the salaries of its lowest-paid workers to €39,638 in Paris and €25,356 in Clermont-Ferrand, where the company’s headquarters are and where the cost of living is lower than Paris’s.
But spending money on a living wage has not worried Michelin’s shareholders. The company’s stock is at a five-year high. “They expect Michelin to deliver,” Mr. Menegaux said. “And we are still delivering.”
The wage increases are not totally benevolent: Michelin needs to improve its attractiveness and employee loyalty after worker turnover at its factories soared in the wake of pandemic lockdowns. And paying better would help improve productivity, Mr. Menegaux added.
“You will have payback,” he said. “Because when people are paid decently, they are fully engaged and they do better work.”
Louis Maurin, the director of Observatoire des inégalités, a social watchdog organization, said Michelin’s living wage pledge had shined a moral spotlight on one of the thorniest issues in capitalism.
“All enterprises should be asking themselves this question,” he said. “Those who hold the capital say work creates wealth. But the workers creating that value are often the least paid.”
In France, where half of all workers earn less than €2,100 after taxes per month, a worker is considered middle class with monthly pay of €1,500 to €2,800, according to the Observatoire’s data; workers are considered “rich” if they earn more than €3,900 a month.
Some French lawmakers are seeking to cap executive pay at 20 times the earnings of a company’s lowest-paid employee. The French carmaker Stellantis stoked widespread indignation when it announced last month that the 2023 salary of its chief executive, Carlos Tavares, could reach €36.5 million, 365 times the average compensation of Stellantis employees.
Mr. Menegaux asked that his 2023 salary be capped at €1.1 million; with performance shares, his total compensation reached €3.8 million.
Unions said the living wage measure fell short of what Michelin could afford to do. The company posted record operating income, its main profit metric, of €3.57 billion in 2023 and a 12.6 percent profit margin. Michelin spent €500 million on share buybacks last year.
“It’s nice publicity that hides other things,” Nicolas Robert, a representative for the Union syndicale Solidaires, one of France’s biggest labor organizations, said of Michelin’s wage pledge. He said workers at the Clermont Ferrand factories who got the living-wage increases earned around €1,700 a month after taxes — not enough to support a family of four without welfare supplements.
“After you pay your housing, food, energy and transport, not much is left,” Mr. Robert said. “What they call a decent salary is far from reality: We have many workers who have been in survival mode since inflation exploded.”
Mr. Menegaux said the question of whether a company should accept lower margins or reduce share buybacks to dedicate more of a company’s wealth to workers’ salaries was a critical debate.
“I strongly believe that what makes a good corporation versus a corporation in difficulty is the level of social cohesion it achieves,” he said. “Personally, I think that globally, capitalism has gone a little bit too far. I believe in capitalism, but I think that when a salary doesn’t pay enough for one person to project himself or herself into the future, it’s a problem.”