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Foxconn Ends Suicide Compensation, May Pass on Wage Increases to Customers

Despite its best efforts, Hon Hai’s Foxconn factory continues to remain firmly entrenched in the headlines. Yesterday, Hon Hai held a shareholders meeting, where they discussed the future of the company and how to proceed. One thing they apparently did not discuss, was how to reverse the negative image the 12 suicides and multiple suicide attempts this year at Foxconn have gained them. A fact they proved with the first bit of news.

The first announcement was that Foxconn would no longer offer compensation to the families of employees that commit suicide. There is a practical, and perhaps even justifiable reason for this, but when a company is facing intense scrutiny for its working conditions following several tragic deaths, to announce that it will no longer offer compensation to the grieving families may not be the best tact.

Hon Hai CEO, Terry Gou, explained the situation. When a Foxconn employee commits suicide, their families are eligible to receive compensation that equals roughly 10 years’ worth of salary- somewhere around $16,000.

Gou believes that many of the employees were encouraged by the compensation to kill themselves so that their families could reap the windfall. As evidence he produced the suicide note of a Foxconn employee that jumped to his death, “…now I’m going to jump off Foxconn, really leaving now, but you don’t have to be sad, because Foxconn will pay a bit of money, this is all your son can repay you now.”

The board of Foxconn seems to be focusing almost entirely on money as a way of solving the labor problems that have made Foxconn more well known around the world, than any of its millions of best-selling products produced each year. The intense media scrutiny reached the point that the Chinese government involved itself, and demanded that Foxconn curtail the suicides. It also recommended that the answer might be improved unions.

The first solution Foxconn announced to stem the suicides was to ask employees to sign a letter asking them not to kill themselves, and if they did, Foxconn would not pay for it. The media caught wind of the proposed contract, and Gou apologized, claiming that the wording was incorrect. Next, Foxconn offered a 20-percent increase in all wages, but claimed that it was not due to the suicides and intense scrutiny, but rather was a planned increase to begin ramping up to produce additional items for the holiday season. No date was given on when the raise would begin.

As the news of the raise was circulating, another employee at Foxconn died, not from suicide, but exhaustion. Twenty-eight-year-old Yan Li was reported to return home from a 34-hour shift, complaining of shortness of breath. He died soon after, and his wife told reporters that shifts of that length were common.

Foxconn then raised the wages to a 30-percent increase, to which very few people cared or noticed. Then, for the third time in 10 days, it raised the wages again, this time to a nearly 70-percent increase, which would double the salaries of many of the lower-level employees. The 30-percent increase will begin on July 1, while the 70-percent increase will begin in October. Far from being impressed, many labor rights groups claimed that the move would help, but it did very little to address the working conditions that caused the suicides and earned Foxconn the title of “sweatshop”.

In fact, Hon Hai has yet to acknowledge that the work conditions are an issue at all. Instead, Gou blames the media for many of the suicides, claiming that the coverage encouraged more people to commit suicide, pointing to the fact that 6 of the twelve suicides were all in May when the news coverage first began to dominate the company. As a result, Gou has handed over “welfare management” to the Chinese government, which may choose to censor the Internet coverage. Such censorship would likely kill all firsthand coverage.

With the 70-percent wage increase, it immediately raised concerns for the financial implications around the world. Other plants in China are also in the news for working conditions, including a Honda plant that has recently seen a strike turn violent. The move by Foxconn to suddenly double some wages could bring an immediate wage inflation to all of China, something the country is not prepared for. Raising wages is good, but doubling them overnight without warning or preparation could lead to long term financial implications that are felt around the globe. It also begs the question, where will the profit difference be made up?

Hon Hai has said that it would ask it partners, companies like Apple, HP and Dell to help carry the burden of the increased labor costs, which would then be passed on to customers to shoulder some of the additional costs. Every year around this time, Foxconn renegotiates its agreements with its manufacturing partners. How the wage increases are spread out could have an effect felt on products around the world.

One way Foxconn is looking to recoup its losses is by replacing workers with assembly line robots in several of its factories, especially in Taiwan. It is also planning to increase its factory presence in Vietnam, where the wage increase is unlikely to be felt.

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