08/03/2013 09:30 am ET Updated Aug 03, 2013

Fair Labor Association, Watchdog To Big Retailers, Sows Its Own Worker Discontent In Budget Crunch

WASHINGTON -- The industry-backed nonprofit group that monitors plants for Apple, Nestle and other major brands has run into financial trouble, having notified its staff that their pay would be cut by at least 20 percent for the year and an overseas bureau would be shuttered, according to emails reviewed by HuffPost.

An audit of the Fair Labor Association, which garnered international attention last year for its monitoring of Apple's Foxconn facilities, found that the group spent more than $2 million over its budget last year, according to an email to staffers from Kathryn Higgins, chair of the group's board. Such an overrun would seem massive for the nonprofit; its total revenues were $5.2 million in 2011, the most recent year for which tax data is available.

The world's largest apparel makers and retailers have come to rely upon industry-backed programs like the FLA to monitor working standards in countries where labor abuses are common. The cutbacks now in motion could hurt the group's ability to supervise the corporate supply chains currently on its roster, according to the non-profit's employees.

In an email to HuffPost, an FLA spokeswoman said last year's deficit was offset by reserves. "The budget for this year is now in balance and we are committed to remaining in balance going forward," she said.

FLA leaders attributed much of the cost overruns to the development of a new monitoring system, known as its "Sustainable Compliance" methodology. The group said it has hired more assessors and spent significantly more time and money auditing facilities, interviewing workers and traveling abroad.

"[T]he costs turned out to be greater than we ever anticipated," the spokeswoman said.

In July, FLA took the step of slashing salaries for staff members by 20 percent for the rest of the year and requiring non-salaried workers to take one unpaid furlough day each week through December. Workers deemed members of "the training team" saw their pay cut by a whopping 50 percent, as did the group's president and its executive director. The association's office in Istanbul, one of three overseas, was closed for good.

The group said that the salary cuts would be in place through the end of the year, but they expect to be "back to full strength next year."

"You know the reasons for the difficult financial situation we are in," Auret van Heerden, the group's president, said in an email to staff co-written in July with Jorge Perez-Lopez, the executive director. "The organization grew too fast and tried to do too many things. We made some important and necessary programmatic changes but their financial implications were not fully understood. But the reality is that we failed to achieve the fiscal and managerial discipline and control necessary to avoid the situation we face today.

"We very much regret the disruption to your lives, families and work," they added.

The group announced last week that van Heerden would be stepping down from his post at the end of this year. A South African native, van Heerden has spent the last 12 years at the Fair Labor Association. Before that, he worked for the International Labour Organization, the United Nations' human and labor rights watchdog.

According to the group's tax documents filed for 2011, van Heerden's compensation for the year was $279,500, while Perez-Lopez's was $193,764.

Founded in 1999, the FLA was established partly in response to a series of embarrassing sweatshop scandals in the 1990s. Retail leaders and politicians, particularly President Bill Clinton, hoped an industry-backed group could help improve working standards in growing manufacturing hubs like China and Bangladesh. Participating brands now include Adidas, H&M, Nike, New Balance and Patagonia, among others, according to the group's website.

Last year Nestle became the first food company to join the FLA, and the nonprofit performed an investigation into the company's cocoa supply chain in Africa shortly thereafter. The group carried out an audit of Apple's Foxconn facilities the same year, finding that the factories needed to reduce work hours and improve worker participation in unions.

The group has risen to international prominence under van Heerden, just as criticism has mounted from labor activists about the FLA's model of workplace monitoring. The organization receives much of its funding through the very corporate members whose overseas workplaces it's tasked with investigating.

This corporate self-monitoring serves as some of the only scrutiny of factory labor practices in countries with poor government oversight, but skeptics argue the model is hampered by conflicts of interest and fails to curb labor abuses adequately. Voluntary compliance programs like FLA, critics say, can't substitute for the sort of legally binding safety agreement signed by mostly European retailers in the wake of the Rana Plaza disaster in Bangladesh, which claimed more than 1,120 lives this spring.

The irony of a workplace watchdog suddenly enforcing massive pay cuts on its staff hasn't escaped the notice of FLA employees. In a July 11 letter to board members signed by 30 employees, staffers voiced their frustration at the cuts to their already-modest NGO salaries, calling the reductions a "devastating blow to our livelihoods, as most of us are currently receiving salaries that are below the median cost-of-living for the cities in which we live."

Many of the workers have apparently taken the cutback news as all but a layoff notice. "Most of us may have no choice but to seek employment elsewhere," they wrote.

But the workers also voiced concern that they'd have limited influence on the nonprofit's turnaround plan. Involving employees in such decision-making, they noted, is an "integral pillar" to the very worker-centric philosophy that FLA means to espouse through its monitoring duties.

"As an organization that prides itself on 'protecting workers' rights worldwide,'" they wrote, "we hope that the Board will provide the leadership necessary to ensure that the same protections FLA advocates are offered to its own employees."

The FLA spokeswoman said they had developed an employee committee to give workers a voice during the overhaul. "All members of the Board of Directors and staff have been invited in the effort [to] ensure that FLA comes out of this situation stronger and even more effective than before," she said.

According to a press release last week on van Heerden's stepping down, the FLA's board had planned to begin the process of choosing a successor at its annual meeting this week. As an email to staff indicated, the board meeting was originally slated to happen in China in mid-June. It was later rescheduled for Washington, D.C., in late July, presumably due to budget constraints.