Corporate governance of employee benefits is becoming increasingly important for multinational organisations.
The key drivers and enablers of this governance focus are: better access to global data and information about the organisation; the increasing significance of non-domestic businesses; the desire to optimise the cost of providing employee benefits; and minimising the compliance risks associated with employee benefits programmes.
Good benefits governance is critical for managing costs and risks, regardless of whether an organisation operates in a centralised or decentralised way.
And yet, in the Aon Hewitt/American Benefits Institute 2012 Corporate governance of global benefits survey, published in winter 2012, less than 20% of employers rate themselves as effective in executing global benefits governance.
In the study, five measures were used to determine the effectiveness of respondents’ governance execution, asking whether the organisation had: ready access to relevant benefits design, financial and operational data; corporate assessment of opportunities and risks; definition of corporate benefits policies to manage risks and opportunities; a governance structure to execute corporate strategy; and an operating model to monitor risks and opportunities on an ongoing basis using corporate policy metrics.
Organisations that judged themselves to be operating effectively in all five of these areas have some positive traits in common.
They tend to operate more centrally and demonstrate higher satisfaction levels with corporate oversight of their international benefits programmes, compared to the rest of the employers that took part. In addition, they demonstrate higher confidence in achieving alignment of local benefits with corporate strategy, and report reduced financial or operational costs or risks.
So, how can employers deliver excellence in global benefits governance and work towards achieving these levels of satisfaction with benefits?
Improving governance
Typically, improving governance is a process that focuses on three key stages:
Stage 1: Take a benefits inventory. This will enable an employer to understand what is provided around the world and ensure it is compliant and meets minimum standards. Additional benefits benchmarking will enable the organisation to assess how competitive its benefits offerings are within their industry.
Stage 2: Undertake a review of benefits funding and financing, with a view to moving towards multinational pooling and other optimisation strategies, including the use of captive funding vehicles for employee benefits.
Stage 3: Implement decision-making protocols globally to govern key decision areas, including funding of programmes, implementation of new benefits programmes, making benefits changes or approving significant cost increases.
We have worked with clients worldwide on all of these stages, from the initial fact find through to supporting the development of the governance framework, and to leading the implementation programme.
Best results
Our experience has shown the best results are achieved if organisations establish corporate policies that are targeted to manage risks and opportunities that are important from a corporate perspective and can be better managed at the corporate level; and implement a formal governance structure designed solely to execute such policies.
This also ensures specific outcomes in terms of improved alignment of benefits designs and reduced costs and risks due to benefits plans.
Better benefits governance delivers tangible improvements to benefits costs, risks and delivery, and is not as daunting a challenge as it may appear. A better approach to benefits governance is within the reach of all multinational organisations.
Carl Redondo is global benefits consulting leader at Aon Hewitt UK
