Global benefits management

More and more employers are realising that managing benefits in other countries can present them with significant cost controls overall, says Neil Merrick

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Parent companies are keeping a much closer watch on how benefits are managed in other parts of the world. Most are concerned about overall cost and, in particular, pensions. Subsidiaries often argue that benefits must reflect local market conditions and tax rules. By operating across national borders, benefits providers can assist harmonisation.

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Before IT firm Oracle opened a workplace nursery at its UK headquarters in Reading eight years ago, it first sought approval from its parent company in the United States. Although Oracle’s subsidiaries are given considerable discretion over the benefits they offer in their own countries, all decisions must be based around a framework that applies to Oracle employees throughout the world.

Chris Wilson, director of compensation and benefits for Oracle in the UK, Ireland and South Africa, says the international framework sets out the minimum level of benefits, including life assurance and pension, while extra benefits normally reflect local labour markets as well as tax and legal systems. Historically, US companies have tended to exercise the greatest control over benefits teams in other countries, although there are signs that UK-based employers are now starting to adopt a similar approach.

"The cost of benefits is starting to get a much higher profile. It’s inevitable that businesses are going to be very careful about how such a sizeable sum of money is spent," says Wilson. Simon Dudley, Watson Wyatt’s director for international consulting in Europe, says more employers are waking up to the fact that they need to look more closely at how benefits are managed in other countries. But whereas more centralised companies tend to have policies and systems to manage their international teams, firms that have historically been less centralised can struggle to exercise control while still giving local offices some discretion.

The agenda appears to have been driven by the move away from defined benefit pensions. But even here, some multinationals only state that they would prefer to see a change. "Others are pushing hard and saying that there must be a review of pension arrangements and a move towards a defined contribution structure," says Dudley.

Although the extent to which head offices control international benefits teams often reflects the ethos of the organisation, Nigel Bateman, head of Towers Perrin’s UK global consulting group, believes international benefits management is an evolving science, with increasing numbers of companies facing the same underlying issues.

It should almost go without saying that human resources and finance departments need to communicate with one another more effectively on a global level without local offices being precluded from giving their point of view. On a practical level, it might be better for organisations with offices in, say, fifty countries to focus on the three or four that render overall a significant HR and financial perspective.

Generally, teams in South East Asia are easier to manage than those in western Europe and the United States. "There is a tendency for firms to assume that the world looks like it does at home. When you are trying to interact with people in different environments, it gives you huge communication difficulties," says Bateman. According to Oracle’s Wilson, firms hoping to manage benefits internationally will find it easier as more providers offer the same perks in different countries. But he still believes that companies will give their subsidiaries some discretion: "It’s about monitoring rather than control."