International Supplement 2005 – Cover story: Avoid cross-border merry-go-rounds

Case studies: Brown Forman, Borders

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As the old joke goes: it’s a small world, but I wouldn’t want to have to paint it. It’s a feeling which benefits managers will know well. While an international benefits strategy seems like a sensible step in today’s global economy, many organisations are put off by red tape and discrepancies between local customs. Cross-border benefits policies are still far from the norm. According to provider Asinta’s Global benefit strategies survey 2003, just one-in-five multinationals have put in a global strategy and only a quarter have an international benefits manager. David Glynn, HR director at Coca-Cola UK, has ruled out the idea altogether.

"While it would be ideal if we could harmonise benefits across regions, different legislation and tax makes that difficult – if not impossible. Global benefits sound good but are fraught with difficulties." Even if employers were free from regulation, Glynn believes that they should benchmark against national, rather than international, competition. "People compare themselves more with the local marketplace. This might not be true once you get up to the most senior executive levels, but for Joe Public the comparison is local. Therefore, a pension scheme which is similar to the one [offered] in Belgium, for example, might not light the fire of a British employee." Nevertheless, there are advantages to streamlining perks across subsidiaries. Morag Prosser, head of flexible benefits at consultancy firm Watson Wyatt, says: "

Firms can maximise on value by using a single provider. This would give them cost efficiencies where they’ve got one or two people in one area and thousands of people in another." In today’s shrinking world, staff are starting to covet their neighbours’ perks and compare packages directly. "The world is getting smaller in terms of communication between different offices. Now, for example, people in the UK feel a bit put out compared with Germany in regard to pensions," adds Prosser. Because of the regulation afflicting global schemes, few organisations have cashed in on these advantages.

But help is at hand and the EU is slowly reducing the regulation burden. In May 2003, the European Council adopted a directive which will clear the way for pension providers to offer their products across the EU block. In theory, member states will have to introduce this legislation by September 2005. Mark Sullivan, worldwide partner at consultancy firm Mercer, says: "In practice, what the directive means is that companies will be able to have cross-border pension plans. It will be possible for a pensions provider in one country to provide pension benefits to individuals in other countries. One of the other advantages of a European pension plan is governance. So it’s much easier [for employers] to monitor and exercise control over one benefit arrangement than to do it for 25 different arrangements."

Pan-European pensions bring benefits beyond cutting down administration. Through multinational pension pooling, organisations can offset cashflow between locations, which is a lifesaver if they pay out more than they receive in contributions in one country, but have the reverse situation in another. The downside is that national approaches to taxation on pensions differ. "Somebody in Denmark will be given a tax break on contributing to a Danish pension plan but will not be given a tax break should they choose to contribute to a Dutch pension plan. There are still some tax and regulatory hurdles to prevent companies from being able to construct a pan-European pension plan," says Sullivan. He predicts that defined contribution schemes will be more common. "Talking to multinationals, I think it may be realistic for a company to set up a pan-European defined contribution plan.

But I’m not so sure many are going to be prepared to go through the additional work and effort of establishing a defined benefit plan at the current time, given the complexity of different local regulations and uncertainty over how different member states will reflect the directive." In theory, healthcare is more portable than pensions across national boundaries, but most employers still decide against offering one global policy, due to different levels of state provision. Frances Blackmore, compensation and benefits manager at Nokia, says health insurance is not as popular in Scandinavia, for instance, because the state support system is very good. Instead, Nokia uses multinational pooling, grouping risk contracts such as life and medical insurance together to achieve economies of scale. "We are part of an international insurance scheme: each country can join the pool. By putting all your resources together, rather than having an individual contract with that insurance company, savings can be made." Share schemes, on the other hand, travel fairly well between locations.

Jane Montgomery, HR manager at Phillips Electronics UK, says: "We do have a global share scheme. [It’s easier] because they are all shares in the company so the scheme is just an admin scheme for managing that." However, employers need to be wary of tax pitfalls, says Alan Hewitt, head of international practice, at consultancy firm Aon. "You need to work very closely with taxation. In some countries, it might not be beneficial to have a share scheme because of the [local] tax regime. "One American organisation was looking to introduce its share scheme locally and when it looked at Belgium it realised that it was going to make the employees worse off by having it." Global flexible benefits schemes are also slowly creeping onto the scene, with technology making them cheaper and quicker to set up. The nature of the benefits may be different in each region, but organisations can cut costs by using the same software and branding.

"What we’ve done for one company is put in total reward strategies right across their 26 operating countries. So the brand is the same, the look and feel is the same but it’s personalised for every country. There will be an overall menu of benefits which people will have access to – pensions, healthcare, holidays – but the detail within that menu will be slightly different for each country," says Watson Wyatt’s Prosser. "When the company makes a change, they make a single change. So if they decide to update a communication around the company share scheme, they only have to make the change once." But while we might dream of enjoying the same number of days off as our Greek or Portuguese colleagues, holiday allowance is one benefit where few employers are prepared to compromise.

Liz Redway, UK HR manager for book chain Borders, says: "While we make sure we are harmonised with our US parents, obviously there is a minimum amount of holiday in the UK that is far greater than in the US. The US Borders have something like 20 times the number of staff that we’ve got, so the cost of drawing them in line with us would be phenomenal – and obviously we can’t go down in line with them." Other global firms have opted for a halfway house between laying down a rigid one-size-fits-all policy and letting local offices run wild and free. Ian Hinton, senior consultant at consultancy Hewitt, says: "What multinationals look at is not so much that they have the same benefit plan and the same design. It’s more that they have some kind of common philosophy. They might have a statement as a company about where they want to be compared to market practice or the type of pension arrangement they should be providing, taking into account the state pension plan."

Mobile phone firm Nokia is taking this tack. "We have a broad framework in terms of the benefits that you’d expect to see. But this will be driven at local level about what is suitable. We try to be as market competitive as possible. "With local staff you are trying to provide a benefit in that market that is appropriate for them. Benefits are country specific because you need to look at salary, tax and social security, so [employees] can’t say: ‘I’d like an American salary and American tax, but I’d also like a UK car and quite fancy a South African pension’," explains Blackmore.

Case study: Brown Forman

Wine and spirits company Brown Forman employs 6,700 people worldwide and has to strike a balance between international equality and adhering to local customs and legislation. Kim Miller, international HR manager, says: "We try and keep the Brown Forman culture and policies but, on the other hand, offer best practice locally." While not all locations have identical benefits, Miller says she has to keep things fair, especially throughout Europe. "We don’t offer childcare vouchers in the UK because it would have a knock-on effect on what we could offer [to equal it] in other parts of Europe. In the UK, vouchers are feasible, but in other parts of Europe they are not, so we would have to come up with something else for them, because there’s so much networking now. We are not isolated, we all work together." The organisation, which owns the brands Jack Daniel’s and Southern Comfort, pools personal life and accident insurance risks by using one provider for all locations. Rather than getting a local insurance provider to work out the premium for life cover for a certain number of staff, this lowers the risk and therefore the cost.

Case study: Borders

Borders, which operates 1,200 book and music stores worldwide, places heavy emphasis on harmonising perks across locations. Liz Redway, UK HR manager, says: "It’s something we think about with every benefit. No matter where you are in the world, people know what you stand for. So employees who come and work for Borders then know what they are going to get." She adds that some benefits travel more freely than others. "Discounts are obviously fairly easy to harmonise – that’s no problem – and book loans are very easy for us to do." Employees can borrow books from the shops, and are encouraged to share their recommendations with customers. Borders’ 62 UK stores have recently welcomed another US import – a foundation fund to help staff with domestic emergencies. "If their kitchen roof falls in or they suffer a bereavement, we can grant them a payout to financially tide them over for a couple of months until they are sorted out. It’s something that the US [arm] started up." Until last year the firm also offered stock options to each employee, in line with its US parent. But the firm closed the scheme, because "there wasn’t a great monetary value to it". Despite its commitment to making perks uniform, Borders still comes up against some insurmountable obstacles. "To some extent, UK and European legislation dictates where it won’t be easy to harmonise. For instance with maternity benefits we have statutory minimums in place in the UK. And people that get medical cover, will get a slightly different package [in Britain than in the] States, because the UK has the NHS," says Redway. Company car schemes are rather unusual in the US but car allowances are offered to certain UK employees. "We’ve benchmarked [rivals] in the UK and the benchmarking says that our competitors are doing it".