Multinational companies have a number of local matters to consider when developing a global benefits strategy, says Jenny Keefe

There was a time when Birmingham and Beijing had little in common when it came to employee reward. But the rules have changed in recent years, and an increasing number of employers are now mapping out global benefits strategies.

In January, Tesco exported its share options and bonus scheme to eligible workers in China. Data services company Vanco is serving up its flexible benefits scheme to employees worldwide. And investment bank SociÈtÈ GÈnÈrale sends total reward statements to staff in 35 countries. Welcome to the age of global benefits.

More than three-quarters (78%) of multi-national organisations now have a global benefits framework, according to Towers Perrin’s Global total remuneration management survey, published in July 2008. But nearly five years ago, that figure was less than half (44%), according to the consultancy’s Worldwide benefits management survey, published in November 2004.

So why are many employers now taking a global approach? Chetan Patel, an associate at Mercer, says: “Years of international expansion and cost control have fuelled the trend towards centralisation. Companies are developing global benefits to increase efficiency and save money.”

But the advantages go beyond simply cutting costs. If all workers share similar perks, an organisation can build a single global brand and strengthen ties between its offices in far corners of the world. In addition, expatriates posted abroad will receive a consistent package, wherever their job takes them.

But the complexity of combining different local reward cultures should not be underestimated. Shaun Tyson, professor of human resource management at Cranfield University, says: “There are considerable variations in tax regimes and social security systems in different countries, which affect how benefits are selected. Health insurance, for example, depends on the quality of the local state systems.”

Employers must also bear in mind local cultural and legislative differences when constructing and implementing international benefits schemes.

Taking benefits plans global is not the same as simply replicating UK schemes worldwide. It could involve drawing up an international benefits strategy and adapting schemes, where necessary, to suit each country covered by the overall strategy.

This is what happens at investment bank Credit Suisse. With 45,000 staff across the globe, the bank runs most of its schemes locally, except long-service awards and sabbaticals, to maintain its competitive edge in each country.

Consistent approach

Linda Murphy, Credit Suisse’s managing director, says: “Our global benefits strategy ensures a consistent approach at local level. We also have very robust global governance that oversees all local plan design decisions, and each regional meeting is attended by the global head of benefits.”

As well as saving money, Murphy explains that this strategy guarantees fairness for staff between locations.

Other employers choose to adapt benefits schemes internationally. But plotting the right course through the global maze depends on the type of scheme an employer offers and the countries in which it operates.

Flexible benefits

Global flexible benefits schemes are attractive because they offer the chance to harmonise benefits across borders, creating one global benefits system. They also make international benefits communications very easy.

A handful of employers run flex globally, but the finer aspects of schemes vary according to location, says Martha How, head of reward consulting at Hewitt Associates. “The result is an umbrella global plan,” she explains. “This identifies design principles, but with a different scheme in each country taking advantage of local opportunities and complying with local laws and practice.”

Flex schemes are received better in some locations than others. James Crossland, business development manager at software provider NorthgateArinso, says the concept of flex is, typically, less appealing in countries where employers are legally obliged to provide a number of perks, such as France. This means most basic packages already meet the vast majority of workers’ needs, so flex is not perceived as being as attractive as it is in some other countries.

The answer, says Crossland, is to limit flexible benefits to certain countries where it fits well, such as the UK, the Netherlands, Spain and Ireland.

Group risk benefits

A number of employers use international insurance pools to provide group risk perks. This can help to save money and the logistics can be easy. If employers have subsidiaries in two or more countries, they can place insurance contracts for several regions into a single pool, covered by the same insurance network. Benefits that can be pooled include group life cover, private medical insurance, critical illness insurance, group death-in-service benefits and group income protection.

Pooling can make a marked difference to insurance premiums. “Pooling premiums can mean savings and enables a better claims rating than would be achievable through individual contracts,” says Mercer’s Patel, “In addition, insurance networks provide annual multinational pooling reports, summarising key financial information for central reporting.”

Current economic constraints look likely to create a surge in pooling arrangements. Towers Perrin’s Global total remuneration management survey last year found that 40% of multinationals already use insurance pooling, and 23% plan to start doing so.

Engineering consultancy Arup is a classic example of this. The company sources life and income protection for its staff in a number of countries through a single network. Tony Hatton-Gore, Arup’s head of remuneration and benefits, explains: “Multinational pooling provides access to underwriting advantages, such as network-wide free cover limits, and to competitive premiums in each market.”

On top of which, the company also receives dividends. “If the claims experience is favourable, we receive a dividend and have done so in three of the last five years,” says Hatton-Gore.

Since 2002, the firm has averaged dividends of 20% of premiums each year.

Healthcare

As well as pooling, employers that want to offer wider healthcare perks across borders can provide international private medical insurance (PMI). Many countries ban offshore providers from insuring local nationals, so employers cannot set up one global policy to cover all employees. But there is nothing to stop them running international PMI schemes for expatriates. Here, employers buy an international PMI scheme through a single provider with an access network of regional insurers.

For most employers, the aim is parity. Sarah Dennis, international business consultant at Jelf Wellbeing, says: “Generally, we find UK companies like to streamline their insurance policies and make sure any employees going overseas get the same level of cover as UK-based employees. They do not want to offer more than that.”

But reading the local small print is essential, says Dennis. “Licensing and regulation of the products available is a bit of a hornet’s nest,” she explains. “Medical insurance providers have to comply with the local government rules - they cannot just go and sell there. And just because employers are buying international PMI, it does not mean they are covered everywhere.”

Company cars

Global company car schemes can help employers to tap into economies of scale amid rising costs, but there are a few essential matters for them to consider.

The first job is choosing a supplier. This can be tricky, says Stewart Whyte, managing director of consultancy Fleet Audits. “Organisations have global policies where preferred suppliers cover 70% or 80% of the fleet, but full globalisation is not generally possible because there is no single manufacturer or single fleet outsourcing agency that operates in all markets.”

Planning and preparation are also crucial, says Ross Jackson, managing director of fleet consultancy Fleet Operations. “This means working with cost-effective local suppliers, where business partnerships are perhaps already quite strong and national issues can be accounted for.”

Jackson also recommends getting local managers on board. “Listening to the fleet team within the local business and perhaps taking on one of their suppliers at local level demonstrates that their opinion counts.”

Picking the right car models is also a dicey business. For example, in the Republic of Ireland, four-door saloons, not five-door hatchbacks, are the thing to have. In the UK, the reverse is true.

Another crucial aspect is dealership and support networks. “In major cities, there may well be franchises for most makes, but in rural areas, franchised dealers may be few and far between,” says Jackson. “Away from the main conurbations in France or Italy, for example, Volkswagen or General Motors dealerships and repair facilities may be pretty sparse.”

Share schemes

A more workable option is global share schemes. Louise Drake, national sales manager at Yorkshire Building Society Share Plan Services, says: “The aim is to equalise benefits to employees worldwide. Schemes also encourage wider employee share ownership and, hopefully, generate greater loyalty.”

Employers looking to run share schemes overseas have two options. Some organisations choose to adapt the UK sharesave model to foreign shores. Just as in the UK, workers have to save between £5 and £250 a month in local currency, over three or five years. Employers give staff the option to buy shares at a future date, discounting the price of the shares by up to 20% of the market value. The snag for overseas workers is that although returns are tax-free in the UK, there are no tax advantages abroad. Other organisations choose the most tax-friendly share plan for each country.

“This has obvious benefits for the employee,” explains Drake. “However, it is also likely to be legally costly and harder for employers to communicate, due to the huge variety of plans. Employees will be also be saving over different periods of time in different jurisdictions.”

Whichever share plan option employers choose, thorough research is a must. “Employers should allow sufficient time to obtain legal advice, train local co-ordinators, sign off for translations and distribute the employee literature,” says Drake.

“Electronic brochures prevent hold-ups in the postal system, and local call centres can avoid potential problems with time zones and language.”

Pensions

Most multinational firms run separate pension schemes for each country, however a new breed of global pension strategy is emerging that might be the best option to save money in a tough market.

Andrew Wood, Aegon’s regional sales director for UK, Ireland and Nordics, says: “We are seeing a noticeable increase in interest from companies looking to adopt a global approach to pensions. In the past, pension plans have been dealt with country by country by local HR departments.

“By taking a global overview, companies can gain a better idea of where they can reduce costs, increase their efficiency and reduce complexity.”

Global solutions range from pooling assets to working with a single pensions provider. “The first step for any organisation is to establish a clear philosophy on what it wants to achieve with its pension provisions,” explains Wood. “Next, the company needs to set up a global governance structure. Again, there is no simple one-size-fits-all solution, but all governance structures should ensure complete transparency and a clear allocation of responsibilities.”†

Case study: AMS finds local variations in flex preferences

In 2008, international recruitment company Alexander Mann Solutions (AMS) launched a global flexible benefits scheme - with important local differences.

Ruth Smyth, global head of HR, explains: “Flexibility is a key component of our employer offering. We want to give staff maximum flexibility in all aspects of their work at AMS, and that includes flexibility in the benefits they receive.” The company, which has 1,000 employees across 60 countries, launched the scheme in the UK in April 2008, and extended it to Australia and Germany in July that year.

It also offers a global share option scheme for certain groups of staff, as well as a global employee assistance programme (EAP).

But some benefits schemes still differ according to country. “One of the biggest challenges in managing employee benefits across regions is identifying what will be most valued by employees,” explains Smyth. “You may be surprised which benefits are more highly valued than others in different countries, as it may not be the most expensive option.” When it comes to healthcare perks, AMS usually provides these only in locations where state care is lacking. “Benefits do not have to be the same across all locations, but it is important that they look and feel part of a global strategy,” says Smyth.

Case study: NCR takes a holistic approach

With 22,400 employees in 100 countries, retail technology company NCR had its work cut out to draw up a global benefits strategy.

The company has a global benefits function which oversees local reward schemes across the world. The function manages the global employee stock purchase plan centrally, but other benefits or perks are administered locally.

Noelle Gumm, NCR’s vice-president of compensation and benefits, says: “Our benefits offerings may vary from country to country due to local market practices, but having a view of all the international benefits schemes allows us to take a holistic approach in making decisions, while capturing economies of scale.

“When developing international benefits offerings, NCR considers the relevant business drivers, such as growth plans within a country and emerging market projections. We then design our schemes in the context of local market practices and affordability, taking into account existing benefits in that country.” Local laws and tax rules are a crucial issue. “A significant challenge faced by all employers is the varied legal, tax and cultural landscape in which any global benefits programme must operate,” she explains. “We need to be vigilant to ensure compliance with all requirements.”