Challenges in Developing a Global Benefits Strategy Benefits

Challenges in Developing a Global Benefits Strategy Benefits Virtual Conference Nov. 15, 2011 Jacque Vilet President, Vilet International

Challenges in Developing a Global Benefits Strategy What do we mean by “global benefits strategy”?

Challenges in Developing a Global Benefits Strategy Definition of benefits strategy/philosophy: Ø A blueprint of a company’s decision describing how benefits “fit” with the overall culture and philosophy of the company. It is a living, breathing document that needs to be adaptable to change Ø Without an integrated strategy companies have a tendency to position benefits that do not reinforce their business context and are counter to their culture

Challenges in Developing a Global Benefits Strategy Traditional approach --- localized Ø Highly decentralized, country by country benefits plans Ø No corporate governance over quality of vendor selection/performance, legal compliance, market position or data management Ø Country business unit negotiates benefits coverage/insurance Ø Ad hoc planning and execution Ø No cost saving synergy Ø May overlap with mandated benefits

Challenges in Developing a Global Benefits Strategy Newer approach --- centralized Ø Greater cost efficiency and economies of scale due to stronger buying power Ø Easier to apply consistent governance practices/processes Ø Centralizes decision-making authority for new/revised benefit plan requests Ø Leverage over brokerage and consultant fees globally Ø No piecemeal or ad-hoc approach --- no “benefits creep”

Challenges in Developing a Global Benefits Strategy Why are more and more companies centralizing benefits now? ? ? Ø Economic conditions in the U. S. and globally call for more effective and efficient ways to manage costs Ø Companies are hunting diligently for ways to cut costs or find the most costeffective delivery systems Ø Benefits are a very large cost for all companies ---- but VERY large for multinationals

Challenges in Developing a Global Benefits Strategy Why have a global strategy? Ø Allows a more cost-effective delivery mechanism --- allows for cost synergy Ø Template/policy in place for growth either organically or through acquisition in new countries Ø Streamlines administrative processes Ø Opportunity to provide meaningful choices to a diverse work force

Challenges in Developing a Global Benefits Strategy Why have a global strategy? ØEnsures proper alignment with competitive market ØHelps to reinforce a company-wide culture ØFramework for future benefits changes and enhancements.

Challenges in Developing a Global Benefits Strategy Why have a global strategy? ØEnsures all benefits offered complement/integrate with statutory benefits ØCompliance with legal requirements ØPrevents addition of ad hoc plans and tendency for “benefits creep”

Challenges in Developing a Global Benefits Strategy According to Towers Watson: Ø Only 44% of multinationals worldwide had a global benefits strategy in 2004 Ø 78% of multinational companies had a global benefits strategy in 2010

Challenges in Developing a Global Benefits Strategy Market forces impacting benefits strategy: Ø Aging global population Ø Increasing demand for critical skills --- attract/retain talent Ø Social systems under fiscal pressure and cutting programs Ø Increase in medical costs --- not just the U. S.

Challenges in Developing a Global Benefits Strategy Market forces impacting benefits strategy: Ø Market practice Ø Changes in country labor laws and mandated benefits Ø Changes in taxation Ø Local culture Ø Generational preferences

Challenges in Developing a Global Benefits Strategy Key questions to consider in design: Ø What legal requirements have to be met? Ø What types of company supplemental benefits are offered by competitors? Ø What if social programs are satisfactory with no need for supplemental benefits?

Challenges in Developing a Global Benefits Strategy Key questions to consider in design: Ø What options are available for funding programs in each country? Ø Once implemented, can a benefit be taken away? Ø Philippines Ø Is local language legally required in communicating benefits? Ø Will the company offer dependent coverage?

Challenges in Developing a Global Benefits Strategy Key questions to consider in design: Ø Will we require shared cost responsibility between company/employees Ø What is the tax impact on programs for both employee and employer? Ø Should we have different benefits for different job levels by country if market data shows this is a common practice? Ø Will we decide to have certain programs even if not market prevalent? ---- Defined contribution plan? Life insurance? Ø Spain Ø IBM

Challenges in Developing a Global Benefits Strategy What should it include? Ø Compliance with statutory programs Ø Integration with statutory plans – no duplication or overlap Ø “Fit” with overall benefits philosophy Ø Proposal/approval process for new/revised benefits Ø Policy guidelines

Challenges in Developing a Global Benefits Strategy What should it include? Ø Competitive position -- same or different by country Ø Decision-making authority for financing benefits globally Ø Shared responsibility between company and employees Ø Approach/process/authority for insurance placement and renewals

Challenges in Developing a Global Benefits Strategy Non-negotiables in benefits strategy: Ø Will the company require shared responsibility between company/employees in terms of premium cost, deductibles and co-pays? Ø Will each country’s benefits be set at the same market position worldwide? Ø Will the company decide to have certain programs even if not market prevalent? ---- defined contribution plan? life insurance? Ø Due to company culture or philosophy of top management

Challenges in Developing a Global Benefits Strategy Non-negotiables in benefits strategy: Ø Will the company provide different benefits based on position/job level in the company? Ø Will the company offer dependent coverage? Ø Will the employee pay any part of the premium for this coverage? Ø What if social programs are satisfactory without supplemental plans? Ø Italy --- retirement plan

Challenges in Developing a Global Benefits Strategy Do’s of developing a benefits strategy: Ø Review competitive market data on benefits supplied by objective third party vendors in each country Ø Create competitive package that helps to attract and retain top talent Ø Determine if population by country qualifies for group insurance as well as pooling of insurance Ø Ensure compliance with local laws

Challenges in Developing a Global Benefits Strategy Do’s of developing a benefits strategy: Ø Decide on use of either global broker or direct corporate management of local brokers and insurance companies Ø If making change in medical carrier insist on acceptance of pre-existing conditions Ø Avoid implementing program that may be difficult to remove later Ø Consolidate financing where possible (pooling)

Challenges in Developing a Global Benefits Strategy Do’s of developing a benefits strategy: Ø Consolidate vendor, data management and reporting Ø Design of competitive and cost effective programs in each country that employees understand Ø Understand that for cultural reasons, some non-negotiable items may have to be phased in over time Ø Employee shared premium cost responsibility in India Ø Focus on benefits “harmonization”

Challenges in Developing a Global Benefits Strategy Don’ts of designing a benefits strategy: Ø Overlay headquarters’ country benefits worldwide without concern for mandated plans, competitive practice or local options available Ø Layering of headquarters’ country benefits on top of existing locally provided supplemental benefits causing employee confusion and duplicate costs Ø Creating an “us” versus “them” barrier between corporate and local HR by not working collaboratively

Challenges in Developing a Global Benefits Strategy Don’ts of Designing a Benefits Strategy: Ø Not reviewing funding approaches of retirement plans with Finance Ø Perception by locals that corporate HR lacks knowledge or concern about local practice Ø Putting benefits in place that do not support company culture/philosophy Ø Not setting a global strategy from which local benefits can be aligned Ø Not reviewing insurance contracts with Legal

Challenges in Developing a Global Benefits Strategy Don’ts of Designing a Benefits Strategy: Ø Changing medical insurance without understanding impact on employees Ø Not doing due diligence when selecting insurance companies Ø Relying on local employees as only source of information Ø Not considering demographics by location --- age and generational differences Ø Not considering cultural issues

Challenges in Developing a Global Benefits Strategy Country Benefits Audit: Ø Conduct audit of current supplemental benefits by country: Ø Ø Ø Ø Ø Cost of broker/consultant to manage plans on ongoing basis Shared cost between employer/employee Investment firms for retirement plans Benefits offered Determine if current benefits are valued or even needed Use/name of local broker Insurance companies Current costs of each plan Dependent coverage Market position

Challenges in Developing a Global Benefits Stra Country Benefits Audit: Ø For a new company implementing a global benefits strategy is not difficult Ø A well-established company must “harmonize” plans in different countries to create a unified and consistent global benefits strategy Ø “Harmonization” occurs where multiple benefit plan designs exist in countries which need to be consolidated, benefit levels must be trimmed if they are currently considered too rich relative to the local market, benefits do not “fit” the new corporate benefits strategy, or if there are situations in which duplicate or overlapping benefits exist

Challenges in Developing a Global Benefits Strategy Employee Communication: News about the declining economy, job losses and other discouraging statistics are hurting employee morale/engagement. The right communication techniques can result in a boost in morale. Multiple touch points work best in communication, so be sure to use all methods available.

Employee Communication: First Stage: Communication with managers Ø Business unit/division management at headquarters Ø Management levels that have the most contact with country local management Ø Local management in each country Ø Provide a “script” for use by management when answering employee questions as well as FAQ’s

Challenges in Developing a Global Benefits Strategy Employee Communication: Second Stage: Communication with employees Ø Tele-conferences with groups of employees at each location Ø Hard copy of material sent to the top manager at each location for distribution explaining the new strategy and how it impacts benefits at that location Ø New screen on company intranet explaining the new strategy Ø Email from CEO or COO sent to all employees

Challenges in Developing a Global Benefits Strategy

Challenges in Developing a Global Benefits Strategy Five steps of communication to boost morale/engagement: Ø Explanation of strategy and impact on local country benefits Ø Dialog with employees to answer questions Ø Establish a culture that focuses on the positive Ø Improve attraction and retention Ø The result is greater employee engagement and loyalty

Challenges in Developing a Global Benefits Strategy Employee Engagement!

Challenges in Developing a Global Benefits Strategy Future Trends: Very difficult to predict 10 -15 years out. HR experts believe that significant changes will occur in the following ways: Ø More emphasis on corporate strategy and employee needs ---- less emphasis on competitive market practice. As a result there will be more differentiation in local markets and more difficulty deciding how to be competitive. Ø Government push on the private sector to accept more responsibility for benefits as governments seek to reduce costs of social insurance programs Ø Mainly Europe

Challenges in Developing a Global Benefits Strategy Future Trends: Ø Emergence of flexible compensation/benefits in more serious fashion within each country due to age/generational preferences and needs

Challenges in Developing a Global Benefits Strategy Questions? Comments?

Challenges in Developing a Global Benefits Strategy Jacque Vilet President, Vilet International Ph: 214 -609 -4437 Email: jvilet@viletinternational. com For articles see: http: //www. linkedin. com/pub/jacquevilet/8/616/135 Website: www. viletinternational. com