HR practitioners who want to roll out an international benefits strategy may end up having to tailor it to local culture, legislation and tax rules, says Debbie Lovewell
Just as the euro was introduced into circulation in 2002 to provide Europe with a single cross-border currency, so a number of employers are attempting to implement a standard benefits policy across all their locations.
Peter Blake, principal at consulting firm Mercer, explains: “A lot of organisations have been traditionally very decentralised and, where it comes to employee benefits, they have left the running of [these] to local markets. A lot of employers have [now] come to the conclusion that they need to take more control over global [operations].”
This move stems from factors such as pressure on organisations to improve corporate governance or to comply with standards of best practice, or a desire on their part to gain more consistency and control over benefits, for example, following merger and acquisition activities. The increasingly global nature of many businesses has also increased the opportunities for staff to move between locations, in which cases, a consistent benefits policy can make it easier for employees to understand exactly what they are entitled to and move cover with them if appropriate.
Blake explains: “When you start moving people from country to country, you need to start reviewing how you will treat those people. Unless you set up something for globally-mobile employees, they are not going to be covered [under certain benefits].”
A global benefits strategy can also enable employers to take advantage of greater economies of scale when negotiating some benefits, such as cars or insurances. Paul Morris, managing consultant at Watson Wyatt, says: “A good policy will take advantage of global buying power.”
He adds there are a number of benefits areas that employers should consider when putting a standard benefits policy in place across all locations. These include retirement and savings perks, risk benefits, healthcare, paid time off, company cars and lifestyle options.
Before they can begin to put an international policy in place, however, employers must identify what staff in each country already receive. “The first thing employers need to do is to look after the local benefits [in order] to have something that will be valued by employees,” says Morris.
The taxation and legislative requirements of each country, for example, differ widely, and may affect what an organisation can, or even needs to, offer in a certain location. “Not knowing enough about the local environment is a major pitfall. Often a benefits structure in a particular country may look completely alien until you dig down into the reasons [behind it], explains Mercer’s Blake.
So when embarking on such a project, employers should bear in mind that the numerous cultural differences that exist worldwide may pose a complex set of challenges they will need to overcome. This can make it difficult to implement an identical benefits package in each country.
One solution is to put in place a strategy, which includes the flexibility to adapt perks to suit each culture. Chris Bruce, director of marketing and technology at reward and benefits specialist Thomsons Online Benefits, explains: “You have to start with a set of principles you are aiming to adhere to and then make practical decisions on a country-by-country basis.”
This set of central principles is likely to include details about the perks employers wish to include in the overall benefits strategy, the finer points of which are then set on a local basis in each location if necessary. When putting this list together, employers will need to consider factors such as budget constraints, the cost effectiveness of the proposed benefits, the organisation’s financial structures including the extent to which this will have an impact on perks such as pensions, and the competition in the markets in which the business operates, particularly when it comes to recruiting and retaining staff.
State provisions must also be taken into account. Operating a rigid global policy around healthcare benefits, for example, may lead an organisation to be overly generous in some countries if it provides a consistent package that is tailored to meet the needs of a country like the US, which has little in the way of state provision.
Where global healthcare benefits cover internationally-mobile employees, therefore, employers should ensure the terms of the scheme can be adapted to fully meet the needs of each location. Some countries, such as the Netherlands, for example, require employees to be covered by basic local insurance. Employers that offer a standard international benefits policy, therefore, could find that they end up covering staff with both a global insurance policy, and any local insurance that is required.
But Tim Slee, global sales director at Bupa International, explains that some providers of international healthcare benefits will take the cost of meeting such local requirements into account when setting up international healthcare policies.
He adds employers should also ensure international healthcare policies include procedures for evacuating staff for medical treatment, which is vital in some parts of the world.
If this wasn’t sufficient food for thought, most of the other main benefits areas pose additional challenges which must be addressed if employers wish to implement a global benefits strategy.
Differing social security systems, for example, mean implementing a consistent approach to pensions can be a challenge. “There’s the biggest financial risk around pensions. [If you are] not getting some kind of control, you could end up with huge problems,” explains Blake.
In order to control this risk, some employers may choose to offer a defined contribution arrangement, for example, where possible. In doing so, however, they will need to not only take the varying tax and legislative regimes into account, but also understand how contributions and the volatility of investment structures will impact on scheme performance.
Operating a pension scheme outside of local tax arrangements is one way of overcoming such complexities. Retirement savings plans, which operate under a trust-based arrangement, for example, can sit offshore, placing them outside local tax rules and legislation. Julian Webb, executive director at Fidelity International, explains this type of scheme can be particularly useful if organisations only have a small number of employees in some locations: “A lot of international organisations have employees based in [various] locations and the number [of staff] is quite low, so it is not cost effective to set up a [pension] plan in each one.” Establishing a retirement savings plan follows a similar process to setting up a pension plan. However, Webb says that these are not an approved form of pensions provision, and do not qualify for any form of tax relief, so employers may choose to gross up their contributions to the plan for staff.
Elsewhere, employers trying to implement insurance benefits across borders may find they have difficulty in doing so, especially in relation to perks such as group risk benefits. One way around this is to use multinational pooling to obtain cover, whereby each subsidiary or branch of an organisation bands together to run schemes as a single global vehicle. As well as offsetting the risk involved, linking international contracts can also result in cost savings for the organisation. Benefits that can be pooled include: group life cover, private medical insurance, critical illness insurance, group death-in-service benefits, and in some cases, group income protection.
Jim O’Driscoll, director, group underwriting at Canada Life Group Insurance, explains that organisations will need to consider how any cost savings are divided within the company, however. If the overall cost of funding group risk benefits through multinational pooling is split evenly between each location, some local subsidiaries may resent it if they end up paying more than previously, and any savings achieved for the organisation as a whole are taken by the parent company.
Cross-border company car schemes can also have economies of scale. As with all other benefits offered on an international basis, employers will need to watch out for variations in tax rules and legislation. They must also take local cultural expectations and driving conditions into account. Richard Schooling, chief operating officer at Alphabet, explains: “Whereas in the UK, [choice of vehicle] is all driven by CO2 emissions, in other [countries] it may not be. A single European deal where everyone is in a contract hire [scheme] and [drives] a Ford won’t work. If you can limit [schemes] to a small number of manufacturers, you may be able to negotiate on deals.”
Some organisations, particularly those that have only been operating in a country for a short time, may find they have difficulty securing legal agreements for funding car schemes in that location due to the lack of a financial track record there. Schooling adds, however, that third-party providers may be able to help employers overcome purchasing issues in some countries.
When designing an international benefits policy, employers will inevitably have to take employees’ views around perks into account if the package is to meet recruitment and retention aims. Offering a flexible benefits scheme internationally enables employers to provide staff with a choice of perks. Although the options that can be included within flex will inevitably vary between locations depending on local tax rules, legislation and product availability, the basic structure for flex can be the same across all locations and adapted to fit local market needs.
Bruce says, however, that organisations should take care to include representatives from countries of all sizes in the project when planning to implement flex, as well as obtaining local buy-in. “It can’t be seen as head office wanting to implement something,” he says.
Failing to put the right technology in place could also trip employers up. “[Flex is] easier to implement if you have a global HR system,” Bruce adds.
So when developing a standard benefits policy, employers must accept they may not be able to replicate this identically in all locations. Instead, cross-border perks must include the flexibility to overcome the numerous obstacles that can stand in their way. As Morris explains: “It’s hard to develop a policy that is going to fit if it’s going into details about all the benefits worldwide.”
Case Study: Microsoft
Microsoft has an international benefits strategy in place, across the 120 countries in which it operates, with the flexibility to tailor perks to suit local markets.
It offers employees a core package comprising business travel, life insurance, disability insurance and medical insurance. Employees in each country then receive other benefits on top of these, which are typically determined by common benefits practices in that region.
Audrey Hall, regional benefits manager for EMEA, in which Microsoft has a presence in approximately 60 countries, explains: “It depends on the country what is common in the marketplace. We always benchmark. At the end of the day, we want to be competitive in local markets.”
Although the company’s central benefits teams, which are based in three regions, keep in touch with Microsoft’s subsidiaries and local HR teams throughout the year, they carry out a formal review of the compensation and benefits package offered within each location every year.
“We do an annual review in line with markets and then we make enhancements and adjustments,” says Hall.
This is intended to ensure it remains competitive for recruitment and retention purposes.