Jeremy Hill, chairman of international industry body IEBA, explains global change is afoot, says Sarah Coles
Sometimes it seems the only constant in the world of international employee benefits is change: change within the regulations and practices of each country, transformations in the global landscape of employee benefits, and continual reinventions of the tools used to bring global packages together. The past 18 months have certainly seen their fair share of transformation as the global financial crisis took hold.
Jeremy Hill, chairman of the International Employee Benefits Association (IEBA) and a principal at Mercer, says, unsurprisingly, that one of the striking features of the aftermath of the crisis is a greater focus on international governance, reflecting global demand for control and risk management.
This is often expressed through a desire to get a greater understanding and control of benefits from the centre, explains Hill. “We see an evolution. If you went back 25 years, central control was very difficult. Gradually, it has become easier, and the development of technology has made a profound difference. You still will not get benefits administered from the centre, but there will be overarching guidelines.”
In days gone by, governance involved looking at accounting for defined benefit (DB) pension schemes, and understanding the risks and liabilities on a global scale.
“We are now at the next stage, looking at other areas where we are spending a lot of money and gaining an understanding of it on a global basis,” says Hill. “That might be defined contribution (DC) pension benefits or healthcare.”
The second major trend is again not unexpected in such a severe downturn: a focus on costs. This has driven some organisations to think globally, and consider mechanisms such as multinational pooling, where Hill says there is a lot of activity. “It is the standard approach now,” he says.
“Organisations that have not used pooling are starting to see that they are missing an opportunity.”
However, employers’ ambitions are often limited. “Most organisations are not going down the route, for example, of pan- European pensions because it is an enormous shift,” says Hill. “So they are looking for slightly easier projects and easy wins.”
This is reflected in overwhelmingly short-term thinking at the moment, he says. “One of the things we have seen during the recession has been the drive for [employers] to find potential short-term savings. They are attracted by discounts and short-term solutions, particularly in the insurance area.
“In the past, typically they wanted the best solution for the medium to long term and were prepared to make an investment in the short term, but that is not always the case right now. Some organisations say ‘we do not just want to look at cutting costs, we want to look at whether we can actually reduce benefits’.”
But not all the moves in recent months have been towards quick cost-cutting. One trend is to push some benefits provision in the opposite direction. Increasingly, multinationals have a presence across developing economies. As global wealth has filtered through to such countries, local employees are becoming more demanding and expectations have risen.
“Some companies say they are seeing a bit of a requirement to be more even-handed in the way they treat people, for example in African counties,” says Hill. “In the past, they may have given expatriates generous benefits and the locals no benefits. We are now seeing that in order to achieve local licensing for the business, they need to introduce benefits for locals in some way comparable to the expats. In the Middle East, there is an increased requirement to use local insurance as opposed to international insurance.”
As these economies develop more consumer awareness and the middle class emerges, these trends could become increasingly prevalent.
Increasing healthcare costs
Looking to the longer term, three trends likely to take centre stage are: increasing healthcare costs, climate change and globalisation of benefits plans. “From an EU perspective, healthcare has, to some extent, been below the radar (at least by comparison with the US) because the state often meets most people’s needs,” says Hill.
“But globally it is a key issue. When you look at it from a macro level, governments are looking to reduce their exposure, employees are generally not in a position to pay, so the employer is piggy in the middle.”
Employers therefore need to find a balance between reliable provision and facing an untenable cost burden.
So far, in many parts of the world, the only aspect of reward with any obvious relevance to climate change has been the provision of company cars. Hill says: “The impact of climate change on benefits may be less obvious, but it is relevant when you look at the shift of disease, with tropical diseases being identified in Europe, for example. In general, our members are asking how some of these significant longer-term trends should affect what they are doing now.
“Most organisations have such a short-term view that they say ‘it is too far away for me to be thinking about’, but if they do not think about it now, everything will go wrong and they will be dealing with a short-term emergency.”
The drive towards globalisation and introducing international plans is another key trend. “Our challenge working with multinationals is that we are always looking to develop guidelines that are sufficiently strong to have value and still flexible enough to be useful,” says Hill. “Clearly, there is a drive to get some consistency of approach.”
But the challenges remain as strong as ever. Hill emphasises the push for consistency has not been accompanied by any global convergence of benefits. For example, although DC pensions are becoming more popular across the world, there are still striking local differences. “Germanic countries tend to provide a guaranteed floor to investment performance,” he says. “Anglo Saxon economies, meanwhile, typically emphasise freedom of choice. So even within a broad trend, such as the move to DC, there are significant variations.”
The increased desire for a global approach has been reflected in more international services on the market, says Hill. “There has been a trend towards the globalisation and consolidation of consulting firms. More and more are being called to address issues across more countries, so they need to have expertise in each of these countries to address the details.”
This is part of an effort to provide value, he adds. “The information side of our work has changed, with information becoming more commoditised. [Employers] can get much of what they need from the internet now. In some ways our job is getting easier. In some ways it is getting harder because we have to be able to add value.”
As the global landscape continues to evolve, international benefits are set to go through yet more changes. The next 18 months are unlikely to be as dramatic as the last year or so, but international benefits professionals will not have time to stand still for long.
2009 Became chairman of the International Employee Benefits Association
2003 Joined the committee of the International Employee Benefits Association
2003 Became a principal at consultancy Mercer
1996 Started work consulting around international benefits
1994 Qualified as a UK pensions actuary
1988 Graduated Oxford University with a maths degree
About the International Employee Benefits Association
The International Employee Benefits Association (IEBA) aims to provide a forum for discussion and education for international employee benefits professionals. To meet these aims, it has three main areas of activity: an annual conference, local meetings in areas in which it is active, and a diploma course, run in conjunction with the Pensions Management Institute (PMI).
However, the diploma does not aim to teach everything about benefits everywhere in the world. IEBA chairman Jeremy Hill says: “There are core countries people learn about to provide a broad background. Then, say, if they are going into Austria, they can appreciate there are elements like Germany, other parts like Belgium and so on, so they can use their knowledge to build up a picture.” The conferences and meetings enable practitioners to network and learn about others’ experiences.
“You cannot know all the details about everything, so part of the challenge is about knowing when you have reached the limits of your expertise,” says Hill. “The other part is knowing where to go when your knowledge runs out.”
IEBA currently has more than 450 members around the world.
Read more articles from: Special report 2010: International reward