Globalisation is making international organisations take a much broader approach to how their businesses are run. But while this can result in greater consistency as well as cost savings, when it comes to implementing employee benefits, there can be some serious downsides.
On paper, the concept of an international benefits strategy may seem to have many plus points. Richard Phillips, international benefits director at Orbit Benefits, says: “Many multinational [organisations] recognise the importance of an approach that allows them to maximise the value of the benefit spend across all the countries in which they operate.”
It is becoming a particularly common approach for US companies. Chris Wilson, director of benefits consultancy Reward People, says: “A lot of the US companies structure their benefits strategies so they are run out of the US.”
He adds that he has seen several examples of this in operation, with regional offices allowed varying degrees of input into benefits choices. “Some [companies] will leave the decisions almost entirely to the US benefits team, others will have regional planning but with final approval from the US team,” he explains.
One of the primary advantages of running a strategy out of one country is cost. “You can gain significant economies of scale by centralising benefits. International pooling will reduce the cost of risk benefits and you can also save considerable amounts on administration across the benefits package,” says Wilson.
It can also give a more consistent approach to reward within an organisation. The value of benefits will be comparable wherever staff are based, removing feelings of inequality. And with an international strategy as a point of reference, it can be easier for local benefits managers to determine what is suitable.
Because of the scale, the data generated by an international benefits strategy can be valuable too. Claims patterns can show trends in different locations and help to influence strategic decisions about benefits provision.
However, while the concept is sound, there is a danger that an organisation can use an international benefits strategy inappropriately. If a central team controls the benefits strategy across all continents in which an organisation is based, there is also the risk that it may not be fully aware of the needs and issues pertinent to each territory. “Benefits need to be compatible with the culture and expectations of local employees and each country’s social security and taxation systems must be taken into account,” explains Phillips.
If these factors are overlooked, or a strategy is too rigid, the perceived value of benefits can be seriously affected. Local reward managers may also find they struggle to obtain sign off for the implementation or funding for local initiatives.
The popularity of individual perks also varies greatly around the world. For instance, Wilson says that when advising a firm with a Romanian office, the top benefit was gym membership. “Gyms are often in US hotels so being a member gives status. In the UK or US, staff would struggle with this idea.”
Differences in legislation and taxation can cause problems for anyone implementing benefits on a global basis. Chris Mayo, senior international consultant at Watson Wyatt, says: “Legislation will influence what you can put in place around the world. If you wanted to put defined contribution pension schemes across an organisation you’d be unable to do this in countries such as Belgium and Germany.”
Likewise, in some countries employers are legally required to buy perks from local insurers. Centralising a benefits team can also create other problems. If an employee needs to make a claim on a risk benefit, for instance for long-term disability, support is essential. “This can be difficult to deliver if the benefits office is on the other side of the world,” says Wilson.
But while there are potential pitfalls, Mayo says that, if it is executed correctly, an international benefits strategy can be worth implementing. “[Employers] that have done it well have ensured it is sufficiently broad to enable local interpretation within a consistent framework.”
If you read nothing else read this…
- An international benefits strategy can result in savings, in terms of reduced premiums and administration costs, as well as delivering a more consistent approach to reward.
- Some employers, however, now run their international benefits strategy from an office on one continent, which may divorce them from the realities affecting benefits provision in other territories.
- Cultural differences also need to be catered for, as these will affect the appeal of different benefits.
- To maximise the effectiveness of international benefits, emphasise clear definition and local interpretation.