Need to know:
- Multinational pools and captives can streamline insurance processes and lead to a reduction in benefits spend.
- Employers can utilise their scale and size to help drive efficiencies in purchasing larger contracts across numerous locations for a discounted price, rather than smaller, individual contracts.
- A global consultancy or broker will have relevant, up-to-date knowledge about the benefits markets in multiple countries.
According to Thomsons Online Benefits’ September 2016 report, Global employee benefits watch 2016/17: driving global benefits transformation, 38% of respondents acknowledge that they do not have accurate data on their organisation’s global benefits costs.
With this in mind, how can an organisation deliver a consistent approach to global reward, while ensuring that its spend on global benefits is utilised wisely to create real value for money?
Total reward optimisation
Understanding the current benefits that employees value is an important starting point when looking at benefits spend, says Ian Milton, senior consultant at Willis Towers Watson. Total reward optimisation, where data is collected from employees to find out which benefits drive employee motivation and retention or which are generating less interest and could therefore be potentially removed, can help with this, adds Milton. “Streamlining costs [needs] to be balanced with the true understanding of what it is that employees will value, where the organisation will perhaps get the biggest bang for its respective budget, and also ensuring that it aligns to the goals of the business as a whole,” he explains.
This will enable an employer to understand where there may be under-used or under-appreciated benefits. Chris Bruce, managing director and co-founder at Thomsons Online Benefits, says: “[Employers can] either change the benefit or look to improve the communication to make sure they are getting better value for money.”
Global versus local
Working with a global employee benefits consultancy or broker that has a global footprint that corresponds with an organisation’s own is an effective strategy for minimising reward costs, says Lee Thurston, director at JLT Employee Benefits. With local jurisdictions potentially selecting their own consultants and providers, organisations could fall victim to paying fees and commissions for each operating location on individual contracts. “By appointing a global consultancy that has the capability to provide the local administration, broking and consulting services that are required, [the consultancy] then can give [the organisation] a discount on the fees or commissions it charges as a result of it being the broker and consultant in multiple locations,” says Thurston.
Linked to this is leveraging the size of an organisation to generate a bulk discount on services. “It will give the efficiencies and economies of scale,” adds Thurston.
Events such as a merger or acquisition could also be used as a trigger to renegotiate benefits contracts at a potentially better rate.
A global consultancy will also have on-the-ground knowledge of local legislation that employers will need to adhere to in each country, ensuring that organisations stay compliant, says Kevin Melton, sales and marketing director at Axa PPP Healthcare. This, in turn, can help organisations avoid fines or other penalties for non-compliance.
But jurisdictions may not receive exactly the same employee benefits offering, says Daniel Dunay, global head of benefits at Blackrock. “[Organisations] need to have a global overlay and a global philosophy about benefits, but [organisations] also need to be doing a very local market-appropriate offering,” he says. “Set some overall thematic approaches.”
On some occasions, it is essential to insure locally, says Naomi Saragoussi, head of health and protection UK at PricewaterhouseCoopers (PWC). In countries such as Denmark, for example, there is an annual benefits spending cap, and if insurance benefits exceed this amount, they become taxable, so it is important to consider these remits, she explains.
Creating cost efficiencies
Utilising multinational pooling or captives is another way employers could reduce the costs of global benefits spend. Multinational pooling is used to combine employers’ risk contracts, such as life insurance, disability insurance, accident insurance and medical insurance, into a pooling network in order to gain from favourable claims experience. The majority of multinational pools operate on a re-insurance basis, meaning that although the insurance contracts remain local, the risk is transferred from the local organisation to a central provider.
By using a multinational pool, organisations could reduce risk spend by up to 15%, says Damian Ross, regional manager for UK, Ireland and Nordics at Generali Employee Benefits. “One of the biggest advantages is obviously the payback of the international dividend,” he adds.
Similarly, a captive can be used to reduce costs. This is where a non-insurance organisation creates and owns its own insurance business, providing a form of self-insurance for its own policies.
Utilising benefits technology can have many cost-saving impacts for a global organisation, for example, by reducing physical administration costs. Using a single platform across all of an organisation’s locations can reap financial benefits because this enables organisations to reconcile and manage benefits invoices more easily, which makes potential inconsistencies and overcharging situations more visible. In some cases, organisations have saved between $350,000 (£269,795.26) and $550,000 (£423,963.99) just through correcting administrative errors, says Bruce.
Implementing a global reward strategy can reap numerous benefits for organisations, however utilising technology and the expertise of a global consultancy or broker can help employers drive down spend to be more cost-efficient, creating a benchmark for global budget setting.
Capgemini centralises costs with multinational pooling
Capgemini, which operates in 44 countries around the world, reduced spend on insurance-based employee benefits, such as medical insurance, critical illness insurance and travel accident insurance, by using multinational pooling to combine numerous local contracts into one international set-up.
The project, which started at the end of 2013 as the consulting, technology and outsourcing organisation’s first global HR initiative, looked to be smarter around global financing, changing a de-centralised and fragmented benefits structure into a more harmonised arrangement, to further benefit the organisation’s 190,000 global employee population.
Kris Bezzant, senior vice-president and global head of reward at Capgemini, says: “To buy insurance in a highly fragmented way with each little business unit or legal entity doing their own thing, is not the most financially efficient way of approaching the topic. If [an employer] can take [its] package of insurance to the market in a very connected and co-ordinated way, [it] could drive down costs and that’s what the project [was] all about.”
Bezzant, who acted as one of the leads on the project alongside partner firm Aon Hewitt, began the initiative by conducting an audit to assess the current benchmarks of benefits costs and coverage across the organisation. The audit covered 21 of the organisation’s 44 operating countries, equating to 96% of the employee population.
Once coverage levels and costing had been confirmed, the organisation looked to use multinational pooling as a financial savings mechanism, balancing the risks of the individual insurance contracts by consolidating them together into one pooling network.
Bezzant says: “If [organisations] can drive cost savings, just by acting smarter and those cost savings don’t impact employees, but can be smarter in the way that [employers] finance things, then to me, it’s a no-brainer. We’ve operated on a highly de-centralised basis and when [organisations] start managing things in a centralised way, [it] can be much more cost-efficient.”
Viewpoint: Taking employee share plans to a global workforce needs careful consideration
As part of a global benefits strategy, international organisations often want to expand their share plans to cover employees who are based overseas. Often, this is crucial to attract and retain key talent internationally and to achieve parity in remuneration packages across the global workforce.
However, granting employees equity is a complex area, giving rise to a number of local legal issues. Each must be carefully considered as early as possible in order to avoid problems leading to costly errors for the employer and disappointment for the employee.
Tax can make or break an employee share plan and its ability to provide a meaningful incentive for employees. In each jurisdiction, an organisation should take professional advice as to the tax implications of making equity awards, including whether there are any tax-planning opportunities available in that country.
Other important considerations are whether the organisation or local employer has tax and/or social security withholding obligations, and whether there are any particular filing or reporting obligations.
Employment and securities laws will vary from country to country, and should be investigated prior to expansion. The former includes issues such as whether works council or union consent is required, or whether the terms of the plan are likely to breach any discrimination laws; a common issue being how the treatment of retirees interacts with age discrimination laws.
Securities laws can make operation of the plan difficult if not dealt with properly, and breach can lead to fines and even criminal sanctions. Key considerations include whether any consents are required to launch the plan, what communications can be made to employees, and whether any filings with the local securities authorities are necessary.
The issues above are by no means an exhaustive list, so it is vital employers liaise with their professional advisors as early as possible in the proposed expansion process. Establishing a budget at the outset of the project, with a suitable buffer to deal with unexpected expenditure, can help control costs. Expanding into one country at a time may help keep things manageable, although it might increase costs overall if the project has multiple stops and starts.
Dan Sharman is an associate at international law firm Bird and Bird