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Multinational Solutions

ManagingGlobal Benets:

Challenges and Opportunities

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Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Challenge 1: Developing a global benefits strategywhile providing benefits that meet thevaried needs of multinational employees . . . . . . . . . . . . . . . . . . 5

Challenge 2: Creating a competitive benefits programto help attract and retain talent. . . . . . . . . . . . . . . . . . . . . . . . . 8

Challenge 3: Finding cost-effective ways to attainand administer multinational benefits . . . . . . . . . . . . . . . . . . . . 10

Challenge 4: Building recognition for the value that globalbenefits management brings to a company. . . . . . . . . . . . . . . . 14

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

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Methodology

The reports ndings are drawn from recent research commissioned by MetLife including: 25 in-depth telephone interviews (conducted October, 2008 through January, 2009) among senior

U.S.-based corporate decision-makers at companies ranging in size from 3,000 170,000 totalemployees, and with 400 100,000 employees outside the U.S. Half of employers interviewedhave a larger non-U.S. employee base than U.S. employee population. All employers operate ina range from 3 60 countries and on average in 40 countries in regions including the Americas,Western and Eastern Europe, Africa, Australia and Asia Pacic. The industries include advertising,automotive, chemicals, construction, containers and packaging, consumer non-durables, nancialservices, healthcare, hospitality, industrial products and pharmaceuticals. These interviews focus onparticipants perceptions of their current challenges, best practices and areas of opportunity relatedto multinational benets. i

The 7th annual MetLife Study of Employee Benets Trends (conducted third quarter, 2008), whichincludes interviews with 1,524 U.S. employers, 385 of which have international operations. ii

i The MetLife Study, Managing Global Benets: Challenges and Opportunities was conducted between October 2008 and January 2009by Leichliter Associates, LLC.

ii The 7 th annual MetLife Study of Employee Benets Trends was conducted during the third quarter of 2008 by GfK Customer Research North America.

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Developing a global benets strategywhile providing benets that meet thevaried needs of multinational employees

Multinational business is the key to the future for many companies and is often a main opportunity forgrowth. In some cases, the size of their multinational employee base equals or eclipses that of their U.S.employee population.

Most of the benets executives interviewed experienced their share of benets challenges as they expandedglobally, either through establishing new ofces or acquisition. Many want to ensure their employee benetsprograms run smoothly and efciently and are compliant with current government regulation. The adventof the Sarbanes-Oxley Bill (2002), which enforced stricter accounting and nancial controls, has escalatedthe need for nancial transparency, especially in terms of future commitments for core benets such as

retirement plans. The current global economic crisis has tightened budgets and heightened the urgencyto make sure all multinational benets are appropriate, compliant and sustainable.

Becoming truly globalInterview participants express that, although they have operated multinationally for many years, theircompanies are just recently becoming truly global in terms of how they approach multinational benets.

Importantly, by truly global they do not mean that they are seeking one-size-ts-all benets plans thatare standardized across the world. Many recognize the need for exibility and how government mandatesand cultural factors can shape local benets programs and employee expectations around benets:

One global benets executive notes the extent to which non-U.S. benets are framed by government

mandates rather than built from the ground up. Others take into account how much benets can vary from country to country. For example, in India

there are complex child incentives, home incentives, health plans that include grandparents andother provisions.

Many nd in the European Union (EU), that although countries have so much in common,government mandates around benets vary greatly from country to country. In fact, among theemployers interviewed who have been invited to participate in a pilot program for a new Pan-EUretirement plan concept, few are optimistic for a speedy implementation.

To help their companies become truly global in how they think and operate, benets decision-makersfocus on:

Articulating a concise global benets strategy or philosophy that provides employees with aframework for understanding management decisions affecting benets. This strategy mustaccommodate the varied cultures of different localities and regions.

Creating effective and understandable benets programs for local, mobile and multinational employees.

Challenge 1

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Most benets executives interviewed consider it essential to have a simple working denition oftheir global benets strategy or philosophy. Their companies have followed various paths to developthese denitions:

One trendy retailer, with operations in over a dozen countries, established a hierarchy of needsto help the company prioritize its multinational benets offerings. As they add operations innew countries, they work through a learning process for setting base pay, bonuses and long-termincentives. If, for example, a location wants to launch a new community service program, he rst sayslets make sure what we offer employees is fair, make sure it works. Once weve moved up the needshierarchy a bit, then we can do more.

Some companies create their strategy or philosophy as a natural extension of their corporateheritage. One U.S. based family-owned manufacturer seeks to establish a similar family-companyenvironment in its global operations. The manufacturer takes a paternalistic approach by offeringbenets including employee transportation to work, onsite health services, free meals and retirementsavings plans.

Some rms create their global benets strategy in conjunction with an extensive corporatebranding process. Through this process, a professional services rm began globally integratingmany functions of their company. This strategic shift to thinking as a global company has led themto consider new multinational benets offerings.

Regardless of the route taken, companies that develop a concise global benets strategy or philosophy saythis is a critical step in meeting the challenge of attracting and retaining multinational employees.

Streamlining processesStreamlining the process of planning, implementing, managing and monitoring benets for multinationalemployees is a continuous challenge. In this study participants echo what participants in the 7 th annual

MetLife Study of Employee Benets Trends also indicated a very strong need for better-integratedmultinational benets systems and processes:

The study shows that 59% of U.S. corporations with multinational operations considerconsolidating all benets administration onto a common platform to be one of their toppriorities even higher than their peers from U.S. domestic-only corporations (45%).

While decision-makers have ambitious plans for better-integrated benets information and processes,they understand there are limitations. Several point to the European Union as an example. Although theEU countries have found ways to coordinate currencies, migration and other factors, they have madevery little progress toward streamlining benets processes. Until better global systems become a reality,multinational benets managers will continue to seek ways to leverage internal and external resourcesfor better benets management, as discussed in the following sections.

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Action Planning for Employers:Understand your current benets programs Research your current domestic andinternational programs. Make reviewing your plans a continuous process and nota reactive exercise.

Dene what will drive your global benets strategy and be sure it can be clearlyarticulated Include all individuals within your organization that are involved inglobal benets and nancial decisions and ensure you have their commitment.

Establish a management structure Clearly dene roles and responsibilities at bothheadquarter and subsidiary levels. Make sure your strategy provides employees witha framework for understanding management decisions affecting benets.

Communicate, execute and monitor Educate all employees across the organizationaround the details of the new strategy. Execute and monitor the effectiveness ofyour strategy.

Fine-tune your strategy Remember your strategy should be exible; there is alwaysroom for improvement. Feel comfortable modifying your strategy based on best practicesor lessons learned.

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Finding cost-effective ways to attainand administer multinational benets

Even for U.S.-based companies that have operated multinationally for years, global benets are oftentreated as an add-on responsibility of existing human resources teams until that structure becomesunworkable due to sheer growth, or until problems emerge that reveal the need for greater globalbenets planning and administrative expertise. Employers interviewed shared examples of the growingpains experienced by their companies when demands for multinational benets exceeded their internalexpertise or managerial bandwidth:

A leading U.S. multinational corporation discovered that after restructuring, it stripped too manyexperts from its human resources team seriously compromising the ability to correctly discloseany multinational benets obligations and putting the company at signicant risk.

Several employers admitted discovering (sometimes years after making acquisitions), that someemployees were entirely missing from payrolls and benets plans because local managers werecompensating or rewarding them entirely from cash reserves.

One subsidiary of an industrial corporation with operations in 50 countries discouraged employeesfrom participating in a new retirement savings plan designed to give employees far more money thanthe previous termination plan. The concept was so new in that country (and some distrust existedfor a foreign solution) that it took extraordinary education efforts to make employees condentenough to participate.

U.S.-headquartered companies that are growing globally often expand their multinational resources instages by:

Establishing small teams at headquarters to focus on human resources, compensation and

benets outside the U.S. These teams may focus on collecting information on multinationalbenets or subsidiary activity. One global benets executive began by requiring all locations tosubmit job descriptions for their employees.

Hiring or promoting local HR managers who report to the local business managers as well as theglobal director in the U.S. Managers in the home ofce also say they try to cultivate regular two-way communications processes so that local managers do not perceive its all top-down fromheadquarters and are motivated to maintain contact.

Setting clear responsibilities and approval standards so that responsibilities are sharedappropriately at the local or headquarter level. For example, companies often start by requiringall benets decisions above a certain dollar level or involving plan changes to be submitted toheadquarters for advice or approval.

Some large or diversied corporations that utilize a shared services model have established divisionsfor Global Administration or Global Services that include small expert teams to handle certain aspectsof multinational benets for all subsidiaries. Responsibilities may include managing benets for allemployees on expatriate assignments, or providing local human resource managers with oversight andstrategic guidance on benets planning.

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Challenge 3

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Employers who have not yet tried pooling may have low awareness or misperceptions of pooling.The most common reasons that surfaced during MetLifes research were:

They think were too small to pool that pooling networks are only interested in very largeemployee populations, not companies that are phasing their global expansion or must supportsome small operations.

They assume pooling is just for situations where a company can only get coverage by joininga high-risk pool.

They do not realize that pooled plan designs can vary country-by-country an employer mightcreate a life insurance pool with different income multiples for each country, or (subject to legalrequirements) a multi-benet pool that bundles life, disability, AD&D and business travel insurancein some countries but excludes disability in countries where it is not needed.

They do not realize that they can add countries over time or move countries in and out of a pool. They assume that they can only pool with a network that already has local ofces in all markets

where their company has employees. They are skeptical about how pooling projections work across multiple currencies, especially in

todays often-volatile currency markets. They are concerned that pooling networks will require them to comply with the networks data

systems rather than being able to adapt to the employers systems. Local benets or business managers may claim they can get better rates from local providers

or that terminating a local provider could have adverse consequences.

Those who have been least satised with past pooling experiences typically say that the primary or onlymotivation to pool was lower cost or the prospect of dividends. If cost savings were not signicant,pooling became difcult to justify.

Those who have been most satised with pooling utilize it as a exible tool to meet the varied needsof their local employees and help streamline the process of managing their multinational benets.While they agree that the prospect of better pricing and dividends always gets attention, they oftensay that even without dividends there is value from leveraging their pooling networks, especially

Having the assurance of local expertise even in areas where the company has minimal or nohuman resources staff. One of the most extensive users of pooling began to use it out of necessitywhen she was the sole human resources professional for a global not-for-prot association;then continued the practice when she became head of global benets for a major multinationalcorporation with operations in over 70 countries. Others nd it essential for keeping their staffas lean as possible.

Accessing local data. In particular, employers that use pooling said that they appreciate how localexperience reporting makes it possible to respond to local trends (such as excessive disability claims)in a timely manner. This, combined with the networks knowledge of local markets, lets employersget better plans for their dollars.

Using time and energy more efciently by working with a pooling network that offers a singlepoint-of-contact versus constant communication with multiple providers across numeroustime zones.

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When asked how to get value from their pooling arrangements, employers recommend using multiplepools for greater expertise, making networks compete periodically through Requests for Proposals (RFPs)and choosing networks that provide excellent partnership.

A global benets director from a technology-based manufacturer has migrated 90% of the workforceoutside the U.S. to the Americas, Europe and Asia/Pacic. His experience illustrates the nancial andoperational advantage his company gains from multinational pooling:

There are a number of nancial benets including where you get a dividend. But puttingthe nancial aspect on the side, what I like about it, especially if youre in a large multinationalorganization, is having not only consistency, but having the data available at your ngertipsfrom the provider that youre working with.

Action Planning for Employers:Continue to further your relationships with your global benets counterparts. Work withthem to obtain data around local government regulations and trends that will help youimprove you global benets program.

Consider leveraging brokers, consultants, TPAs and other resources for ideas aboutmultinational benets and outsourcing.

Become more familiar with your current global benets programs to see wheremultinational pooling can benet your overall strategy.

Engage your broker or benets consultant to begin an RFP process with globalbenets networks to determine the best provider for a pooling solution. Periodicallyrefresh the RFP process to ensure these networks are providing the best possiblesolution and partnership.

Constantly evaluate and continue to grow your pool by recruiting more subsidiaries. Thiswill help further streamline administration and possibly increase your potential dividend.

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Building recognition for the value that globalbenets management brings to a company

Global benets decision-makers believe they bring great value to their companies by nding efciencies,keeping actionable information and insights owing between local and global decision-makers andhelping employees understand and appreciate the value of their benets.

Many know that upper management recognizes the value that global benets management can bringto solving problems and nding efciencies, such as:

Managing costs through pooling and greater access to global benets information. Helping corporate audit and relocation departments track and monitor expatriates.

Monitoring international taxation issues.

Tracking host country laws.Beyond solving problems, several also say that successful global benets management has paved the waytoward other countries adopting initiatives rst piloted in the U.S. There is potential for signicant long-term returns to their company, such as:

Performance-based initiatives designed to engage and educate employees on the business oftheir company. One company uses local team meetings to provide monthly updates on companyperformance and how it affects their rewards such as prot-sharing.

Dened Contribution Plans. Many employers interviewed are migrating where possible fromtraditional dened benet pension plans to dened contribution plans to decrease costs and improvenancial stability by eliminating the unpredictable liabilities associated with dened benet plans.

Wellness initiatives. Now that employers have some experience with wellness initiatives in theU.S., they are eager to implement successful programs to their non-U.S. locations. In particular,they want to help mitigate preventable diseases through programs such as smoking cessationin countries where smoking penetration is still high and nutrition programs in countries wherediabetes is prevalent. According to the 7 th annual MetLife Study of Employee Benets Trends, morethan half (55%) of U.S. employers with international operations believe wellness programs are a veryimportant benets strategy.

As global benets decision-makers, they get great satisfaction from the trust their company has in them,and the opportunity to do good for their employees.

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Challenge 4

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Action Planning for Employers:Focus on the importance of a central unit for overseeing benets programs across alllocations. This will help develop a clearer picture of what is working and where there areareas for improvement.

Communicate how centralized global benets management is facilitating the birth ofinnovative ideas across borders.

Highlight the importance of having one central team to access data for multiple countries(current trends, government mandates, etc).

Discuss how adding multinational pooling and different global benets techniques canbenet your company and improve your benets strategy.

Quantify the cost savings that can be achieved.

Conclusion

While business across borders is a norm, a global approach to multinational benets is only recentlycoming into focus as an issue deserving increased attention. Developing a global benets strategy isa critical step in moving beyond the piecemeal methods that have largely characterized multinationalbenets in the past. Once in place, key to deploying a strategy will be continuously gathering currentinformation about government-mandated benets and benets offered by local and regionalcompetitors. During these challenging economic times, effective management processes will berequired to leverage internal staffs and benets solutions more efciently.

Companies that implement a global benets strategy may see results on many levels: more effectiveadministrative controls and information ows; employee retention in an increasingly competitiveworld economy; economies of scale through multinational pooling; and a competitive advantagethrough local and global recognition as a desirable employer.

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