By its nature, the area of international benefits has always been a collaborative one, with information shared across countries and organizations – no one can be an expert on all aspects. The International Employee Benefits Association (IEBA) was established in the early 1990s to give a formal framework to such collaboration. Membership comprises representatives from multinational companies, consulting firms, law firms, and investment and insurance providers.

There are three key strands to IEBA’s operations:

• A Diploma in International Employees Benefits (DipIEB), run in conjunction with the UK Pensions Management Institute and held by more than 150 practitioners
• Regular membership activities in the UK, the Netherlands, Belgium, Switzerland and Germany, with further plans for France and other countries
• An annual conference

The March 2009 conference in Brussels was the 9th such annual event. It was attended by some 140 delegates. As the incoming chairman of IEBA, it was my privilege to chair some of the events. I have set out below the conclusions and thoughts that came out of the discussion.

Governance (and cost)

The two key themes of discussions with multinationals in the current economic environment are governance and cost containment, and these were central at the conference, stemming from an unsurprisingly pessimistic overview of the global economic situation. The direct impact of the economic environment can be seen in the actions of governments around the world as borrowing increases and spending priorities change – for example, in Australia, where expenditure on various health care initiatives has been cut back.

Mercer’s own research with the World Economic Forum and the OECD has been covered in more detail elsewhere, but it indicates the need for companies to establish benefit strategies that are robust in the face of many potential scenarios in the short, medium and long terms (our research looks ahead some 20 years). Effective management of reward and benefits budgets will be a key element of companies’ efforts to emerge from the recession in good shape.

Speakers at the conference gave several examples of governance approaches, some through particular client case studies. One speaker defined governance as a combination of identifying the ends and the means, the roles and the communications - or, to put it another way, the practice of establishing global requirements and strategy and then finding the appropriate way to apply this to local situations.

Multinational pooling and beyond

Multinational pooling is a tool that has been used by companies for more than 40 years to address both governance and cost by delivering:

• Economies of scale and cash-flow enhancements, as a combination of multinational dividends and local cost savings
• Enhanced information flow at the center regarding local operations’ insured benefit arrangements
• Improved terms and conditions

The conference reinforced the value of multinational pooling and working closely with international insurance networks. An increasing number of multinational companies are taking a close look at how they can drive the advantages of multinational pooling through their organizations, leveraging strong partnerships with consultants, brokers and insurance networks.

The 2009 conference touched upon the opportunities to link pooling to the active management of the underlying benefit cost. Ultimately, the key variable in the cost of benefit provision is the cost of claims, and therefore, the mechanisms to constrain the cost of providing benefits are those that strike at the root of the claims. In this area, companies can look at a number of approaches, including health management initiatives and wellness programs (see below), in order to bring down costs. Multinational pooling and benefit management approaches are a key starting point for companies in addressing these issues.

Both for successful use of multinational pooling and for broader health management initiatives, governance is key. Establish a central policy or framework first, and then identify how it should be applied in local markets.

Mergers and acquisitions

Evidence shows that the volume of mergers and acquisitions has significantly lessened in the current environment. However, as was suggested at the conference, if there are going to be fewer deals, it is all the more crucial that companies have principles in place to drive value and to manage the impact of such deals, and that appropriate preparation and due diligence are carried out, particularly in such areas as:

• Pension arrangements and other long-term commitments
• Arrangements for executives, in terms of both establishing appropriate incentives upfront and ensuring that any existing arrangements are managed through the process
• Cultural fit, the lack of which can destroy value as fast as any “hard” numbers
• Severance terms
• Total compensation comparisons

Ideally, all these are investigated, understood and built into price negotiation. Where this does not take place – for example, due to time constraints or other priorities – opportunities remain to address them post-deal.

In a more favorable economic environment, many companies continued to grow through acquisition without following through on the harmonization and integration savings that may have been identified. In times when deal volume is reduced, the opportunity is there to achieve savings by revisiting the deal principles to see where, for example, benefits may be harmonized or plan administration costs reduced through more consistent application of benefit principles.

Private equity (PE) firms, which have traditionally focused on acquisition, restructure and sale, are now having to introduce portfolio management into their skills and therefore represent a particularly good example of the need for benefit harmonization. PE firms can achieve significant savings across their portfolios of assets, both within the US and internationally, using the Mercer Portfolio Benefits Alliance™ approach. This aggregates the assets for the purchase of insurance and benefit management at the country level, in order to drive savings into the businesses and add value to the portfolio.

Flexible benefits

The idea of a global strategy applied to local markets has particular resonance in the area of flexible benefits. In presenting on the topic, Urs Wuethrich, of Syngenta, illustrated how attractive the concept is to companies and how applying it from country to country can lead to significant differences.

The advantages include:

• Individuals can select benefits that suit their own lifestyles, for example child care benefits or dependents’ pensions and risk coverage.
• It introduces cost-sharing between employer and employee, thereby increasing employees’ awareness of their benefits.
• Companies can more easily contain costs through adjustments to the overall flexible benefits package.
• Companies are able to harmonize benefits in an M&A situation to avoid “leveling up” (taking the best of all benefits), compare the overall value of packages between operations and then apply that value to alternative flexible packages.
• It provides an opportunity to take full advantage of tax-favored arrangements and to differentiate from competitors.

Some countries have opened up great opportunities for flexible benefits. In the United Kingdom, for example, 33% of companies in the Mercer Total Rewards Survey 2008 offered flexible benefits. A wide range of benefits are included in such schemes. They include child care vouchers, the buying and selling of vacation time, employee-only personal accident and critical illness insurance, and the extension of some insurance to dependents. Mr. Wuethrich showed a broad range of areas that may be flexed in some countries.

Elsewhere, the ways in which governments encourage such approaches have varied. In some Eastern European countries, such as Hungary, flexible benefits are well received and highly appreciated by employees. Other countries have legal restrictions – for example, on the ability to offer different benefits to different employees. In Asia, prevalence also varies, with potentially low compensation and benefits (for example limited pension plans in China), giving a low base for introduction of flexibility. Hong Kong has a greater incidence of flexible benefits among multinational companies, particularly in the financial services sector.

The attraction of flexible benefits in a particular market will also include an assessment of the legal barriers to making changes to benefits – for example, whether all employee consent or agreement of representative groups is required – as well as cost/benefit consideration of the introduction and ongoing use of IT systems or the availability of third-party administrators to manage the benefits.

The introduction of flexible benefits continues to grow across many countries, and 90% of companies that use a flexible benefits approach say that they will continue to do so. The presentation concluded with a question:

“Flexible benefits – can you afford not to offer them?”

Experience in the US and elsewhere

While the venue and the majority of attendees were European, the conference has always looked beyond Europe at other models, and course material for the Diploma in International Employees Benefits includes the study of the US, Japan and Chile. At the conference, a consultant from China presented a paper illustrating the diversity of social security and occupational structures within the country, with very low salaries in many cases and limited benefits.

There was also a presentation from a representative of United Health Group on the US medical structure, which proved to be of great interest to the multinationals in the audience with exposure to the US market. Though no other country matches the US in employer-sponsored health costs, medical claims inflation remains an issue internationally, and therefore lessons may be learned from the US approach.

Several approaches were put forward for controlling costs of medical provision, including disease management and/or prevention. Here the connection was made with wellness initiatives and encouraging those at risk to modify behavior through the provision of detailed information and support.

There was also a specific presentation on wellness, illustrating the typical goals of these programs to:

• Increase life expectancy
• Increase awareness and therefore personal responsibility
• Improve quality of life
• Reduce health-related costs

Evidence presented suggested that wellness programs could save companies $5.81 for every dollar spent on wellness, though assessing the full value relies on companies having complete visibility of costs in this area, which is not the case for many outside the US.

Cultural preferences

Toward the conclusion of the conference, Maggie Lester, formerly of Thomson Reuters, gave a presentation on the impact of different countries’ cultural preferences on the style of benefits provided. Recognizing that this could be seen as reinforcing cultural stereotypes, as opposed to genuine preferences, she nonetheless was able to give some concrete examples from her experience working in a number of countries:

• There is a strong preference in Japan for a lump-sum benefit on retirement, despite the lifetime value of the alternative pension being twice that amount, as this was typically used to buy a house for extended family.
• Some benefits in India that were unusual elsewhere included coverage for dependents being extended to parents and grandparents, allowances for appliances, and a two-wheeled vehicle allowance. These were seen to be linked to the new generation of workers in India, the first in formal employment, who are therefore bound by family ties to look after older relatives.

Conclusions

In addition to the presentations referenced above, there was a range of others, including pension topics such as de-risking, pan-European and international pensions, and how one company is going about trying to solve its own “pensions muddle” – the aim being to give a full spectrum of employee benefits information in areas of interest for all attendees.

The central thread of the conference was governance and application of central global policies in local situations, where legal, cultural and social aspects affect the appropriate benefits in different markets. For the international benefits practitioner, the challenge and the opportunity remain to identify these potentially conflicting factors and to learn how experiences in some countries could apply to others. As planning starts for the 10th conference (to be held in Brussels in March 2010), IEBA continues to provide a forum to these practitioners for discussion and education across the range of employee benefits and structures.