Centralizing Global Benefits Management

HR Consultancy AON recently issued the results of its 2015 Global Benefits Survey on which a number of independent sources have reported. The survey provides a snapshot of what’s happening in employee benefits management. Our blog today tries to get behind the findings and decipher what the data is saying.

The survey included 184 Global Benefits and Rewards specialists in Europe representing many of the world’s largest multinational organizations. We assume that included European head quartered organizations and participation by multinationals with headquarters elsewhere. This last group may have a different perspective from their headquarters management on how their organization is managing employee benefits.

The Survey shows that inadequate information is blocking priority decisions and administration is a drain on limited management resources.

In our experience there are just two strategic priorities in managing global employee benefits:

1. Optimize organizational size to reduce costs; and
2. Deliver benefits that support talent management strategies

We typically anticipate savings of between 15% and 25% or more from centralization which makes it a very worthwhile exercise. Selecting and establishing an appropriate structure to manage funding and cash flow on a global basis is a first step and a function of organizational size.

Local managers who currently have full authority for arranging local insurance and reserving will be reluctant to give up their autonomy. Ensuring that local plans meet the needs of employees, they are competitive and fully integrated with local social security remain highly important activities. Consolidating local plan information is crucial to achieving global savings, most of which will reside with local managers who must be engaged to share and participate in the process.

The focus of employee benefits is transitioning from financial safety net to lifestyle features as a younger workforce looks to its employer to assist with life’s challenges rather than to protect against financial misfortune. New benefits will be high cost/high touch but must reflect local practice and local engagement objectives.

Administration of employee benefits is costly and responsibility should always reside with local management to provide an incentive to pursue simplicity and efficiency.

Multinational pooling may help achieve administration savings as well as information sharing but according to AON it is decreasing in application while captive funding and other financing initiatives are becoming more popular.

We would anticipate this as organizations begin to gain understanding of the savings available from self management and those who are already centrally organized begin to expand self management.

A parallel development, again according to the survey, is the creation of employee benefit Centers of Excellence (COE) with responsibility for effecting centralization. AON observes that these have had “limited impact on operational realities” notwithstanding the clear trend to centralization. Decisions, AON suggest, continue to be made locally because of a lack of current centrally available information and the burden of administration activities that have accumulated at the center. This demonstrates a lack of clarity around objectives and likely poor implementation.

Central overview enables an overarching philosophy behind benefit design to support global talent management objectives while permitting plan designs features to vary from country to country to reflect local needs and practice. Employers must clarify these responsibilities early in the process.

The Survey reports a lack of excellence in the management of plans with 56% of participants claiming not to have even a global inventory of benefits (one of the key pieces of information needed) suggesting that opportunities are being lost.

Centralization of benefit financing into a single department does not make it a Center of Excellence. This requires expertise in management of global benefit risks. It does not mean the Finance Department, the global risk manager, the P&C broker or the headquarters benefits manager being given additional duties which is how we often see centralization unfolding. Responsibility is transferred from one group that lacks expertise, to another.

The starting point with any global review of employee benefits is to create an inventory of plans to identify the size of opportunity and the necessary organizational upheaval required to achieve it.

AON comments on the high participation and the rich insight into how employee benefits are being managed and we agree. Such studies provide great insight but need interpretation before serving as a model for how employer behavior should change.

Here are the key steps that we suggest are required to create global oversight and effective, scale management of employee benefits:

• Mange cash and risk centrally. Manage design, administration, and absorb cost locally within a global framework reflecting talent management needs.
• Establish an inventory (not forgetting expatriates), to identify the size of the opportunity net the costs of the necessary expertise to get started. Keep in mind, independent experts will identify greater opportunities than conflicted internal personnel.
• Separate employee benefits from property and casualty management. They represent different types of risk and require their own expertise.
• Establish your comfort level for employee benefit risk first and then consider reinsuring excess risk to the P&C captive.

To identify how to reduce global benefit costs by 15% or more call us on 905 842 7916.