© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the January 2006 edition of BENEFITS CANADA magazine.
A centric view
Multinationals are bringing centralized HR and benefits programs back to home base. But with more control comes more monitoring.
By Erwin Janush

Historically, most multinationals have used a decentralized approach in the “management” of the global employee benefit function. Usually, the local country manager is responsible for a wide range of tasks: determining what plans will be offered; designing those plans; setting funding/financial strategies including choices of insurance carriers; selecting local advisors and satisfying compliance requirements.

But in the emerging global business environment, there are forces driving employers to re-evaluate this decentralized approach. Some of these forces include the alignment of benefit/HR strategy with business strategy, governance, leveraging global buying power and the cost of coverage. As well, there are issues such as local underwriting flexibility—whether insurance carriers can offer customized solutions for larger headcount groups vs. smaller ones—the quality and the costs of service providers and how to enhance a multinational pooling opportunity.

Employers are also worrying about minimum standards for benefits plans, as well as their competitiveness, whether they’re compliant with all local regulatory requirements, whether there are incompatible plan designs inhibiting the transfer of employees across borders and whether their organization has excessive people exposures to catastrophic events.

In this environment, many multinationals are considering moving away from the decentralized approach. A question that comes to mind is where headquarters’ involvement will extend. Will it oversee the:
• existence of private plans;
• funding and financing decisions;
• choice of insurance carriers;
• choice of service providers;
• compliance activities; and/or
• mitigation of catastrophic exposures?

Once the decision has been made to move away from the decentralized model, what happens next? First, HR has to understand that there can be tension between the aims of this exercise and the perspective of the local manager. To the latter, this can be viewed as a “threat.” It is crucial that HR gets the buy-in and support of top corporate management to make the transition work.

Then, HR must realize this is essentially a management exercise. And there must be data and information to support analysis and decision- making. An immediate challenge is how to install a data management system designed to keep the data accurate.

Another crucial aspect of the management model is the overall management process. Because of the tax and insurance regulatory environment in most countries, the insurance programs that deliver local benefits are written on local policies through local carriers. At the first level, there is support required locally from licensed brokers. At the second level, it is important to view the local activities as part of a coordinated global(or regional)whole, not in a local vacuum. Thus, the activities at the local country level are tied together to provide the information and support needed from the regional or global perspective. Certainly, selecting a “global broker” can achieve immediate goals.

Finally, for many multinationals, beginning to gather this data on local plans and activities and having the global management structure in place can open the employer’s eyes to other desirable outcomes. These can include benchmarking local country designs as compared to corporate philosophy, strategy, guidelines and competitive standards; and enhancing the opportunity under multinational pooling by ensuring that the maximum number of appropriate local plans is included in the multinational pooling process.

Employers might also consider monitoring to help meet all local compliance requirements. They should also ensure that the choices of local insurance carriers surpass the organization’s minimum “security” standards; making sure that catastrophic exposures are recognized, evaluated and mitigated as necessary and facilitating the use of “global plans” where necessary.

In a truly global economy, each organization must put in place the strategies designed to maximize the probability of success. The effective management of employee benefits functions can be a key driver toward that business success. Using global approaches, structures and systems can enhance the efficiency and effectiveness of those management processes.

Erwin Janush is senior vice-president and senior international consulting actuary with Aon Consulting in Toronto. Erwin_janush@aon.com