-Company benefits increasingly valuable attraction, retention tool as state ‘retreats’
-Response to global pensions reform is one of four corporate cost-saving challenges
Companies that tailor their benefits to respond to the cuts in public finances occurring across the world will trim costs and give themselves an advantage in the war for talent, says Mercer in its annual Benefits around the World Report.
Reform of state pension and health and welfare systems in many countries are creating significant challenges for multinational companies looking to manage the cost, risk and competitiveness of employee benefit programs around the world. Reforms, prompted by an aging population and the increasing cost of providing adequate retirement income and health services, are gathering pace in numerous countries including France, United Kingdom (UK), Australia, Canada and the United States (US).
According to Jean-Philippe Provost, US International Consulting Group leader at Mercer, “Declining public finances has prompted a general retreat in state retirement and health provision; some countries are even looking to their pension and health systems for new sources of revenue. Changes vary but include increases in retirement ages, restrictions on tax relief, reductions in benefits and increases in worker contributions.”
“As governments shift the cost of benefit provision from the public sector to the private sector, employers are seeing a significant knock-on effect on the programs they provide and employees are left wondering how to fill the gap.”
According to Mercer, there is, consequently, a greater appreciation amongst employees of the value and security of their benefits after two years of economic uncertainty and pay restraint.
“One of the trends coming out of this research,” he continued, “is the manner in which companies are looking for cost efficiencies and value for money. Some are reducing benefits for new hires or introducing cost sharing while others are consolidating with third party vendors or pooling of insurance risk to achieve economies of scale. A number of firms are taking a different approach and are introducing programmes to help cost control in the longer term such as wellness programs and flexible benefits programs. Most multinational companies are looking to deliver cost-savings one way or another but the manner in which they are dealt with will determine whether a company has the funds and strategies in place to give it a commanding position.”
According to Mercer, many companies still grapple with how to deal with the financial volatility inherent in legacy DB plans. This is exacerbated in many countries where changes in funding levels and regulatory requirements will have a financial impact. According to the BPAW report, this has lead to a measure of centralisation. Companies are re-evaluating their financial management policies and are looking to keep tighter control over plans, to quickly and appropriately react to market conditions and ensure risk tolerance levels are met.
According to John Hall, Mercer’s EMEA International Consulting Group leader, “Central oversight and monitoring of policy can identify risks and issues and enable companies to react appropriately - by encouraging behavioural change through a global health management program, for example. Money saved in these areas, such as reduced insurance premiums, can be diverted into other programmes that can support the productivity of the workforce.”
The increased visibility of retirement and benefit programs at board and senior management level has encouraged a trend toward increased global oversight and use of frameworks, says Mr Hall. These often include written policies on design, funding and investment, clear delegation of authority and assignment of responsibility related to benefit programs, and a defined approach to monitoring and mitigating risks.
“Multinational companies often have less resource available on the ground to manage these programs locally and less headquarters’ resource available to oversee adherence to them centrally,” commented Jean-Philippe Provost. “Frameworks allow local offices to operate within set guidelines, so that multinationals can capitalise on without the need for extra specialist headcount.”
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