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2012 Corporate Governance of

Global Employee Benefits Study

ConsultingGlobal Benefits

Align Strategy. Manage Risk. Execute.

Dear Reader:

We are pleased to jointly present our study exploring corporate governance of employee benefits within multinational companies.

In today’s challenging environment, plan sponsors are looking for ways to balance the value employee benefits deliver to their business and to their employees with the financial costs and risks of sponsoring such benefits. We explore what challenges they face, their plans for addressing these, and how they are set up to execute them.

Many individuals responsible for global compensation and benefits from multinational companies around the globe helped us shape the study and gave us deep insights into the challenges they face. We greatly appreciate their participation. Without their active involvement, this exercise would not have been possible.

We trust you will find the information and insights presented in this report of great interest and value.

With best regards,

Sincerely,

James Klein Yvan Legris President, American Benefits Institute Global CEO, Aon Hewitt Consulting

About Aon Hewitt

Aon Hewitt is the global leader in human resource solutions. The company partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees.

About The American Benefits Institute

The American Benefits Institute is the education and research affiliate of the American Benefits Council. The Institute conducts research on both domestic and international employee benefits policy matters to enable public policy officials and other stakeholders make informed decisions. The Institute also serves as a conduit for global companies to share information about retirement, health, and compensation plan issues.

Contents

3 Executive Summary

11 Movement Towards Centralisation

17 Execution Is the Biggest Challenge

25 Study Data

2012 Corporate Governance of Global Employee Benefits Study

2 Aon Hewitt


Corporate governance is considered critical for managing risk and creating shareholder value, regardless of whether a company operates in a centralised or decentralised manner. But what if we considered all company-sponsored employee benefits under a separate, fully owned subsidiary with its own balance sheet and income statement? What value would such an entity create—in its own right—for the shareholders?

Corporate governance of employee benefits is an increasingly important consideration for companies, largely because financial costs and risks of benefits have grown significantly in comparison to the value they potentially create for the company.

Executive Summary

4 Aon Hewitt

About the 2012 Corporate Governance of Global Employee Benefits Study This study was jointly conducted by Aon Hewitt and the American Benefits Institute (ABI) and was shaped by global benefits directors at some of the largest multinational companies based in the U.S. and Europe1. Interest in the study was high, with over 140 participating organisations. The observations are presented on the basis of aggregate data unless material differences were discerned between North American-based and European-based companies or between companies of different sizes. The findings represent companies that already exercise some level of corporate governance on local benefits decisions. Some did not participate simply because they have as yet done little to manage their global benefits at the corporate level.

This study focuses on how multinational companies make and execute strategic policy decisions related to their employee benefit programmes worldwide. The primary goals are to understand:

1. Why companies want corporate involvement in local benefits decisions.

2. How they exercise corporate oversight and control over local benefits decisions to manage business risks in the three key policy areas described below.

Policy Area Risks

Design Business risks related to benefits not being aligned with the company’s financial goals, workforce strategy, labour market values and preferences; and less than optimal outcomes due to inefficient design of benefit programmes.

Financial Management Adverse financial outcomes in relation to employee benefits due to increasing costs, untimely demand on capital to fund benefits obligations, and balance sheet and P&L volatility.

Operations Administrative, regulatory, and fiduciary non-compliance risks; reputational risks; and undue costs due to operational inefficiencies.

1 Names of HR executives who shaped the study and the companies they work for are listed on page 76 of this report.


Key FindingsMultinational companies operate in diverse environments in terms of geographies, operating units, customers, and their employees around the world. All of these organisations spend a material portion of total compensation costs to provide benefits to their employees. In an economy that necessitates “getting the most from every dollar spent,” a formal strategy, governance structure, and protocols are required for effective execution. To that end, centralisation of operations and governance of employee benefit plans are expected to increase significantly in the short term. In Aon Hewitt’s 2012 Corporate Governance of Global Employee Benefits Study, we asked organisational leaders in multinational companies about their plans and strategies for global employee benefits governance. The following are highlights of the survey findings.

■■ Execution of the global benefits strategy is the single largest benefits governance challenge. At the corporate level, organisations struggle to know what benefits they offer, how they compare to local market trends, how much they cost, and what types of risks they pose to the enterprise. They also struggle with why, to what extent, and how corporate leaders and functions should get involved in local benefits-related decisions.

■■ The most common reason by far for sponsoring employee benefit plans is to be competitive in local markets.

■■ Multinational companies in mature and emerging markets face different problems. In mature markets, medical cost inflation and financial risks posed by defined benefit retirement plans are the most common issues. In emerging markets, salary inflation due to talent shortage and increasing demand for benefits are the biggest issues.

■■ Financial costs and risks due to employee benefits are driving corporate involvement in local benefits decisions more than other factors such as centralisation trends and operational risks.

■■ Most companies say it is important for corporate to exercise oversight and control over retirement, medical, and insured benefits in their international locations. However, significantly fewer companies are satisfied with current levels of corporate involvement in local country decisions.

■■ Corporate policies are commonly geared towards benefit design decisions. Specifically, companies consider it more important to establish prescriptive policies for retirement plan designs rather than medical and risk benefits. In comparison, fewer companies have established operational compliance and purchasing policies.

■■ Companies often lack skilled internal resources to manage benefit plans in countries with smaller operations.

■■ Currently, corporate approval is limited predominantly to controlling changes to current benefits or establishment of new benefits. In the future, significantly more companies will require approval for financial and investment decisions as well as purchasing decisions.

■■ Having established corporate benefits policies, companies often do not audit compliance at local levels with such policies. Also, companies do not use such policies to monitor risks.

■■ Companies are not confident that local practices always align with corporate benefit strategy and local practices, nor are they confident of achieving reductions in financial and operating costs and risks. However, with a significant increase in corporate involvement, companies generally expect to achieve such outcomes with greater certainty.

6 Aon Hewitt

Global Governance DefinedOne of the challenges in conducting the governance study was to have a consistent understanding of corporate governance of employee benefits. We asked survey participants, “What does global governance of employee benefits mean to you?” Following is a selection of their responses.

“Corporate knowledge of benefits provided around the world; strategic principles or corporate guidelines for local operations around costs, risks, consistency of employee experience; monitoring of employee benefit design changes, financials, risks, and regulatory compliance; and oversight and control over local decisions.”

Robert Holdom and Kate Jainchill, American Express

“Corporate guidelines and/or mandates for managing benefits; leveraging best practices and global scale for purchasing; a centralised monitoring function to control risks; central approval protocols for design, financial, and purchasing decisions; and use of global providers such as global actuaries and global brokers to collect data and exercise central oversight.”

Arleane Soto Baltrusitis, WPP

“Centralisation in terms of knowledge of benefit plans and operational efficiencies; ensuring local regulatory compliance; providing support to local teams as a consultant; and building a knowledge/information bridge between local operations and corporate leaders.”

Beth Ewing, FedEx

“Process and a dialogue with all stakeholders with vested interests to come to good employee benefit programme-related decisions that are sustainable in the long term.”

Martin Wagner, Nestlé SA

“System a company has in place to: (1) facilitate decision making that balances strategic HR and finance drivers in a collaborative manner, and (2) for all stakeholders to remain informed of all decisions.”

Robert Bent, BAE

“A framework for oversight of benefit plans with the objective to ensure that benefits are: (1) right for employees, (2) financed efficiently, (3) appropriate in terms of cost to the company, and (4) appreciated by employees. Governance is about a culture of collaboration, knowledge of benefits plans and organisation (or structure) around it; governance is not only about corporate control and audits; trust and open dialogue between local operations and corporate functions is essential.”

Olaf Flippo and Sandra Winstanley, Heineken International

“A centralised decision making on global benefit design strategy that follows the mission statement; processes involving a regional Centre of Excellence model for efficiencies; rigorous operational requirements with centralised reporting process for corporate controls. This does not imply that all benefits need be the same across the world because benefits need to be responsive to business needs and local country practices.”

Marianne McManus, IBM

“A transparent structure for corporate approval of local benefits-related decisions to ensure: (1) we are providing right benefits to our employees, (2) benefits are locally competitive, (3) company spending on benefits is appropriate, (4) benefits that are provided are in fact what employees want and (5) the time and resources spent on managing benefits is reasonable.”

Pamela Wagoner, W. R. Grace


Global GovernanceFor the purposes of this study and its findings, the term “governance” covers employee benefit plans in the home country and all international locations and is defined as:

Processes and structures a multinational company uses to exercise corporate oversight and controls over benefits programme design, financial management, and operational policies by:

■■ Defining expectations and granting powers to make strategic policy decisions

■■ Allocating responsibilities between corporate and local/regional levels to execute such policies

■■ Monitoring performance against policies at the corporate level

Employee Benefits We also define the term “employee benefits” as all employee benefit plans such as retirement, medical, risk, termina-tion indemnity, long-service awards, work environment benefits, and career environment benefits.

8 Aon Hewitt

About the ParticipantsOne hundred and forty multinational companies participated in Aon Hewitt’s 2012 Corporate Governance of Global Employee Benefits Study. Just over half the participants are North American-based (mostly U.S.) multinationals, while the rest are largely multinationals based in Europe. Similarly, almost half the respondents are companies with fewer than 25,000 employees worldwide. Respondents to the survey were based at corporate HR (91%), with responsibilities for multiple benefit programmes, including medical and risk benefits (79%) and retirement benefits (86%) in both home country and international locations.

For the purposes of reporting our findings, we used the terminology (as shown in the table below) based on number of employees.

Geography

100,000(+) Employees

(Large Company)

100,000–25,000 Employees

(Mid-size Company)

25,000(–) Employees

(Small Company) Total

North America 11 26 38 75

Europe 17 20 24 61

Other 1 1 2 4

Total 29 47 64 140

Multinationals based in Europe have broader distribution around the world.


As shown below, we observed that North American companies have a larger percentage of employees in the home country while European-based multinationals have a broader distribution around the world .

■■ 46% of the respondents have seven or more business lines in multiple countries

■■ 69% of the companies have a matrix structure

Percentage of employees located in home country (by company size, and by region).

Small

Medium

Large

64%

47%

34%

48%

36%

39%

EuropeNorth America

10 Aon Hewitt


Movement Towards Centralisation

In this study, we explored how centralisation trends are evolving in multinational companies—in terms of both operations and employee benefits. The data suggests that more and more companies have moved towards a centralised model on both fronts, and that this trend will continue.

12 Aon Hewitt

Centralising OperationsTwo-thirds of respondents said they operate at some level of centralisation today, in comparison to five years ago, when only a quarter of companies operated in a similar manner. Within the next five years, 84% of companies expect to operate under a somewhat centralised or centralised model. Centralisation trends did not vary materially between North American and European companies.

How centralised are the operations within your company and how has the level of centralisation evolved over time?

6%

4%

3%

7% 7%

10%

9%

35% 35% 24%

19%28%

59% 28% 10%

67% 13%

23% 47% 13%

41%

50% 28%

49% 41%

66% 17%

49%

20%

17%

45%

13%

17%

Medium companies (25,000 - 100,000)

Small companies (< 25,000)

Large companies (> 100,000)

Five years ago




Currently




Five years from now

Somewhat DecentralisedDecentralised CentralisedSomewhat Centralised


Centralising Global Benefits ManagementThe trend to centralisation in the operating model of companies is also reflected in the management of global benefit programmes. Most companies indicate that they will move towards a more centralised approach to managing their benefits over the next five years, which leads us to believe that companies see business value in doing so. However, the level of centralisation that has happened to date appears to be largely driven by concerns about financial costs and risks of benefit plans.

Corporate and business leaders are facing the financial and operational consequences of benefit decisions made several years—if not decades—ago, when their operating environment was very different from today. In mature markets, rising costs are also attributable to factors outside employers’ control, such as longevity improvements driving costs of traditional pension arrangements and medical-cost inflation driving costs of providing medical coverage. At the same time, social coverage in mature markets is waning rapidly for much the same reasons, thereby increasing employees’ dependence on benefits provided by their employers.

Therefore, it is no surprise that companies ranked “costs and risks of employee benefits” as the single biggest driver for corporate involvement. In fact, more than half the survey respondents said that financial considerations were “very important” drivers of corporate involvement in local benefits decisions. Boards and senior management of companies also appear to be increasingly concerned.

Corporate and business leaders are facing financial and operational consequences of benefit decisions made when their operating environment was very different from today.

How concerned are your boards and senior management about employee benefits and the current level of corporate oversight over local country benefit decisions?

What is the most important driver for your organisation to implement corporate oversight and control of employee benefit plans?

Have always been concerned and treat as a high priority

Have been increasingly concerned in the past few years

Are becoming increasingly concerned

Never been and not likely to be a significant concern

38%

23%12%

27%

Increasing costs and risk of employee benefit plans worldwide

Lack of knowledge regarding benefit plans o�ered and their costs/risks

Lack of corporate control over employee benefits decisions in international locations

Auditor questions/pressures to improve oversight

Other

53%

2% 2%

22%

21%

14 Aon Hewitt

Satisfaction Levels of Corporate OversightThere is a clear correlation between the cost and size of obligations and the importance placed on corporate oversight. For example, corporate oversight of retirement, medical, and risk benefits is rated as important by more companies than oversight of other workplace benefits. The level of importance placed on benefits in the home country (generally defined as the country where the corporate headquarters is located) and the same benefits in international locations was similar. However, significantly fewer companies are satisfied by the current level of corporate involvement in managing benefits outside their home country.

The chart below shows the importance and satisfaction of corporate oversight by various benefits types in international locations. The blue line represents the percentage of companies that said corporate oversight is important for a specific benefit. The green line represents the percentage of companies that said they are satisfied with the current level of corporate oversight.

Corporate Oversight and OutcomesThis lack of satisfaction also translates into low confidence levels in achieving certain measurable outcomes. We asked companies to estimate the probability (in four ranges) of achieving the following outcomes from corporate involvement: alignment of local benefits with corporate strategy, improved financial and health outcomes for employees, reduced financial costs of benefits, reduced financial risks of benefits, reduced operating costs through efficiencies and scale leverage, reduced compliance risks, and reduced reputation risks.

Less than one in five companies suggested that they will achieve any outcomes with more than 75% certainty today. Also, while the level of centralisation in global benefits management is expected to increase significantly, the degree of certainty is expected to lag somewhat.

Important Satisfied

0%

20%

40%

60%

80%

100%

Retirement

Medical

Risk (Disability, Life, Insurance)

Termination Indemnities

Long Service AwardsExecutive Benefits

Work Environment Benefits (PTO, Meals, Fitness)

Career Development

Other Formsof Compensation

Importance and satisfaction levels of corporate oversight in international locations.


As an example, more than 90% of companies expect to establish corporate benefits policies over the next three years. However, over the same period, less than 60% of companies are more than 75% certain that their local benefit plans will be aligned with corporate guidelines.

In general, we found that smaller companies (less than 25,000 employees) were less confident in achieving positive outcomes compared to larger companies. Specifically, smaller companies were materially less confident that corporate oversight will achieve financial outcomes such as reduced costs and risks of employee benefits.

Rate the probability of achieving the listed outcomes today and the outcomes you expect to achieve within next three years through corporate oversight and controls of your employee benefits?

Improved outcomes for employees in terms of greater financial security and improved health

Alignment of benefit plans with corporate policies/guidelines

Reduced financial costs of employee benefit plans

Reduced financial risks due to employee benefit plans

Reduced compliance risks

Reduced operating/administration costs through e�ciencies and leveraging global scale for purchasing

Reduced reputation risks

< 25% 25%-50% 50%-75% > 75%

3%17% 36%43%

16%6% 24%54%

19%

3%

24% 25% 33%

57%33%7%

41% 31% 7%

15% 45% 34%

21%

6%

2%

37% 41% 7%

7% 52% 39%

16%

36% 24% 4%

14% 44% 34%

36%

8%

2%

37% 38% 13%

10% 43% 46%

12%

3%

37%37% 16%

11% 45% 41%

10%

In 3 years

Current

16 Aon Hewitt


Execution Is the Biggest Challenge

So why do companies feel less than confident that increasing corporate controls will drive business outcomes? The data offers some insight.

We analysed the structural elements companies may use to manage their global benefits to determine if there is a relationship between these elements and their effectiveness in driving business outcomes. We looked at such things as existence of corporate committees, how decision-making is allocated between corporate and local operations, clarity around roles and responsibilities, reporting, and approval protocols.

18 Aon Hewitt

Overall, we found correlation between the existence of formal structures and protocols and how effective such structures and protocols are for executing global benefits strategy. In other words, the companies that rated various structural elements as effective tend to have formal structures in place (rather than informal or ad hoc ones). However, the data does highlight the operational challenges companies face. Not all the respondents with formal structures and protocols in place said that they were effective:

■■ 30% of companies with formally established corporate policies and approval protocols rated them as ineffective

■■ 40% of companies with formally established roles and responsibilities, allocated decision-rights between corporate and local country operations, and established reporting requirements rated them as ineffective

Fewer companies (25%) use a technology platform to collect benefits-related data. Furthermore, of companies using global data solutions, 59% say they are not using those solutions effectively to manage their global benefits.

This implies that while establishing formal structures and protocols is beneficial, companies need to do a better job of execution using such formal protocols.

79% 21%

63% 37%

63% 37%

26%74%

37%63%

72% 28%

59%41%

Corporate policies/guidelines regarding employee benefit plans' design, financial management, and operations

Corporate committee

Decision-rights allocation between corporate, regional, and local stakeholders to make policy decisions

Approval protocols

Clarity of responsibility and accessibility for execution

Reporting protocols and processes

Common technology platform for all employee benefits data

57%

48%

42%

42%

49%

35%

25%

E�ective Not E�ective Percentage Established Formal Protocols

Percentage of companies that have formally established protocols (shown in bold text next to each bar). The green section represents those that have formally established protocols and rate them as effective.


Five Measures to Assess Effective ExecutionGoing into this study, our premise was that to execute a global benefits strategy effectively, companies should not only establish policies that specifically target managing those risks important from a corporate perspective, but should also execute these policies using formal protocols.

So, we asked companies to rate their current position using the following five measures:

Effectiveness Measure Description

Knowledge Management

Design, financial, and operations data

All required information (necessary for assessing risk and opportunities of employee benefit plans) is available, reliable, and readily accessible

Strategic Policy Decisions

Risk assessment All opportunities and risks related to employee benefits are identified and their organisational impact is measured

Corporate policies Specific corporate policies covering design, financial management, and operations of benefit plans are established to manage opportunities/risks important to corporate

Execution Governance structure

Global, regional, and local committees with formal protocols are established to make and execute strategic policy decisions

Operating model Reporting and monitoring protocols are institutionalised to audit local compliance with corporate strategy and to monitor risks and opportunities on an ongoing basis

The most prevalent action to date is defining global benefits strategy; more than half the respondents say they have established broad guidelines or prescriptive corporate policies to guide local benefits decisions2. Specifically, we found that companies have more commonly established design and financial policies than operational policies. Corporate policies appear to be largely driven by financial concerns regarding benefit plans and, less as a result of comprehensive assessment of design, financial and operational risks, and opportunities.

2 The data does vary by the size of the company. Most notably, only 40% of companies with less than 25,000 employees worldwide have established corporate policies.

20 Aon Hewitt

For each of the following, rate your organisation’s current position as being more like description A (on the left) or B (on the right) today as well as expected position within next three years.

Very Much Like A Somewhat Like A Somewhat Like B Very Much Like B

Description A Description B

Opportunities and risks are not identified

All opportunities and risks are identified and organisational impact measured

4%15% 35%47%

5%1% 54%40%

In 3 years

Current

Information is not readily available or reliable

All required information available, reliable and readily accessible

9%

3%

20% 35% 36%

72%24%1%

No corporate policies/guidelines established

Specific corporate policies/guidelines established to manage opportunities/risks

27% 40% 17%

3% 34% 61%

16%

2%

A formal or informal governance structure does not exist to manage employee benefit plans 2%

31% 35% 12%

8% 38% 52%

22% Global, regional, and local committees are established

Median Response

Data and information access

Risk and opportunity assessment

Strategic policies

Formal governance structure for executing strategic decisions

30% 31% 14%

7% 31% 60%

25%

2%

Approval and reporting processes are documented and followed

Ad hoc processes

Operating model for reporting, approvals, and monitoring

On the other hand, companies struggle with the operations and governance of benefit plans. However, with increasing centralisation on multiple fronts, companies are expecting to invest time and resources in order to make significant improvements under all five of the effectiveness measures.


Of the 140 companies that participated in the survey, only 20 rated themselves as effective under all five metrics.

We found that these 20 companies, when compared with the survey data in aggregate, more commonly:

■■ Operate under a more centralised model

■■ Report having established formal structures and protocols to execute strategic policy decisions

■■ Suggest higher satisfaction levels with corporate control over employee benefit decisions in their international locations

■■ Demonstrate a higher degree of confidence in achieving the outcomes described earlier

The chart below compares these 20 companies against the aggregate data. The lower bar for each outcome shows the percentage of the 20 companies that expect to achieve the listed outcomes with 50% to 75% certainty and those that expect to do so with more than 75% certainty.

How certain are you of achieving the following outcomes due to corporate oversight/control of local benefits decisions?

Reduced reputation risks37%

45% 25%

16%

Over 75%50%-75%

33% 19%

30% 60%

Alignment of benefit plans with corporate policies/guidelines

36% 3%

5%60%

Improved outcomes for employees in terms of greater financial security and improved health

31% 7%

60% 20%Reduced financial costs

41% 7%

65% 20%Reduced financial risks

24%

50% 15%

4%Reduced operating/administration costs through e�ciencies and leveraging global scale for purchasing

38% 13%

40% 40%Reduced compliance risks

All companies

E�ective companies

22 Aon Hewitt

As noted from the data, for each of the outcomes, there is a material increase in confidence levels for these 20 companies who rated themselves as effective under the five measures. This suggests a clear link between the five effectiveness measures and outcomes.

What does this mean in practical terms? It suggests that establishing global benefits guidelines at the corporate level is only one of the five elements important for managing global benefits effectively, and that companies should:

■■ Ensure all the necessary information on benefit design, financials, and operations is available at the corporate level

■■ Assess opportunities to improve alignment and reduce risks of misalignment

■■ Define corporate guidelines targeted towards managing risks and opportunities important to corporate with appropriate specificity (policy metrics) for implementation

■■ Establish a formal corporate, regional, and local governance structure depending upon the level at which risks and opportunities are most appropriately managed

■■ Build reporting and monitoring protocols using corporate policy metrics on an ongoing basis


Aon Hewitt Point of ViewGiven the complexities involved, it is not at all surprising that few companies are satisfied with corporate oversight of their employee benefits worldwide. We believe that the desire for corporate oversight and control over local benefits decisions has increased in the last decade as costs and risks of benefits offered to employees have grown—often due to factors that are outside employers’ control.

How a company manages its employee benefits fundamentally depends on factors such as how the company is structured to operate, the types of benefits it offers its employees, how much they cost, and the risks they pose. However, when we identified and isolated companies that rated themselves as effective in governing employee benefits, we saw a significant increase in the likelihood of successful outcomes; this was independent of their level of centralisation.

■■ From a design perspective, while local relevance is important to delivery, corporate oversight of such decisions ensures alignment with the company’s overall strategy.

■■ From a financial perspective, taking a global view of costs and risks of benefits may allow companies to allocate and manage costs more effectively based on their business and talent needs, as well as allocate and manage risk more efficiently.

■■ From an operational perspective, multinational companies can in fact improve operational efficiencies and reduce the costs of benefits operations by leveraging their global scale, rather than purchasing services for their smaller individual operations in many of their worldwide locations.

Companies can allocate their internal and external resources in the best and most effective ways if they:

■■ Establish corporate policies targeted to managing risks and opportunities that are important from a corporate perspective (and can be better managed at the corporate level)

■■ Implement a formal governance structure designed solely to execute these policies

This also ensures specific outcomes in terms of improved alignment of benefit designs, and reduced benefit plan costs and risks.

24 Aon Hewitt


Study Data

In this section of the report, we review the aggregate response for each question, offering our insights. Where we find significant differences by geography or size, we notate the difference. The questions fall within four main categories and are presented as such:

■■ Why do companies want to get involved in local country benefits decisions?

■■ How do corporate functions get involved in local country benefits decisions?

■■ What challenges do companies face when corporate gets involved in local benefits decisions?

■■ What actions have companies taken or will take in the near term to increase corporate involvement?

26 Aon Hewitt

Why do companies want to get involved in local country benefits decisions?

1.1 Why do companies sponsor employee benefit plans?

1.2 How does the operating environment for multinational companies differ in mature and emerging markets?

1.3 What actions are companies taking in response to benefits issues and how do they differ in mature and emerging markets?

1.4 What are the drivers of corporate involvement in local benefits decisions?

1.5 What types of benefits do companies think are important to manage from a corporate perspective?


1.1 Why do companies sponsor employee benefit plans?While the most common reason for providing benefits, by a significant margin, appears to be competitiveness in local markets, we found that companies struggle with ready access to such information in their international locations.

There were some differences between geography and size of the companies:

More than half the North American companies emphasised the role of benefits in defining the employment value proposition as compared to 27% of European-based companies.

More mid-size companies rated “providing financial and risk protection to employees” as one of the top three reasons.

The value that companies deliver to employees by sponsoring benefit plans is leveraging scale to provide access to financial and risk solutions (on potentially tax-advantaged basis) that may be otherwise too expensive for individuals (or simply not available at all) in retail markets. However, most companies did not rate this as an important reason for providing benefits.

From the list below, what are the three most important reasons your company sponsors employee benefit programmes around the world?

O�er risk protection and financial security to employees

Define overall value proposition to employees

Comply with collective bargaining agreements and statutory requirements

Drive engagement and productivity of workforce

Take advantage of tax benefits

Use benefit programmes as an important element in defining organisational culture

Leverage scale to provide employees access to benefits on a cost-e�ective basis

Enhance social benefits provided by the state

14%

88%

46%

41%

38%

27%

11%

17%

11%

Be competitive in the markets to attract and retain employees

28 Aon Hewitt

O�er risk protection and financial security to employees


Be competitive in the markets to attract and retain employees 82%

45%

36%

Top three reasons for North American companies.

Top three reasons for European companies.


O er risk protection and financial security to employees

95%

52%

49%

Be competitive in the markets to attract and retain employees


1.2 How does the operating environment for multinational companies differ in mature and emerging markets?

There is clear evidence of inverse correlation between mature and emerging markets when it comes to business and benefits-related issues. In mature markets, companies are facing sluggish economic recovery, high unemployment rates, low demand for goods and services, and margin pressures. In contrast, in emerging markets the focus is clearly on investing for business growth; talent shortage and salary inflation due to that are critical business issues relative to significant organic growth.

■■ North American and European companies defined western regions as their mature markets, and Asia (excluding Japan), Latin America, Africa, and Eastern European countries as the emerging markets.

■■ Costs and financial risks of benefits in mature markets have risen significantly over the years—partly due to relatively generous retirement and medical benefits as compared to the benefit levels in emerging markets. Rising benefits costs in mature markets are also due to factors outside the control of employers, such as healthcare cost inflation, longevity improvements, economic cycles, and changes in social benefits and regulations.

■■ Emphasis in emerging markets appears to be on direct compensation and not on benefits; however, survey respondents say employees in emerging markets are demanding new benefits or increases in current benefits.

■■ Business and benefits issues in mature and emerging markets were similar regardless of the size of the company. However, large companies (more than 100,000 employees) more commonly highlighted sluggish growth and cost pressures in mature markets, and investing for growth and talent shortage in emerging markets.

■■ A higher percentage of European companies were affected by issues in emerging markets. One plausible explanation could be that European companies in general appear to have broader distribution of employees worldwide and a more established presence in emerging markets, as compared to North American companies.

■■ North American companies more commonly cited healthcare costs and changes in healthcare legislation as important issues in mature markets while more European companies cited retirement costs, financial risks of traditional pension benefits, and changes in retirement benefits. This may suggest a potential home-country bias (e.g., concerns around U.S. medical costs drive the importance U.S. companies place on medical benefits in their international locations).

Percentage of employees in home country (by region).

Small

Medium

Large

64%

47%

34%

48%

36%

39%

EuropeNorth America

30 Aon Hewitt

Indicate which of the following business issues are affecting your company in mature markets and emerging markets as defined for your company.

3%

83%

37%

71%

5%

50%

14%

40%

53%

47%

67%

31%

6%

28%

75%

20%

13%

73%

8%

62%

32%

32%

Significant hiring/workforce expansion

Signficant organic growth

Negative growth

Investing for growth

Workforce contraction/lay-o�s

Talent shortage

Workforce diversity

Growth due to mergers and acquisitions

Restructuring/divesting/spin-o�s

Flat or sluggish organic growth

Active cost management and cost cutting

Emerging MarketsMature Markets


What are the most important compensation and benefit plan-related issues are you facing in mature markets and emerging markets as defined for your company?

64%

76%

36%

71%

14%

68%

17%

66%

24%

63%

26%

46%

48%

18%

69%

17%

19%

55%

Demands for new or increase in benefits

Salary inflation due to talent shortage

Changes to social benefit programmes

Negotiations with labour representatives(e.g., unions, works councils)

Retirement cost increases

Changes in retirement legislation

Changes in healthcare legislation

Financial risks of defined benefit plans

Healthcare cost increases


32 Aon Hewitt

1.3 What actions are companies taking in response to benefits issues and how do they differ in mature and emerging markets?

■■ The most common actions that companies are taking from the corporate level in both mature and emerging markets are:

■— Implementing stricter corporate oversight and control

■— Leveraging global purchasing scale to reduce operating costs

■— Looking for effective ways to finance benefits (e.g., use of captives and multinational pooling)

■— Improving work environment and career development benefits

■■ In mature markets, the focus is on managing costs of benefits (redesigning benefits to redistribute costs and risks to employees) and financial risks posed by benefit plans (de-risking pension plans).

■■ Companies continue to raise direct compensation in response to talent shortage in emerging markets, and to some extent are now providing/increasing private medical and retirement benefits.

■■ In general, actions taken by companies were generally consistent regardless of size or geography with some notable differences:

■— More European companies said that they are transferring costs and risks of benefits to employees (71%) than North American companies (58%), and negotiating such changes with labour representatives. The reason for this difference may be that North American companies were early adopters of shifting costs and financial risks to employees by redesigning their benefit plans.

■— Larger companies more commonly reported actions to transfer risks to employees, de-risking pension benefits and financing benefits through captives and multinational pools.

■■ Regardless of the trend of transferring costs of benefit programmes to employees, companies will continue to bear significant financial consequences due to:

■— Legacy pension liabilities

■— Being able to make benefits changes for future employees only

■— Rising healthcare costs

■— Potential shifting of responsibilities to private sector because of declining social benefits

Therefore the critical business issue we note as a consequence is the conflicting demands on capital between funding increasing benefit obligations in low-growth mature markets and funding business growth in emerging markets.


What actions have you taken or will you take over the next 12–24 months to respond to talent and benefit programme issues in mature markets and emerging markets?

3%

69%

73%

66%

74%

63%

23%

61%

14%

58%

58%

46%

14%

17%

50%

16%

15%

34%

13%

38%

64%

54%

Leverage global purchasing scale to reduce cost of operations

Implement stricter oversight and control at corporate level for benefits-related decisions

Redesign benefits to transfer costs/risks to employees

De-risk pension plans

Finance benefits through captives, multinational pools, etc.

Improve work environment and career development benefits

Negotiate benefit plan changes/actions with employee representatives such as unions, works council

Increase direct compensation to attract talent

Reduce benefits for nonunionised workforce

Provide/improve private health insurance

Provide/improve retirement benefits or increase retirement benefits


34 Aon Hewitt

1.4 What are the drivers of corporate involvement in local benefits decisions?

We asked companies to rate the importance of various factors in driving corporate involvement in local benefits decisions. In absence of forced tradeoffs (we did not ask companies to rate the factors by order of importance), participants rated many factors as important. However, financial factors were more commonly rated highly as compared to operational factors such as the operating model of the company, local HR/benefits staffing, and compliance with regulations.

■■ While costs and financial risks of benefits were the most commonly cited driver for corporate involvement, large companies (more than 100,000 employees) more frequently referred to risks as the primary driver as compared to companies with fewer employees.

■■ Smaller companies (fewer than 25,000 employees) said twice as frequently as compared to the rest that lack of corporate knowledge is driving their desire for greater corporate involvement.

■■ Less than half the respondents indicate that a centralised operating model is an important driver of corporate involvement. This suggests that a centralised operating model and centralisation of benefits management are not correlated, and that the trend towards centralisation is not the cause of increasing corporate involvement in management of global benefits.

■■ Two-thirds of respondents state there is evidence that local operations’ actions are not aligned with corporate guidelines and that this drives or will drive corporate oversight and control. Also, only 19% of companies have stated they are more than 75% certain that local benefit plans will be aligned with corporate policies in three years time. In comparison, almost 60% of companies say they have established corporate policies or guidelines. This suggests that compliance with corporate policies is an important issue for companies.

■■ Over 60% of companies said reputational risk was an important driver of corporate oversight. Indeed, the importance of this factor increased by the size of the company. Of large companies, 78% consider reputational risk as an important driver of corporate oversight; in comparison, 54% of small companies say they are concerned about reputational risks due to employee benefits. It is important to note that, often, reputational risks correlate to administrative noncompliance and the related impact of employees and beneficiaries.


Which of the following are important drivers of corporate involvement in your company?

Lack of corporate knowledge of employee benefit plans and their costs

Significant size of global obligations/liabilities and/or assets

Costs of benefit plans

Financial risks posed by employee benefit plans (e.g., cost volatility, balance sheet volatility)

Meeting international corporate governance standards

Corporate and local country fiduciary requirements

Meeting international corporate governance standards

Reduction of administrative costs through global purchasing

Implementation of new accounting rules

Desire for consistent approach to benefits across the world (e.g., in terms of types of benefits or level of benefits)

Centralised operating model of the company

Lean HR/benefits sta� in local countries

M&A transactions

Reputational risk

External auditor requirements for corporate knowledge and control over benefit plans

External auditor requirements for corporate knowledge and control over benefit plans

Rapid growth in international locations

3%

2%

2%

2%

1%

2%

14%

20%

11%

8%

13%

12%

25%

14%

10%

7%

5%

31%

39%

23%

28%

26%

38%

34%

32%

28%

32%

24%

24%

15%

12%

8%

13%

13%

34%

28%

37%

38%

41%

39%

30%

37%

41%

43%

42%

47%

52%

35%

41%

32%

41%

21%

14%

29%

26%

20%

12%

12%

17%

21%

18%

30%

27%

31%

52%

50%

53%

40%

Moderately ImportantNot Important at All Very ImportantImportant

36 Aon Hewitt

Responses segmented between small, medium, and large multinationals

Responses segmented between Europe and North America

44%44%

56%30%

58%24%


Europe


Significant size of global obligations/ liabilities and/or assets

Very ImportantImportant

55%

43%46%

48%39%

39%Costs of benefit plans

North America



43%43%

27%51%

33%43%

55%28%

49%34%

64%17%

62%28%

48%35%

21%62%Complexity of regulatory requirements and related risks

Medium




Small

Complexity of regulatory requirements and related risks

Lack of corporate knowledge of employee benefit plans and their costs




Large


1.5 What types of benefits do companies think are important to manage from a corporate perspective?

Companies provide a number of benefits to their employees worldwide. Often the types of benefits and related costs are determined by the prevalence of different types of benefits in different countries. We wanted to understand which types of benefits companies think are important to manage from a corporate perspective and how satisfied are they with corporate oversight of benefits they deem important. We compared the level of importance and satisfaction levels for both benefits offered in the country where the corporate headquarters are generally located (termed “home country”) and international locations.

■■ The emphasis placed by companies on oversight of benefit programmes in the home country and their international locations was in general the same for various types of benefits.

■■ However, this emphasis correlates to the costs and risks of benefit plans and the size of obligations. For example, the emphasis placed on retirement and medical benefits is clearly higher than the emphasis placed on career development benefits. Also, not surprisingly, companies place higher emphasis on compensation programmes and executive benefits.

■■ In general, companies say they are doing a good job of managing benefit plans in their home country relative to the importance they place on managing specific types of benefits. However, notably fewer companies are satisfied with the level of corporate oversight they exercise on employee benefits in international locations.

■■ The study also highlights the potential resource constraints of smaller companies that are much less satisfied with the corporate involvement in international benefits. For example, only 25% of smaller companies cited satisfaction with corporate oversight of their international retirement plans; in comparison, around half the respondents with more than 25,000 employees said they were satisfied.

38 Aon Hewitt

Indicate the importance of oversight by type of benefit plans you sponsor in the country where the corporate HQ is located. Also indicate how satisfied you are with the current level of oversight by each type of benefit.

16% 59% 20%

20%34% 6%

5%

40%

53%25% 19%3%

47% 27% 12%14%

12% 50% 33%

13% 33% 47%7%

5%

45%25%

8%

24%

42% 46%

6%

4%

22% 30% 16%

14% 54% 27%

32%

5%

34% 38% 18%

24% 53% 16%

10%

7%

73%6%

4%

4% 18%

53%34%10%

30%4%

5%

59%

47% 32%15%

7%

40% 46%10%4%

15%10% 52%24%

Moderately ImportantNot Important Very ImportantImportant

Somewhat SatisfiedNot Satisfied Very SatisfiedSatisfied

Long-service awards (e.g., Jubilee benefits)

Work environment benefits (e.g., paid time o�, meals, fitness)

Career development and rewards

Termination indemnities

Risk benefits (e.g., life, disability)

Executive benefits

Medical benefits

Retirement benefits

Forms of compensation excluding base pay and bonus


Indicate the importance of oversight by type of benefit plans you sponsor in your international locations. Also indicate how satisfied you are with the current level of oversight by each type of benefit.

10%

7%

17%

6%

5%

3%

12%

24%

9%

12%

3%

21%

22%

7%

5%

39%45% 6%

36% 40% 7%

24%40%30%

34% 38% 18%

51% 18% 10%

24% 53% 16%

10%

32% 38% 19%

40% 35% 4%

11%

21%

44%32%

41%

21%

31% 7%

30% 46% 12%

31% 46%

18% 35% 38%

38%

53%

33%

36%

36%24% 34%

53%

40% 13%35%

11%

20%4%

4%

34%43%

Long-service awards (e.g., Jubilee benefits)

Work environment benefits (e.g., paid time o�, meals, fitness)


Termination indemnities

Risk benefits (e.g., life, disability)

Executive benefits

Medical benefits

Retirement benefits



Somewhat SatisfiedNot Satisfied Very SatisfiedSatisfied

40 Aon Hewitt

How do corporate functions get involved in local country benefits decisions?

2.1 How centralised are companies when it comes to managing global benefits?

2.2 Where on the five phases of the governance journey do companies find themselves in global benefits management?

2.3 How important is it to have different types of information at the corporate level and how readily available is such information?

2.4 What business risks and opportunities ought to be managed at the corporate level?

2.5 How are strategic policy decisions made in areas of programme design, financial management, and operations?

2.6 To what level do corporate stakeholders get involved in local benefits decisions?

2.7 Who is important when managing global benefits centrally?

2.8 How are companies structured to execute strategic benefits policies?

2.9 What is the operating model to monitor risks and opportunities related to global benefit programmes on an ongoing basis?


2.1 How centralised are companies when it comes to managing global benefits?

We used several measures covering three aspects important to global benefits management— knowledge, strategic policies, and execution—in order to understand the centralisation trends.

■■ The future trend certainly points to greater centralisation both in terms of companies’ operations and management of benefits. However, only 42% of companies said that a centralised operating model drives the centralisation of benefits management. This suggests that these two trends may not be necessarily correlated.

■■ At present most companies are less centralised across all measures than they would prefer. In fact, the only consistent centralisation trend appears in defining corporate guidelines. Sixty percent of companies say that they have established, in some form, such guidelines for local benefits decisions. However, we see from subsequent responses that such guidelines predominantly cover controls over changes to benefit designs and financial reporting to corporate.

■■ There is significantly less centralisation in terms of operational elements of benefits management. Two-thirds say local benefits departments are responsible for execution of benefits policies largely because roles and responsibilities between corporate functions and local countries for execution are not clearly established and communicated.

■■ However, over the next three years, almost half the companies expect to have more corporate involvement in execution of policies, centralised operations through Centres of Excellence (or COEs), purchasing, and operational compliance audits.

■■ On average, for each of the measures shown on the chart, around 40% of companies say they expect to manage benefits more centrally. As an example, the number of companies that say they have established corporate policies will increase from 60% to more than 90% in three years. However, the biggest jump in centralisation from current practice is around purchasing decisions and compliance audits.

■■ Altogether, 64% of companies say their current governance appears to be largely defined by local fiduciary requirements. In the future, 84% of respondents expect to establish global and local committees for making and ensuring execution of strategic benefits decisions.

Data segmentation suggests that across all measures, North American companies say they operate in a more centralised manner than their European counterparts. Interestingly enough, both small (less than 25,000 employees) and large companies (more than 100,000 employees) say they are less centralised across all measures as compared to mid-size companies (25,000—100,000 employees). This suggests that smaller companies become larger as they begin to operate more globally. On the other hand, as companies increase in size, it is likely that centralisation will become significantly more difficult.

42 Aon Hewitt

What is the current and expected level of centralisation for managing employee benefits within three years in your company?

In 3 years

Current

Description A Description B

15%25% 35% 25%15%

52%43%

17%

38%

51% 23%

34%20%

20% 28% 33%

31% 61%

19%

36% 23% 10%

14% 42% 35%

30%

33% 20% 12%

21% 37% 29%

36%

4%

9%

9%

2%

6%2%

9%

43% 18% 8%

14% 53% 28%

31%

5%

33% 15% 8%

13% 47% 29%

45%

11%

34% 23% 13%

15% 47% 37%

30%

2%

13%

A web-based common technology platform that is used by all local countries and corporate

Roles and responsibilities of corporate and local HR/ benefits departments are clearly established and communicated to execute strategic policies/guidelines

Corporate provides specific and prescriptive guidelines that help local management make employee benefits-related decisions

Corporate provides clear guidelines on when and how to seek approval regarding benefits-related decisions

Shared services or Centre of Excellence (COE) approach

Formal governance of employee benefit plans worldwide is established with corporate and local committees

Corporate audits are performed periodically to ensure all employee benefits are operationally compliant

Services are purchased by global providers with global master service agreements at the corporate level (where available)

Local management and HR have complete autonomy to make all employee benefits-related decisions

Locally maintained

Local management approves all decisions

Local benefits department are responsible for executing all strategic policy decisions

Local country benefits department

Local HR/benefits department makes all purchasing decisions to select local service providers

Local HR/benefits department periodically audits employee benefit plans to ensure operational compliance

Governance of employee benefit plans is defined only by governance requirements in local country

How is data on benefit plans maintained?

Who is responsible for making strategic decisions or policies/guidelines regarding employee benefits?

What is the approval process for making employee benefits- related decisions?

Who is responsible for execution of strategic decisions related to employee benefits?

What is the current sta�ng model?

How are purchasing decisions made for employee benefits service providers?

How are employee benefits audited?

What is the governance model?

Very Much Like A Somewhat Like A Somewhat Like B Very Much Like B


2.2 Where on the five phases of the governance journey do companies find themselves in global benefits management?

In order to understand how effectively companies manage global benefits—irrespective of the level of centralisation in doing so—we used five key metrics. In the survey, we asked companies to rate their position between two end points on each of the phases of the governance journey:

Phase of Governance Journey Less Effective More Effective

Access to reliable information

Information is not readily available or reliable

All required information available, reliable, and readily accessible

Assessment of business risks due to employee benefit plans

Opportunities and risks are not identified

All opportunities and risks are identified and organisational impact measured

Strategic policies to manage global benefits

No policies/guidelines established Specific corporate policies/guidelines established to manage opportunities/risks important for corporate

Governance structure to execute strategic policies

A formal or informal governance structure does not exist to manage employee benefit plans

Global, regional, and local committees are established to effectively manage employee benefit plans

Operating model to monitor risks

Ad hoc processes Approval and reporting processes are documented and followed

■■ As shown in page 20 of this report, the median position for four of the five metrics above suggests that companies struggle with having access to reliable information to understand risks at the corporate level, and executing their strategic benefits policies. However, more than half the companies say that they have established some sort of corporate policies/strategic guidelines for their global benefit plans.

■■ In general, we found that smaller companies (less than 25,000 employees) rated themselves as less effective under all the five measures described above.

■— About 60% of smaller companies say they do not have reliable access to information on benefit plans as compared to 50% of mid-size and 54% of large companies.

■— Only 34% of smaller companies have assessed risks and opportunities related to their global benefits as compared to 45% of mid-size companies and 39% of larger companies.

■— Only 40% of smaller companies have established corporate policies to guide local benefits decisions as compared to 70% of companies with more than 25,000 employees.

■— 31% of smaller companies have established formal or informal governance structures as compared to more than 60% of larger companies.

■— 37% of smaller companies have ad hoc reporting processes while larger companies were slightly better—54% of companies with 25,000 to 100,000 employees and 46% of companies with more than 100,000 employees have established some sort of an operating model to monitor risks.

44 Aon Hewitt

2.3 How important is it to have different types of information at the corporate level and how readily available is such information?

Questions on availability of benefits plan data are often interpreted as whether a benefits inventory exists in each country. However, in order to manage their global benefits effectively, companies need access to several types of data covering not only programme design but also financial and operational data. We asked respondents to rate the importance of access to various types of data and access to such data at the corporate level.

■■ Under programme design, “access to information on benefit plans currently offered” was rated as more important than other data. Under financial management, “access to financial data such as costs and benefits obligations” was rated as more important than other data. Finally, “knowledge of local regulatory requirements” was rated as more important than other operational data.

■■ Regardless, as the chart shows, substantially fewer companies said they had ready access to data elements that they deemed important to have at the corporate level.

■■ To normalise the two measures we used (importance and access), we calculated a rough measure of “overall access” by dividing the number of companies that said they had “ready access” to a type of information by the number of companies that rated access to such information as “important or very important.”

■■ We found that the average “overall access” rating was 0.41. In other words, of all the companies who deemed a particular set of data as important to have at the corporate level, only 41% of these companies had ready access to such data.

■■ The access rating for benefits costs is 0.48 and for financial risks is 0.37. This means that while benefit costs and financial risks remain at the forefront, more than half the companies do not have ready access to financial data they deem to be important and only 37% of companies who are concerned about financial risks due to their benefit programmes in fact have the knowledge of such risks at the corporate level.

■■ The “overall access” rating was low for all operational metrics. It is noteworthy that only one out of five companies know what their compliance risks are even though they highly rate having knowledge of such risks at the corporate level.

■■ Legislative changes may affect short-term financials of benefit plans and therefore related risks may be of concern to companies. This is one plausible rationale why companies consider as important knowledge of local laws and regulatory requirements. In fact, 37% of respondents rated this information as very important to have.

■■ The lowest “overall access” rating within each of the policy areas was for lack of knowledge at the corporate level on local views/philosophies on benefits design, financial management, and operational policies. While this is not surprising, we found that lack of corporate understanding of local views on benefits to be one of the key barriers in executing corporate control over local benefits decisions.

■■ Use of a common technology platform to collect and maintain data on benefit programmes is surprisingly not prevalent. Fewer than one out of every five companies use a common web-based technology platform to collect and maintain information on benefit plans worldwide. More than 60% of companies tend to collect data through their local country HR/benefits channels. However, this data does vary slightly by the size of the company responding. Of smaller companies, 72% said they use their HR/benefits department to collect data as compared to 55% of mid-size companies and 44% of large companies.

■■ What is more important to note is nearly half the respondents collect design, financial, and operational data to simply keep track of what they offer and how much it costs—only one third of companies do so to actively manage opportunities and risks related to their benefit programmes worldwide.


Indicate the importance of oversight by type of benefit plans you sponsor in the country where the corporate HQ is located. Also indicate how satisfied you are with the current level of oversight by each type of benefit.


Not AvailableDon’t Know Readily AvailableSomewhat Available

Employee benefit plans currently o�ered

Legacy plans with current obligations (no active participants)

Market competitiveness/benchmarking

Local collective labour agreements

Regional/local operations' philosophy/policy towards employee benefits

Financial data (e.g., annual cost, obligations, asset values, insurance premiums)

Financial risks (e.g., investment risks, cost and balance sheet volatility)

Financial methods (funded/unfunded, book reserve, insured, etc.)

Financial policies/philosophy of regional/local operations

Stakeholders (e.g., local trustees, regional/local leaders who can make decisions)

Administrative, regulatory and fiduciary compliance risks

Current providers and fees (e.g., broker, insurance providers, administrator, actuary)

Operational policies/philosophy of local management to administer benefits

Local laws and regulatory requirements 20%

44%

30%

23%

24%

26%

7%

11%

6%

33%

29%

15%

18%

7%

3%

14%

2%

1%

3%

12%

3%

3%

1%

14%

9%

2%

8%

1%

37%

9%

21%

27%

21%

15%

48%

52%

50%

13%

27%

34%

34%

50%

10%

30%

13%

22%

11%

22%

7%

12%

6%

29%

16%

15%

11%

4%

2%

3%

1%

4%

3%

5%

3%

3%

1%

6%

8%

3%

40%

33%

47%

50%

51%

48%

43%

35%

43%

39%

34%

50%

39%

42%

53%

55%

59%

57%

55%

58%

34%

54%

49%

47%

41%

53%

55%

50%

35%

11%

27%

17%

31%

15%

56%

32%

45%

18%

35%

32%

31%

46%

46 Aon Hewitt

What is the primary purpose of collecting employee benefit plan information at the corporate level?

How does corporate currently collect local country employee benefit plan information?

Awareness of what we o�er around the world and how much it costs

For reporting purposes only

To understand all business risks and opportunities

To actively manage business risks and opportunities from the corporate level

Other

48%

7%11%

32%

2%

Provided by local HR or benefits managers to corporate upon request via spreadsheets, electronic, or paper files

Provided to corporate through di�erent global providers (e.g., third party administrators) on a regular basis

Provided to corporate through di�erent technology platforms for di�erent types of benefits (e.g., technology used for medical plans data is di�erent than the technology utilised for pension data)

Provided to corporate through direct access of a common technology platform used for all employee benefits across all countries

Other

60%5%

12%

18%

5%


How frequently is the employee benefit plan information updated?

Data on plan operations (e.g., compliance, vendors, service providers)

Information on financial costs, risks and policies/guidelines

Benefit plan-related information (e.g., design, level of benefit)

3%

1%

2%

3%

2%

7%

13%

6%

11%

34% 5%

59%

5%27%

42%

12% 21%

48%

Every 2-3 Years

Don’t Know More than 5 Years

Annually

Every 3-5 Years

Multiple Times a Year Ad Hoc

Who is primarily responsible for updating information on local country employee benefit plans?

Responsibility not specifically assigned

Local country benefits managers

Global third-party providers

Corporate benefits manager (responsible for international benefits)

Other

18%

7%

50%

22%

4%

48 Aon Hewitt

2.4 What business risks and opportunities ought to be managed at the corporate level?

Corporate oversight and control over local country benefits decisions ought to target business risks and opportunities that are important for a company to manage from a corporate perspective. We note below high-level risks (or opportunities) in each of the three key policy areas. Emphasis placed on such risks is different from one company to the other.

Policy Area Potential Opportunities and Risks

Programme design ■■ Risk of misalignment with workforce strategy and company’s financial goals■■ Risk of misalignment with labour market values and preferences■■ Opportunity to improve efficiency to:

■— Reduce employer’s cost by delivering same level of benefits at lower cost or ■— Provide higher benefits to employees at the same cost

Financial management ■■ Risk of adverse financial outcomes for the company such as income statement and balance sheet volatility, cash volatility, and impact of unfunded obligations on loan covenants

■■ Opportunity to reduce costs through efficient financing■■ Opportunity to manage risks through global pooling of assets and liabilities

Operations ■■ Risks of administrative, legislative, and fiduciary noncompliance■■ Reputational risks■■ Opportunity to reduce operational costs through efficiencies and scale leverage

■■ Companies appear to place more importance on having access to data than on using such data to assess business risks related to benefit programmes.

■■ More than for any other reason, companies provide benefits to be market competitive in local markets. Providing benefits higher than market norms would arguably be cost-inefficient. However, more than 25% of companies consider risk of misalignment with market norms as not particularly important. Furthermore, only two-thirds of the respondents that rated this risk as important have actually assessed the risks of such misalignments.

■■ Understanding financial risks related to retirement plans was considered by most companies as important or very important. Almost 60% of all companies rated this as “very important”; and all large companies (more than 100,000 employees) considered the assessment of retirement risks important. However, as we note in subsequent sections of the report, most companies do not appear to have prescriptive corporate guidelines for local country financial decisions.


■■ While in general most companies are concerned about medical cost increases and related legislative risks, assessing financial risks related to medical plans was rated as important by fewer companies as compared to retirement plans. North American companies, given the high costs of medical coverage there, appear to place more emphasis on medical plan risks as compared to European companies.

■■ Assessment of operational noncompliance risks were rated by fewer companies as important compared to other risks. On the other hand, 64% of companies considered reputational risk as an important driver of corporate oversight. In our experience, operational noncompliance tends to be the primary creator of reputational risks for companies.

■■ Global companies can leverage their scale to improve efficiencies of benefits delivery and reduce costs of benefits. All companies have small employee populations in several countries. The purchasing scale for small companies for insurance, investment, and administration solutions in these countries does not simply match the scale of a global company. However, fewer companies consider opportunities to pool assets and liabilities as important.

■■ In general, we found that North American companies have done more to assess risks and opportunities than their European counterparts with the exception of retirement risks, cross-border international funds, and asset pooling for retirement plans.

50 Aon Hewitt

For each of the opportunity/risk types listed below, indicate how important is it for your company to assess it and the timing for assessment at the corporate level.

Opportunity to reduce costs of benefit plans

Risk of misalignment with local market benchmarks

Financial risks posed by:

Operational compliance risks

Retirement plans

Medical/health plans

Risk benefit plans

Other benefit plans

Administrative compliance risks

Regulatory compliance risks

Fiduciary compliance risks

Risks posed due to policy/philosophy misalignment

Inconsistencies between corporate policies/guidelines and local/regional policies/philosophy

Inconsistencies between corporate policies/guidelines and actual practices and benefits in local countries

Opportunities to leverage scale for access/reduce operating costs/improve governance

Asset pooling for retirement plan assets

Multinational pooling for insurance

Global advisors

Global vendors

Cross-border international funds (e.g., Pan-European pension funds)


Was Completed MoreThan 2 Years Ago

Don’t Know Currently BeingAssessed

Completed WithinLast 2 Years

Will Be Completed Within 2 Years

24%

32%

23%

21%

4%

3%

50%

38%

23%

38%

13%

10%

20%

13%

23%

29%

20%

16%

25%11%4% 28% 58%

17%18% 30% 9%

25%23%4% 42%

12%20% 24%

45%

32%

24%

33%

37%

33%

17%

15%

10%

22%

18%

41%

47%

37%

29%

5%

10%

14%

21%

13%

4%

12%

16%

17%

9%

57%

28%

23%

16%

45%

11%15%

17%

29%

23%

31%13%

26%

24%

13%

13%

16%

11%

14%

16%

22%

21%

15%

14%

10%

16%

25%

28%

29%

28%

27%

39%

40%

37%

6%

11%

4%

4%

8%

22%

5%

49%

41%

43%

42%

38%

31%

42%

17%

19%

25%

26%

15%

6%

15%

31%

9%

11%

8%

11%

9%

13%

12%

25%

29%

37%

34%

43%

43%

22%

21%

17%

22%

22%

21%

16%

25%

23%

22%

18%

18%

16%

12%

16%

19%


2.5 How are strategic policy decisions made in areas of programme design, financial management, and operations?

We explored what corporate policies or guidelines cover in the three key policy areas of programme design, financial management, and operations; what is the importance of having such corporate guidelines; and how prescriptive they are.

■■ Market competitiveness is the reason why companies provide benefits. This was by far rated most commonly (88%) as one of the top three reasons for providing benefits. In comparison, 77% of companies said it was important to have a corporate policy on market competitiveness and 65% have in fact established corporate guidelines around competitiveness. In fact, only 14% have prescriptive policy around competitive benchmarks for local benefits decisions.

■■ The highest importance placed by companies (85%) was on retirement plan design. Half the companies rated this as “very important” to define at the corporate level—more than any other policy to be rated so highly important to establish at the corporate level. In comparison, 74% have established some sort of policy on retirement design and only a third of the respondents have a prescriptive design policy.

■■ In general, there was a gap between the percentage of companies that considered it important to establish corporate policies and the number of companies that have actually done so. There appears to be some correlation between risks considered important by corporate, importance placed on establishing a corporate policy and the percentage of companies that have prescriptive mandates in place.

■■ Companies appear less inclined to have corporate policies on operations—the most prevalent of these being around operational compliance and purchasing.

■■ Trustee selection and training policy was least commonly selected as important to define at the corporate level; only 30% to 40% of companies have policies on corporate representation on trustee boards and their training. Mostly retirement plans—that routinely were rated as the biggest concern—are overseen by trustee boards responsible for decisions that have financial implications (costs and volatility of such costs) for companies. As such, we expected greater corporate involvement than we noted.

■■ A higher percentage of North American companies have established corporate policies as compared to European companies. Also, the prevalence of corporate policies increased by size—larger companies more commonly said that they have established corporate policies as compared to smaller companies.

■■ Of large companies (more than 100,000 employees), 88% said it was important to establish policies around risk benefits, such as disability and life insurance, as compared to 51% of mid-size companies (25,000–100,000 employees) and 57% of smaller companies. One explanation may be that larger companies may see the value of providing similar risk coverage for all their employees around the world and leveraging their global scale to buy such coverage. However, the percentage of large companies that have established corporate policies to manage risk benefits was relatively the same as other companies, suggesting fewer companies have actually taken actions to manage risk benefits centrally.

52 Aon Hewitt

How important is it to establish each of the following benefit policies/guidelines at the corporate level and to what degree are they established in your company?


Not EstablishedDon’t Know Broad Corporate Guidlelines Prescriptive Corporate MandatesLocal Discretion

34%

39%

33%

27%

26%

26%

23%

24%

49%

32%

21%

11%

16%

14%

9%

16%

20%

8%

6%

4%

7%

4%

17%

6%

6%

4%

7%

7%

50%

38%

36%

46%

49%

41%

42%

48%

31%

48%

56%

36%

46%

51%

7%

7%

11%

18%

18%

29%

28%

24%

4%

13%

17%

49%

31%

28%

28%

32%

23%

35%

12%

19%

21%

18%

44%

31%

32%

15%

21%

20%

23%

25%

28%

15%

17%

18%

16%

13%

18%

15%

13%

10%

14%

13%

6%

11%

10%

3%

4%

9%

8%

8%

4%

1%

1%

1%

36%

25%

30%

33%

50%

37%

30%

40%

33%

44%

50%

41%

51%

58%

7%

7%

10%

14%

18%

18%

25%

21%

1%

10%

4%

33%

14%

9%Types of benefit plans to o�er (e.g., retirement, medical, risk coverage)

Market competitiveness

Design features of employee benefit plans: retirement benefits

Design features of employee benefit plans: medical/health benefits

Design features of employee benefit plans: risk benefits (e.g., disability, life insurance)

Design features of employee benefit plan: all other benefits

Financing policy (e.g., book reserve or cash, insurance contracts)

Funding policy (e.g., minimum required by law, stable contributions)

Investment policy

Insurance policy (e.g., self or fully insured, multinational pooling, use of captives)

Administrative and regulatory compliance

Corporate representation on local trustee boards

Trustee selection and training

Purchasing such as selection of preferred providers


2.6 To what level do corporate stakeholders get involved in local benefits decisions?

Two-thirds of respondents said that the execution of strategic policies falls on local operations. So we tested the level of corporate involvement (from weak to strong) by asking if and when are local operations required to inform, consult, or seek approval from corporate stakeholders.

■■ Currently, the strongest corporate involvement (measured in terms of corporate approval required for local decisions) is most common for design policy decisions and least common for operational decisions.

■■ On average, more than half the respondents require corporate approval for making changes to or establishing new design plans. In comparison, a third of the respondents said corporate approval is required for financial policy decisions and less than a fifth for operational policy decisions.

■■ However, corporate involvement in all policy areas is expected to improve over the next three years. On average, 70% of companies will require corporate approval for design made by local operations. The corresponding figures for financial and operational decisions are significantly lower at 50% and 33%, respectively.

■■ Corporate involvement in trustee selection remains low in relation to other decisions. As mentioned earlier, trustee boards make decisions that have financial implications for the company; therefore it may be in the best interest of companies to have some sort of corporate involvement in trustee matters such as ensuring appropriate company representation on trustee boards and board member training to discharge their duties.

■■ Fewer North American companies said they currently require corporate approval when making changes to current plans or establishing new plans. Conversely, fewer European companies require corporate approval for financial and operational decisions.

■■ Companies place different emphasis on different types of benefits based on the costs and size of benefit obligations. As such, executive benefits, compensation policies and benefit plans with material obligations and costs, such as retirement and medical plans, tend to be governed more commonly at the corporate level when a global committee exists.

■■ In comparison, other softer HR-related benefits such as work environment, career development, and education assistance are more commonly governed at local and/or regional levels.

■■ Only half the companies govern risk benefits such as disability and life insurance at the corporate level. This raises the issue that companies are not fully utilising their global scale through pooling to purchase risk coverage more effectively. In fact, more than half the companies said that such pooling arrangements were only moderately important.

■■ Of all companies, 62% reported managing defined contribution plans at the corporate level; this is not at all consistent with Aon Hewitt’s experience. One explanation is respondents may be referring to design decisions (such as defined benefit vs. defined contribution and level of company contributions into a defined contribution plan) when responding to this question. Design policy for defined contribution plans, while important, is only a fraction of defined contribution plan governance. When it comes to global defined contribution plans, Aon Hewitt has seen limited evidence of companies retaining at corporate-level policy decisions such as investment strategy, portfolio design, and selection and oversight of investment managers and administrators, including fee negotiations. These are in fact critical to ensure optimal financial outcomes at lowest cost for companies.

54 Aon Hewitt

45%

27%

32%

20%

23%

12%

17%

19%

24%

13%

17%

15%

10%

14%

19%

18%

30%

36%

34%

58%

46%

16%

4%

3%

4%

3%

2%

3%

23%

19%

14%

13%

10%

4%

7%

29%

44%

38%

29%

38%

18%

27%

32%

33%

45%

54%

49%

76%

63%

17%

31%

25%

27%

28%

20%

23%

Appointments to trustee boards

Selecting service providers

Establishing investment strategy

Funding policy (e.g., cash contributions to fund employee benefit plans)

Selecting financing vehicles for employee benefit plans (e.g., book reserve or cash, insurance contracts)

Establishing new benefit plans

Making changes to current benefit plans

Corporate Informedof Decisions

No Involvement

Current

In three years

Corporate ApprovalRequired

Corporate ConsultedWhen Making Decisions

What is the level of corporate involvement in local decisions under the current governance model and how is it expected to change over the next three years for the following employee benefit-related decisions?


What is the highest level at which the following employee benefit plans are governed within your organisation?

16%

14%

14%

12%

8%

14%

6%

7%

4%

62%

50%

35%

36%

27%

23%

15%

14%

11%

19%

33%

50%

50%

59%

62%

76%

77%

81%

Defined benefit plans

Executive benefits


Other retirement plans

Defined contribution plans

Risk benefit plans

Medical/health plans


Work environment benefits

LocalRegional Corporate

56 Aon Hewitt

2.7 Who is important when managing global benefits centrally?

Several stakeholders at the corporate, regional, and local levels across multiple functions commonly participate in making and executing strategic benefit policies decisions. They may also bring different, and at times somewhat conflicting, perspectives to such decisions.

■■ Stakeholders that were rated as most important by global benefits directors were:

■— Local country management

■— Local HR and finance departments

■— Corporate legal and finance departments

■— Senior management of the company

However, between 30% and 45% fewer companies said the current level of coordination was in fact effective compared to the number of companies that said such coordination was important. This lower level of effectiveness indicates a governance gap for many companies.

■■ In contrast, stakeholders that were most commonly rated as “not important” for managing global benefits were:

■— Corporate risk officers

■— Labour representatives

■— Local country regulators

■— Independent trustee boards

■■ While financial costs and risks of benefits appear to be the foremost concern of senior management and boards (and the key driver of corporate oversight), the survey suggests that corporate risk managers are not getting involved in managing risks related to employee benefits, and when they do, their involvement is effective only 40% of the time. Companies that said corporate risk manager was an important stakeholder tended to be large companies (more than 100,000 employees).

■■ Almost half the respondents rated coordination with local trustees as “not important.” This data is skewed by smaller companies (63%) rating such coordination as “not important.” In comparison, only 33% of mid-size companies and 17% of large companies said coordination with local trustees was not important. Given that trustee boards often have controls over the levers that drive financial outcomes (such as funding and investment policies), we suggest that an effective partnership with trustees is important to managing costs and risks of benefits.

■■ More than 40% of respondents said that the coordination with local regulators was “not important.” Earlier we noted more than four-fifths of respondents rated legislative risks as important drivers of corporate oversight. As regulations often drive short-term financing requirements and financial reporting of benefit costs (often resulting in adverse financial outcomes for companies), we believe that multinationals ought to play some sort of role in shaping regulatory policies related to benefits around the world.


■■ Some areas where we saw marked differences between the responses of North American and European companies are the following.

■— European companies more commonly said that the coordination with trustee board and labour representatives was important.

■— Two-thirds of North American companies placed importance on working with local country regulators as compared to half of European companies.

■— The majority of North American companies highlighted the importance of working with global service providers to govern global employee benefits; in comparison, only 60% of European companies rated global service providers as important in governing global benefits.

Who from the following list of stakeholders are not important to coordinate with when managing global benefits? How effective is the current level coordination in managing global benefits between you (global benefits director) and the stakeholders who you consider important?

Corporate finance and legal departments

Local country management

Local country HR and finance

Regional HR and finance department

Senior management of the company

Global advisors

Regional management

Global service providers

Local country regulators

Independent trustee boards

Labour representatives (union or work councils)

Corporate risk o�cer

Not E�ectiveNot Important Somewhat E�ective E�ective Very E�ective

52% 22% 38% 29% 11%

48% 18% 37% 39%5%

45% 16% 30% 43% 12%

41% 24% 32% 40%4%

21% 15% 35% 40% 10%

20% 13% 24% 41% 22%

17%

4%

46% 43%

6%

14%3%

36% 48% 13%

8%7%

30% 48% 15%

6%4%

39% 44% 12%

6% 9% 25% 48% 18%

3% 8% 40% 44% 8%

58 Aon Hewitt

2.8 How are companies structured to execute benefits policy decisions?

We also wanted to understand what types of formal (or informal) structures are used by companies to exercise corporate oversight of local benefits decisions. Therefore we explored the correlation between existence of various structural elements, importance placed by companies on such elements and current levels of effectiveness of the structure in executing corporate policies.

■■ There remains a material gap between the importance placed by companies on various structural elements for executing strategies and how well they are working.

■■ Overall, we found some correlation between existence of formal structures/protocols and effectiveness of execution. In other words, the companies that rated various structural elements as effective more commonly had formal protocols in place rather than informal or ad hoc protocols.

■■ However, the data does highlight the operational challenges companies face. Not all the respondents that have formal protocols in place said that such protocols were effective. As an example, only around 70% of companies that have formally established corporate policies and approval protocols rated them effective. Only around 60% of companies that have formally established roles and responsibilities, allocated decision-rights between corporate and local country operations, and reporting requirements rated them as effective.

■■ Technology to manage data and information on benefit plans appears to be particularly challenging for companies. Only 25% said they have formally implemented technology for this purpose. Furthermore, more than half (57%) of such companies rated it not effective.

■■ Approximately 40% of companies say that they have a single committee responsible for overseeing benefits worldwide while 23% said different committees manage different benefits. This should not be construed as an argument for using the same corporate committee to govern all benefits. A company’s governance structure ought to be necessarily informed by:

■— What risks are important for a company to manage at a corporate level

■— How an organisation should manage such risks within the existing operating model

■■ Fewer respondents have formal committees established at the regional and local levels and they see little value in establishing such committees—this would suggest that corporate committees tend to execute their policies by directly working with regional and local HR and benefits staff.

■■ Beyond formation of committees (formal or otherwise), we noted lower prevalence of formal protocols around decision-rights allocation to make and execute policies and approval and reporting protocols. This, in our view, may explain why companies say they are less effective in executing corporate policies at the ground level.

■■ More than half the respondents said lean staffing in local countries (particularly in smaller operations) was an important reason for corporate involvement. This was also a common theme when we interviewed global directors of benefits. In many smaller countries, local staff play multiple roles and tend to have stronger HR and compensation background as compared to benefits. Companies are concerned about lack of skilled benefits resources at the local level. As such, it is somewhat surprising that companies are not looking more at consolidating their benefits resources at the regional level rather than using local resources.

■■ Existence of formal protocols clearly decreased in prevalence with size. Smaller companies appear to manage benefits more on an informal basis as compared to larger companies.


Describe, rate the importance of and rate the effectiveness of various structural elements of your current governance structure.

Corporate committee

Regional committees

Local committees (nonfiduciary functions)

Local committees (fiduciary functions such as pension trustee boards)

Corporate policies/guidelines regarding employee benefit plans' design, financial management, and operations

Decision-rights allocation between corporate, regional, and local stakeholders to make policy decisions

Clarity of responsibility and accountability for execution

Approval protocols

Reporting protocols and processes

Audit of policy implementation

Common technology platform for all employee benefits data


Not DesiredDon’t Know Informally EstablishedAd Hoc Formally Established

Somewhat E�ectiveNot E�ective Very E�ectiveE�ective

13%12%9% 10% 57%

50%

33%

34%

23%

21%

21%

17%

14%

17%

23%

11%

19%

4%

5%3%

4%

5%

17%

33%

12%

8%

9%

5%5%

8%

5%

11%

21%

13%

16%

15%

19%

18%

30%

26%

25%

9%

21%

9%

12%

25%

35%

49%

42%

42%

49%

61%

24%

23%

37%

27%

28%

16%

17%

16%

12%

21%

46%

37%

9%

2%

4%

2%

2%

1%

5%

2%

41%

42%

48%

38%

49%

45%

41%

45%

40%

44%

29%

19%

28%

22%

45%

34%

39%

48%

33%

13%

14%

60%

54%

48%

44%

39%

48%

47%

40%

38%

57%

55%

31%

21%

33%

24%

15%

15%

11%

14%3%

3%

9%

12%

5%

23%

18%

26%

36%

33%

32%

37%

48%

29%

28%

42%

2%

3%

6%

10%

5%

9%

9%

11%

6%

5%

23%

60 Aon Hewitt

2.9 What is the operating model to monitor risks and opportunities related to global benefit programmes on an ongoing basis?

The existence of a formal (or informal structure) may not necessarily imply that companies manage the business risks and opportunities effectively on an ongoing basis. Also, comprehensive global benefits management covers decisions in multiple jurisdictions both in terms of geographies and functions. With this mind, we wanted to understand who gets involved in global benefits management and what they focus on.

■■ HR leaders tend to be most commonly represented on global committees as compared to legal and finance leaders.

■■ On the other hand, risk managers are least represented on committees responsible for overseeing benefits—in fact, only four companies who participated in the survey cite involvement of a risk leader on corporate committees. The data does not suggest this changing materially in the future. Only 11 companies said they would expect to have corporate risk managers participate on global committees. Given that financial costs and risks of benefits were cited as the biggest concern, this would indicate that risks posed by employee benefits seldom fall within the remit of corporate risks officers.

■■ We asked companies that have formal corporate (as well as regional and local) committees what was covered routinely as a part of the ongoing agenda. Beyond the most common response (“respond to issues as they arise”), the next three common agenda items for corporate committees were:

■— Financial reporting

■— Design changes

■— Financial risks of employee benefit plans

■■ While these will remain important as future agenda issues, we see an increased corporate focus on investment strategy and compliance risks.

■■ Operational matters appear more commonly on the agenda for regional and local committees when they are established.

■■ As we noted in Section 2.2, formal corporate committees are more prevalent amongst larger companies. However, small companies (less than 25,000 employees) with a formally established structure more commonly focus on the following matters (as compared to companies with more than 25,000 employees):

■— Investment strategy

■— Legislative developments

■— Operational compliance

■— Service providers review

This suggests that greater corporate involvement at smaller companies may be a result of staffing constraints at local and regional levels as compared to larger ones.

■■ Companies do not commonly use corporate policies as metrics to monitor risks. This suggests that the agenda for corporate committees will largely remain unchanged (directed towards approving any changes to benefit plans, collecting financial data, and oversight on financial decisions).


If your organisation has or will establish a corporate committee to govern employee benefit plans worldwide, please select from the list below the representatives that currently serve on such a committee and those you expect to add to the committee in the future?

48%

71%

83%

51%

65%

19%

62%

22%

21%

27%

14%

5%

Currently Serves as a Committee Member

Expected to Serve as a Committee Member in the Future

Do not have HR member(s) currently or in the future

Head of international benefits

Global head of benefits

Global head of total rewards

Global head of compensation and benefits

Corporate HR leader

22%

49%

54%

44%

56%

44%

14%

51%

Do not have finance department member(s) currently or in the future

Corporate controller

Corporate treasurer

Chief financial o�cer


Expected to Serve as a Committee Member in the Future Finance

Human Resources

62 Aon Hewitt

44%

60%

3%

5%

63%

52%Do not have legal department member(s) currently or in the future

External legal council

Corporate legal council


Expected to Serve as a Committee Member in the Future

10%

16%

24%

6%

17%

22%

17%

44%

33%

37%

Do not have other member(s) currently or in the future

External providers

Geography/regional leaders

Risk manager

Business unit leaders


Expected to Serve as a Committee Member in the Future Other

Legal


What does the corporate committee cover (if established) during its benefits governance meeting as a part of routine agenda ?

43%

54%

80%

36%

55%

63%

59%

73%

74%

78%

79%

24%

41%

72%

28%

45%

50%

55%

64%

68%

78%

86%

Audit of operations and e�ectiveness of the committees

Ongoing risk assessment of benefit plans using corporate policies/guidelines as metrics

Design changes to current plans or establishment of new plans

Monitoring of service providers against established benchmarks (e.g., market indices for investment returns or fees or service level agreements)

Selection and review of service providers (e.g., asset managers, brokers, administrators)

Compliance risks (administrative, legislative, and fiduciary)

Legislative developments

Investment strategy

Financial risks such as cost, balance sheet volatility, cost increase

Financial data/information on benefit plans

Based on issues as they arise or are raised

Current Future

64 Aon Hewitt

What challenges do companies face when corporate gets involved in local benefits decisions?

3.1 What are the barriers from the perspective of corporate stakeholders responsible for managing global benefits?

3.2 How important are current global solutions to help companies manage global benefits and how effective are they?


3.1 What are the barriers from the perspective of corporate stakeholders responsible for managing global benefits?

So far in this report, we explored why and how corporate stakeholders get involved in local benefits decisions. However, in practice, there are several challenges that make effective governance of strategic benefits policies challenging at best. In fact, we have already noted that most companies do not feel they are particularly satisfied in exercising corporate oversight and controls over local country benefits decisions in their international locations.

We asked questions in five categories to understand what the most important considerations were (conversely the biggest challenges) to successfully implementing global governance protocols.

Category Challenge

Corporate sponsorship What support is available in practical terms at the corporate level, such as direct participation of senior leaders, resource allocation, budgets, and collaboration between functions?

Data integrity How important is quantitative data as well as qualitative data?

Local involvement and relevance

How do corporate stakeholders work with local operations and what resources are needed at local levels?

Communications How important is formal documentation and communication of policies and protocols?

Structure What structural barriers may affect effective governance of global benefits?

■■ Of respondents, 72% said that buy-in of senior management was “very important.” Most companies operate under a matrix structure with local HR staff reporting to local/regional geography leaders rather than to global benefits directors. As such, it is important for senior management to empower global benefits directors to exercise corporate oversight and control over local country benefits decisions.

■■ Altogether, 66% said that access to reliable benefits data that is updated regularly is very important. This is a recurring theme in this study and consistent with our experience. Given the complexities of the operating environment, various types of benefits offered, and history of mergers/acquisitions and divestitures, collecting and maintaining benefits worldwide can be complex and time consuming. As such, we believe companies should focus on collecting information that will help them assess the design, financial, and operational risks due to their benefit programmes.

■■ Fewer companies considered it important to collect qualitative information on local/regional policies and philosophies towards design, financial management, and operations of benefit plans. Only a third rated these as important.

■■ Availability of local HR, finance, and legal resources and skills was a very important consideration according to 46% of the companies. This is an important issue for companies that operate under a lean HR staffing model and when the size of local operations is smaller, regardless of the size of the company. In our experience, local HR staff—particularly in smaller countries—often cover multiple functions, and tend to have more expertise on talent and compensation practices and less on benefits.

■■ Altogether, 77% said that involvement of regional and local stakeholders, when developing corporate policies and understanding at the corporate level of local practices and cultures, was important or very important for a successful implementation of global governance protocols.

66 Aon Hewitt

How important are the following factors in order to successfully implement corporate oversight and control over employee benefit plans?

Buy-in of senior management

Reliable data on benefit plans’ design and financials with regular updates

Senior management representation on committee(s)

Collaboration between HR, finance, and legal

One individual responsible for overseeing all international benefit plans

Qualitative information on local and regional philosophies towards plan design, financial management, and operations

Knowledge of local market practices and culture at the corporate levelInvolvement of regional/local stakeholders when developing local policies/guidelines

Knowledge of local laws and regulations at the corporate level

Budget/resource allocation to execute the governance model

Knowledge of local collective labour agreements at the corporate level

Availability of local HR, finance, and legal resources and skills

Glossary of local terms for common understanding

Protocols for approvals and resolving issues

Formal documentation and clarity of corporate policies/guidelines with decision-rights allocation, roles, and responsibility for execution

Formal establishment of global benefits committee

Global providers

Common technology platform to collect and report data

Regular audit of benefit plans against corporate policies/guidelines


22%

22%

Corporate sponsorship

Data integrity

Local involvement and relevance

Communications

Structure

27%

19%

24%

21%

13%

25%

7%

12%

20%

28%

23%

21%

21%

7%

17%

18%

6%

10%

6%

4%

8%

13%

8%

2%

9%

1%

1%

2%

3%

6%

3%

5%

13%

10%

3%

39%

35%

36%

19%

30%

41%

27%

40%

45%

39%

37%

36%

38%

23%

34%

32%

25%

36%

18%

27%

38%

25%

47%

53%

21%

61%

46%

33%

29%

33%

41%

33%

66%

40%

36%

67%

41%

72%


Small Companies

Reliable data on benefit plans design and financials with regular updates

Formal documentation and clarity of corporate policies/guidelines with decision-rights allocation, roles, and responsibility for execution

Protocols for approvals and resolving issues 33%

48%24%

14% 56%

79%

38%

Important Very Important

Medium Companies

Large Companies



Availability of local HR, finance, and legal resources and skills 30%

60%17%

13% 62%

79%

43%




Reliable data on benefit plans design and financials with regular updates

24%

48%31%

7% 69%

79%

55%


68 Aon Hewitt

3.2 How important are current global solutions to help companies manage global benefits and how effective are they?

Global providers often play varying roles in helping companies manage their global benefit programmes. As an example, global actuarial consolidation provides companies with a central repository of financial data related to material-defined benefit retirement plans around the world. Similarly, global brokers consolidate financial data for insured benefits and help companies manage financial outcomes related to such benefits at the corporate level. We asked companies what types of global benefit solutions currently available in the market were important for managing global benefits and about the effectiveness of these solutions.


Please rate the effectiveness of the following solutions currently available to your organisation and the corresponding importance in managing benefit plans available through global providers.

12%

10%

33%

8%

54%

13%

22%

51%

36%

22%

27%

13%

34%

46%

39%

47%

25%

33%

26%

31%

28%

35%

44%

42%

32%

26%

40%

22%

71%

30%

57%

51%

36%

32%

20%

28%

33%

40%

43%

52%

40%

32%

34%

33%

38%

35%

40%

40%

55%

50%

24%

40%

6%

55%

44%

16%

26%

43%

33%

46%

33%

27%

21%

31%

5%

40%

45%

12%

21%

30%

23%

38%Multinational pools for insured benefits

Administration solutions

Global broking of medical and risk benefits

Asset pooling solutions

Financing of risk benefits through captives

Global actuarial services

Integrated reporting and management of pension plan risks

Pan-European pension plans

Global reporting on legislative developments and related risks

Delegated investment solutions

Governance services and solutions

Common technology platform

Not Important ImportantModerately Important

Not E�ective E�ectiveModerately E�ective

70 Aon Hewitt

What actions have companies taken or will take in the near-term to increase corporate involvement?

4.1 What actions do companies expect to take in the near-term to improve the knowledge of their global benefit programmes?

4.2 What actions do companies expect to take in the near-term to execute strategic benefits policy decisions?

4.3 What actions do companies expect to take in the near-term to monitor various risks related to their global benefit programmes?


4.1 What actions do companies expect to take in the near-term to improve the knowledge of their global benefit programmes?

■■ Most commonly, about half the respondents have taken recent actions to collect data on benefits offered and financial costs of such benefits. More companies in North America have collected data on benefits (55%) as compared to European companies (36%). On the other hand, more European companies collected financial data in the last two years (56%) as compared to 45% of North American companies.

■■ Regardless of the focus on costs and risks of benefit plans, 60% of companies have not taken any recent actions to assess financial risks posed by their benefit plans.

■■ The top three most common actions companies intend to take in the next two years to improve the knowledge of their global benefit plans are:

■— Collecting information on external providers (such as cost of services, service agreements)

■— Obtaining reliable information on administrative, regulatory, and fiduciary compliance risks

■— Obtaining reliable information on current and emerging local practices in benefits design

■■ Clearly, knowledge of local benchmarking data and design trends continue to rate highly. Companies appear to tend towards design policy decisions (and therefore data needed to make such decisions). Also, corporate-level knowledge of local legislative environment is rated very highly. We note that corporate stakeholders are increasingly concerned about the financial impact of regulatory changes.

72 Aon Hewitt

To further improve global corporate oversight and control of employee benefit plans in your organisation, indicate the priority level for having reliable information at the corporate level for each of the knowledge areas below.

Financial data

Data on benefits

Operational compliance risks

Providers fees and contracts

Financial risks

Investment policies

Benchmarks

Current/emerging design trends

Current/emerging legislation

Financing vehicles

Global and local stakeholders

Local policies/philosophies

41%

21%

52%

47%

44%

58%

42%

30%

28%

20%

15%

15%

14%

13%

10%

9%

9%

4%

4%

13%

19%

29%

27%

20%

38%

29%

19%

47%

40%

38%

46%

57%

36%

50%

62%

46%

10%

13%

13%

12%

8%

12%

7%

10%

6%

12%

3%

3%

Already Completed Withinthe Last Two Years

Not a PriorityAt This Time

Near-Term Priority Long-Term Priority


4.2 What actions do companies expect to take in the near-term to execute strategic benefits policy decisions?

■■ The most common recent strategic actions taken by companies within the last two years were:

■— Implementing multinational pooling arrangements (44%)

■— Defined benefit plan risk management (41%)

■■ Almost 40% of companies say they established design and financial management policies in the last two years,, but the percentage of respondents that have established operational policies is lower (29%).

■■ More European companies defined developing financial policies (42%) as important compared to North American companies (33%); while the emphasis by North American companies (33%) on developing operational policies was higher as compared to European companies (24%).

■■ While companies continue to focus on benefit policies (50% say they will define corporate benefit policies within two years), almost 45% of companies also expect to establish policies in areas of financial management and operations.

■■ The most common action companies expect to take is to improve communications with local country HR and benefits managers (62% of companies). Only 26% of respondents stated they have done so within the past two years—this would indicate that coordination with local HR and benefit stakeholders has not been as effective in the past.

■■ Reluctance at the corporate level to ensure appropriate representation (in terms of skills or function/role) on trustee boards is again evident here. Around 50% of respondents do not consider this as a priority over the next two years.

74 Aon Hewitt

To further improve global corporate oversight and control of employee benefit plans in your organisation, indicate the priority level for addressing each of the following areas.

Improve communications with local country HR and benefits managers

Defining/articulating corporate policies/guidelines on benefits program design

Defined benefit plans’ risk management

Decision-rights allocation for policy decisions and execution between corporate and regional/local entities

Defining corporate policies/guidelines on financial management

Defining corporate policies/guidelines on benefits program administration and compliance

Multinational pooling arrangements

Establish a global benefits committee to manage employee benefit plans using a formal governance stucture

Selection of local trustee board members with appropriate skills and competencies

Use of captives for insured benefits

Corporate representation on local trustee boards

Establish regional benefits committees 63%

49%

45%

42%

28%

17%

16%

13%

12%

11%

11%

8%

11%

25%

13%

32%

34%

29%

44%

38%

38%

41%

26%

39%

19%

20%

24%

21%

29%

43%

33%

46%

44%

43%

62%

50%

8%

6%

19%

5%

10%

12%

7%

2%

7%

5%

2%

3%





4.3 What actions do companies expect to take in the near-term to monitor various risks related to their global benefit programmes?

■■ Recent actions taken by corporate have focused on monitoring changes to benefit plans and reporting of financial data. This focus will continue with companies that have not recently taken any actions on this front likely to take action in these areas.

■■ While some companies have taken actions to formalise their reporting processes, around half the respondents expect to do so within next two years.

■■ Other most common actions expected over the next two years are:

■— Reporting of legislative developments and risks

■— Audit of local benefits against corporate policies

■■ More than a third of the respondents do not consider using a technology platform for consistent reporting of data to be of near-term importance. This suggests that while companies are focused on improving their knowledge of employee benefit plans (what benefits they offer, how much they cost, what risks they pose, etc.), not all see the value of using a global technology platform to do so.

Changes to existing benefit plans and establishment of new plans

Financial data and risks

Ongoing audit of benefit plans against corporate policies/guidelines

Legislative developments and related risks

Formalised annual reporting structure and processes

Common Web-based technology platform for comprehensive data collection and reporting for all employee benefit plans around the world




24%

13%

12%

12%

5%

5%

23%

27%

31%

21%

52%

51%

38%

51%

49%

48%

39%

41%

15%

9%

8%

19%

4%

3%

What areas of reporting to and monitoring by corporate are a priority for your organisation?

76 Aon Hewitt

About the AuthorsLynn Dudley is Senior Vice President, Policy for American Benefits Council. She is based in Washington, D.C. and can be reached at [email protected].

Amol Mhatre is responsible for developing Aon Hewitt’s global benefits strategy and solutions for multinational companies. He is based in London and can be reached at [email protected].

AcknowledgementsWe would like to the following executives who helped us shape this report:

Sabina Marotta of L-3 Communications Holding, Inc.

Robert Bent of BAE Systems

Jordan Backman of Sony Corporation of America

Beth Ewing of FedEx

Martin Wagner of Nestlé

Olaf Flipp of Heineken

Richard Hackett of Cargill, Incorporated

Robert G Holdom of American Express

Kate Jainchill of American Express

Arleane Baltrusitis of WPP

Janet Pryor of General Dynamics Corporation

Peter Milner of Siemens Corporation

Marianne McManus of IBM Corporation

Kate Ranalli of AstraZeneca

If you would like more information about the survey findings or to learn more about Aon Hewitt’s Global Governance services, please speak to your Aon Hewitt consultant, email [email protected], or call +44 (0) 800 279 5588.


www.aonhewitt.com

About The American Benefits InstituteThe American Benefits Institute is the education and research affiliate of the American Benefits Council. The Institute conducts research on both domestic and international employee benefits policy matters to enable public policy officials and other stakeholders make informed decisions. The Institute also serves as a conduit for global companies to share information about retirement, health, and compensation plan issues.

About Aon Hewitt Aon Hewitt is the global leader in human resource solutions. The company partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information, please visit wwww.aonhewitt.com.

© 2012 Aon plc

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