Look before you leap

Unpaid leave, reduced workweeks, benefit reductions, hiring freezes and enter-prisewide salary decreases are just a
few of the measures being considered by
global employers to achieve short-term savings. But employment regulations vary by
country, making it difficult to institute universal cost savings measures. While reducing
employee benefits programs may drive short-term cost savings, highly skilled employees
may leave for better offers or more stable
work environments. Reducing benefits may
also damage the company’s reputation and
have a longer-term impact on recruiting and
retention. Employers should investigate
every opportunity to save money through
effective administration before reducing
employee benefit programs.

“In some countries, decreasing benefits
may be extremely difficult or prohibited, or
doing so may require employee consent,”
says Linda Tran, international HR consultant
for Watson Wyatt Worldwide. “A review of
global HR programs may provide insight
into plans that are not being administered
effectively.”

Smart Business spoke with Tran about
how employers can achieve reductions in
administrative costs before resorting to benefit plan reductions.

What are the barriers to enacting global cost
reductions?

In countries where there is a strong presence of collective bargaining agreements or
work councils, decreasing benefits may be
prohibited due to acquired rights. In many
countries, such as Mexico and Korea, severance plans are mandatory, so it may be more
cost additive for a company to terminate its
employees. Brazil has laws requiring minimum salary increases for all employees,
which curtails across the board salary reductions. These issues illustrate why it is so
important for multinational employers to
drive administrative efficiencies.

What should employers do to leverage savings from multinational pools?

Multinational pooling combines your company’s local country insured benefit contracts under a global pooling arrangement,
aggregating your claims experience, leveraging your purchasing power and creating cost
savings through annual dividends. Here are
four steps employers should take to achieve
savings from multinational pools:

 

  • Establish a program. If your company
    isn’t participating in a multinational benefits
    pool, consider contracting with a pooling network. Consider a feasibility study to see
    which contracts should be added to the pool
    and the potential savings.

     

     

  • Renegotiate contracts. If your company’s
    multinational pooling contract hasn’t been
    reviewed recently, it may be possible to
    reduce the risk and administrative charges,
    especially once the company’s combined risk
    experience is established. Negotiate multi-year contracts and rate guarantees or request
    additional services to reduce internal administrative burdens as a way to achieve savings.

     

     

  • Review each country’s experience.
    Remove countries that are consistently
    incurring losses to improve your company’s
    overall experience and increase dividends.

     

     

  • Review your dividend payments. If pool
    dividends are too high, it may mean that your
    company’s local country premiums are too
    high. Optimize the opportunity to reduce premiums where it makes sense.

 

Can benefit plan audits yield savings?

Now’s the time to get your arms around
your company’s global benefits offerings.
Focus initially on auditing large countries
that have significant claims or liabilities,
where the impact may be greatest. One company saved $2 million just by removing ineligible dependents on its local health care plan.
Conducting an eligibility audit on expatriate
programs may uncover employees who have
double coverage from both a local country
plan and an international plan. There may be
cost savings by consolidating plans and leveraging your company’s purchasing power.

How can employers assure that benefits
expenditures are delivering ROI?

Sometimes employers offer certain benefits because they believe the plans attract and
retain talent. Employee surveys may reveal
that some plans are not delivering their
intended value and the benefits can be eliminated without damaging employee relations
or impairing recruiting. Consider implementing vendor scorecards and work with your
vendors to ensure that measurable goals are
being implemented and tracked on an annual basis. Pick two or three key metrics for
each vendor and hold them accountable.

Given the economic climate, what other
steps should employers take?

Given the instability of some insurance
providers, this is an excellent time to reassess
your vendors and ensure you have the best
providers based on your current business
needs. Also look for opportunities to negotiate more favorable rates. Employers need to
know how some of the recent insurance
industry changes will impact their benefits
programs or multinational pooling contracts
and have alternatives in mind, in case more
changes occur. Put governance procedures
in place requiring corporate approvals for
changes in compensation and benefits so
they aren’t adding significant costs. Also
watch for upcoming legislation that will
impact global actuarial plans.

LINDA TRAN is an international HR consultant for Watson Wyatt Worldwide. Reach her at [email protected] or
(713) 507-1759.

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