Multinational companies are aiming to significantly increase the corporate control and oversight of their employee benefit programs worldwide with the intention of countering rising costs and financial risks, according to a study by Aon Hewitt.
However, most employers are still allowing flexibility for their local operations to make decisions — corporate policies tend to be more a guideline rather than a mandate for local operations, found the 2012 Corporate Governance of Global Employee Benefits Study.
Less than one in five of the 140 global companies surveyed say they are confident that local practices are in line with corporate guidelines and fewer than 10 per cent said they are confident that corporate controls are adequate to reduce financial and operating costs and risks.
"More and more companies want to have a better line of sight and at least some control over the benefits decisions made by their local operations," said Amol Mhatre, global benefits strategy and solutions leader at Aon Hewitt. "While financial drivers play a big role, companies want to do this for a variety of other reasons, including managing reputational risks and resource constraints on the ground.”
Companies that want to design more sustainable benefits programs need to implement a more formalized governance structure to manage financial and operational costs and risks, said Mhatre.
Multinational companies currently face differing challenges in mature and emerging markets. While 83 per cent of respondents reported that active cost management and sluggish growth are a major business issue affecting their company in mature markets, just 37 per cent said this is the case for emerging markets.
By contrast, 75 per cent of organizations are investing for growth in emerging markets where they currently face talent shortages and salary inflation, and 64 per cent said employees in emerging markets are increasingly demanding new and higher benefits.
"Globalization poses a unique set of strategic and compliance challenges for multinational employer-sponsors of benefit plans. To continue their commitment to health coverage and retirement security for their employees, they must manage the growing risks associated with plan sponsorship," said James Klein, president of the American Benefits Institute. "It appears that centralization of corporate benefits governance is already helping to mitigate some of these challenges by improving communication between headquarters and worldwide operations."
Other key findings from the report included:
•Eighty-eight per cent of companies said employee benefits are on the agenda for boards and senior management of their companies due to the costs and risks of benefit programs.
•Seventy per cent of employers said they are leveraging their global scale to reduce costs of benefits operations and are implementing stricter controls and corporate oversight in both mature and emerging markets.
•More than 90 per cent of companies expect to have corporate benefits policies in place over the next three years. However, less than 60 per cent of organizations are certain that their local benefit plans will be aligned with corporate guidelines.
•About 40 per cent of companies have formal structures in place. Of this group, an average of 65 per cent said that protocols such as this are effective. On the other hand, only 16 per cent rated their governance protocols as effective when established informally or in an ad hoc manner.
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