Benefit programs for global workforce

Understanding culture of different countries can help companies craft effective benefit plans
By Dany Mathieu, Christina Barcelon
|Canadian HR Reporter|Last Updated: 07/21/2009

Designing benefit plans for employees in multiple countries can be a tricky and daunting task for employers.

There are a multitude of choices to make, including the nature and type of benefits offered, the specific type of plan, components of the plan and the level of generosity of the benefits package. In striking a balance between local competitiveness and internal equity (How do benefit programs offered to employees in different countries compare to one another?), companies weigh many factors, including:

Industry: Certain industries (such as high tech or finance) tend to offer richer benefits than others (such as manufacturing or transportation).

Labour agreements and mandated programs: Local or national labour agreements or local legislative requirements can provide a rigid framework for benefits offered to employees, with limited opportunity for companies to differentiate from competitors.

Corporate culture: Each company should have a well-articulated, well-documented global benefit strategy that provides guiding principles when implementing a benefit program in a new country.

Availability of talent: The competition to attract and retain talent sometimes forces companies to offer benefit programs that are more generous than would be offered otherwise.

Stage of growth: Younger companies tend to focus on cash and equity compensation and offer minimal supplementary life, disability, medical and retirement benefits compared to more mature companies.

Governmental programs: Comprehensive government programs could render company-sponsored supplementary plans uncommon or unnecessary.

Taxation: Tax-effectiveness has a significant impact on benefit design.

One aspect embedded in these factors, but not often explicitly mentioned, is national culture. While a holistic view must be taken when designing a local benefit program, national culture plays a role in the design of supplementary programs offered to employees in various regions of the globe. Understanding the relationship between cultural values and benefits is helpful in predicting which benefits employees might or might not desire.

Defining, measuring what cultures value

In international business and academic research, the most widely used definitions and measures of culture were created by Dutch scholar Geert Hofstede. Within his cultural framework, national culture is categorized into four cultural dimensions:

Power distance index (PDI): This refers to the degree to which power differences are accepted and sanctioned by society. A high PDI score describes a hierarchical society whereas a low PDI score describes a society with the prevalent belief all people should have equal rights and the opportunity to change their position.

Individualism (IDV): As opposed to collectivism, this refers to the degree to which individual decision-making and action are accepted and encouraged by society. People in high IDV countries are expected to look after their own interests and, at the most, the interests of their immediate family.

Masculinity (MAS): As opposed to femininity, this refers to the degree to which traditional male values are important to society — including assertiveness, performance, ambition, achievement and material possessions — while female values include quality of life, environment, nurturing and concern for less fortunate countries.

Uncertainty avoidance index (UAI): This refers to the degree to which a society is willing to accept and deal with uncertainty and risk. A high UAI culture tries to minimize the possibility of unexpected events occurring by adopting strict codes of behaviour and comprehensive rules and regulations.

Hofstede’s dimensions help identify different characteristics of national culture that can explain differences in the provision of employee benefits in different countries. For example, the UAI may encourage a company to create security and minimize risk for the employee through the provision of retirement benefits or life insurance.

(See sidebar for a summary of Hofstede’s scores for 10 countries.)

Nordic countries

The Nordics score much lower in PDI and MAS than Asia Pacific and Latin America, as people in Nordic countries tend to believe all people should have equal rights and the opportunity to change their position within society. In contrast, Asian and Latin American people believe there should be a well-defined hierarchy. “Feminine” values such as quality of life and nurturing are also highly valued in Nordic countries. This is consistent with the fact benefit packages, social security and retirement systems in Nordic countries provide a very high replacement ratio. Maternity, paternity and parental leave policies are also very generous. Executive plans or stock option plans are not very common in Nordic countries and generally are not very tax-efficient.

Latin America

Latin America scores much higher than Asia Pacific and the Nordics in UAI. One could surmise countries with higher UAI would have a higher prevalence of rule-extensive and “less risky” defined benefit (DB) supplemental retirement plans. However, the prevalence of DB plans is not apparent in many Latin American countries. This shows how other factors can outweigh cultural differences when designing benefit packages. In the case of Latin America, many countries followed Chile’s lead and introduced a defined contribution (DC) social security system. As a result, there is a greater prevalence of supplemental DC plans to mimic and top up these state plans.

Asia Pacific

Asia Pacific has a wide range in every category. For example, Indonesia and Pakistan have an individualism score of 14 versus 90 for Australia. Australia is a society where individual decision-making and actions are accepted and encouraged. This dimension is exemplified by the use of salary packaging — an arrangement where an employee agrees to forego part of her future entitlement to salary or wages in return for the employer providing benefits of a similar cost. Salary packaging is the ultimate flexible plan where an employee can allocate the benefit dollars any way she likes.

With respect to UAI, Singapore scored an eight while Japan scored 92. These scores highlight the fact Japan seeks certainty and security whereas Singapore is a society comfortable with a high degree of uncertainty. DB plans are still pervasive in Japan and there is resistance to introducing DC plans. By contrast, Singapore has a government-sponsored, mandatory Central Provident Fund, a DC plan.

National culture plays a role in some benefit practices but might not play an equally important role in the design of all benefit programs. More in-depth empirical research needs to be conducted to discover which benefit practices and which measures of culture have significant relationships.

Dany Mathieu is vice-president of global benefits consulting at Aon Consulting in San Francisco. He can be reached at (415) 486-7719 or

dany_mathieu@aon.com

Christina Barcelon is a consultant with the global benefits practice of Aon Consulting in San Francisco. She can be reached at (415) 486-7702 or christina_barcelon@aon.com.


By the numbers

Hofstede’s cultural framework

Dutch scholar Geert Hofstede created a cultural framework that categorized national culture into four “cultural dimensions” — power distance index (PDI); individualism (IDV); masculinity (MAS); and uncertainty avoidance index (UAI). Understanding the scores can help employers craft benefit plans.

Below are the scores for 10 regions.

Region

PDI

IDV

MAS

UAI

Arab world

80

38

52

68

Australia

36

90

61

51

Canada

39

80

52

48

China

80

20

66

30

France

68

71

43

86

India

77

48

56

40

Peru

64

16

42

87

Russia

93

39

36

95

United Kingdom

35

89

66

35

United States

40

91

62

46

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