Aon Hewitt, the global human resources solutions business of Aon plc, today released the results of its However, the study, based on insights from global benefits directors at 140 of the largest multinational companies based in the U.S. and Europe, reveals 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. Fewer than one-in-five companies say they are confident that local practices are in line with corporate guidelines and fewer than 10 percent 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."
The study found that multinational companies currently face differing challenges in mature and emerging markets. While 83 percent of respondents reported that active cost management and sluggish growth are a major business issue affecting their company in mature markets, just 37 percent said this is the case for emerging markets. By contrast, 75 percent of organizations are investing for growth in emerging markets where they currently face talent shortages and salary inflation, and 64 percent 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:
- 88 percent of companies say that employee benefits are on the agenda for boards and senior management of their companies due to the costs and risks of benefit programs.
- Approximately 70 percent of employers say that 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 percent of companies expect to have corporate benefits policies in place over the next three years. However, less than 60 percent of organizations are certain that their local benefit plans will be aligned with corporate guidelines.
- On average, only about 40 percent of companies have formal structures in place. Of this group, an average of 65 percent said that protocols such as this are effective. On the other hand, only 16 percent rated their governance protocols as effective when established informally or in an ad hoc manner.
"As the American Benefits Council's research and education affiliate, the Institute is keenly interested in globalization's impact on employer-sponsored health and retirement benefit plans," added Klein. "As the world itself gets smaller, the decisions employers make regarding benefit plans take on even greater significance for the success of multinational companies."
About the study
The 2012 Corporate Governance of Global Employee Benefits Study was jointly conducted by Aon Hewitt and the American Benefits Institute (ABI) and was shaped by global benefits directors at over 140 of the largest multinational companies based in the US and Europe. The findings represent companies that already exercise some level of corporate governance on local benefits decisions.
The study focuses on how multinational companies make and execute strategic policy decisions related to their employee benefit programs worldwide. The primary goals were to understand: Why companies want corporate involvement in local benefits decisions; and How they exercise corporate oversight and control over local benefits decisions to manage business risks in the three key policy areas of design, financial management and operations.