As the number and scale of their international operations increase, U.S. multinational enterprises (MNEs), particularly small and midsized companies, may struggle with managing benefits for staff spread throughout the world.

In his article “Global Juggling Act: Managing Employee Benefits for Smaller Foreign Subsidiaries” in the January issue of Benefits Magazine, author Wil J. Gaitan discusses the issues that MNEs face in managing small headcounts and describes potential solutions. Gaitan is a founding member and global consulting actuary with Alta Actuaries and Consultants, LLC, in Chicago, Illinois.

“At headquarter level, midsize and smaller multinationals often lack the critical mass of non-U.S. workers required by global benefit providers to strike affordable and effective arrangements,” Gaitan writes. “In addition, these MNEs tend to have fewer central resources or lack the skill sets and/or bandwidth to engage outside global consultants to help them deal with the complexities of managing the compensation and benefits for their workers in foreign locations.”

MNEs can turn to local or central solutions to address these challenges.

Local solutions, which are implemented in each country where an MNE has staff, include the following:

• Alternative Employment Models
  MNEs can consider leasing employees from a local labor provider, which makes available benefits that they have negotiated with carriers or other vendors for their entire pool of employees. Independent contractor service agreements are another option. With this approach, the MNE negotiates an all-in fee that takes into account cash compensation, benefits loads, social insurance contributions and business expenses.
• Prepackaged Insurance and Retirement Savings Solutions
  Available from global consulting and brokerage firms, these packages can be readily implemented, although the cost tends to be higher than arrangements for larger groups.
• Total Compensation and Cashout Approaches
  With this approach, the MNE negotiates a total compensation package with individual employees, who remain employees of the company, unlike the individual contractor and leased employee arrangements. The employer may provide certain benefits that are readily available and, in many cases, the company and the employee may negotiate a cash allowance to finance an individual insurance policy to provide benefits.

Central solutions, which are implemented globally or regionally, include the following:

• Corporate Guidance for Benefit Decisions
  MNEs can develop a simplified governance model to guide benefit decisions across the organization. Key elements of this model include commonsense guiding principles for plan design, financing and administration of benefit programs; identification of corporate-sanctioned decision makers and individuals responsible for benefits management functions; and simplified processes for reporting, approvals of benefit initiatives, periodic competitive benchmarking, local legal compliance, insurance policy renewals, actuarial valuations of defined benefit programs and more.
• Consolidation for Purchasing Benefits
  An MNE can strike arrangements with global providers that will leverage their global, or at least their non-U.S., head counts. Common approaches include multinational pooling contracts and global underwriting transactions. A key disadvantage with these approaches is that local contracts may need to be moved from incumbent carriers to the local affiliates of the global carrier involved in the transaction. Global or regional contracts are another common approach. These tend to be the most effective at covering very small head counts, but among the disadvantages are their higher cost and limited flexibility on plan design.

Gaitan points out that global locations with small head counts usually host critical skills and resources and represent important sources of future revenue and profit to the MNE parent. “Hence, however disproportionate the effort required, some basic level of oversight on benefit decisions should be exerted, regardless of small head count and financial magnitudes.”

CONNECT Global Benefits Summit

Are you registered yet for CONNECT? Attend CONNECT Global Benefits Summit in Chicago, May 11-13, 2020 and you’ll learn from industry leaders about the latest issues in global benefits management, gain an insider view of how other organizations have found success and have the opportunity to network with an elite group of global benefits professionals.

Kathy Bergstrom, CEBS
Senior Editor, Publications, at the International Foundation

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