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NEW YORK -- With more companies doing business abroad, an increasing number are looking into international benefits programs and how to properly design them.
The biggest challenge in crafting such programs is complying with the legal requirements and respecting cultural traditions of local countries, while trying to adhere to the parent organization's business strategies and philosophies, employers and consultants say.
"Each organization must balance local plan design requirements with the principles of their own organization," Patrick Hickey, an international consultant with William M. Mercer Inc. in Chicago, said. "Think local, act global" has to be the motto, he said.
Mr. Hickey spoke last month in New York at the Global HR Conference, sponsored by Mercer. The conference, held biennially since 1986, is a forum for Mercer consultants and corporate managers of human resources, compensation and benefits to discuss global benefits and human resources issues.
Several sessions were dedicated to or touched on the pitfalls and opportunities in designing an international benefits program.
Mr. Hickey identified several local and organizational factors that companies must keep in mind when devising international benefits plans.
"It's a puzzle, and the pieces ultimately must fit together," he said.
Local factors to consider include tax laws, social security obligations, benefits regulations, the labor environment and culture, he said. They all limit a company's freedom in how it provides benefits in different countries, he said.
Some of these factors are a constant challenge, because they evolve in different directions in different parts of the world, Mr. Hickey said. "The dynamics of tax laws are changing. Benefit regulations are a moving target," as well, he said.
Midsized companies that suddenly expand overseas are especially vulnerable to problems if they do not consider local factors, which can provide a more organized approach, Mr. Hickey said.
"Often, they don't know what their benefits cost, what they provide, if they comply, if their benefits match their philosophy," he said.
While culture is subject to change, it is a more stable factor, Mr. Hickey said. Cultural elements are becoming more blurred as globalization progresses, he said.
Still, "I wouldn't talk to Japanese employees about defined contribution plans. Legally, yes, (it is possible). But culturally I would be careful" or simply not introduce such a change, as Japan traditionally offers defined benefit plans, he advised.
"When it comes to (international) benefits, we pretty much adhere to local norms. But remuneration is done more the U.S. way," said Richard Helmer, international benefits manager at Peoria, Ill.-based Caterpillar Inc.
When Caterpillar recently acquired Peterborough, England-based Perkins Engines, however, it was forced to rethink its traditional benefits approach in the United Kingdom, Mr. Helmer said.
Perkins has a defined contribution pension plan, while the majority of U.K. employers, including other Caterpillar-owned companies, traditionally use defined benefit plans. "The discussion is whether the rest of the U.K. operations should move" to the defined contribution approach because the employer's obligations under those plans "are a known cost," Mr. Helmer said.
Besides considering the local factors, companies also must take into account organizational factors when structuring international benefit programs, said Mr. Hickey of Mercer. These factors include the company's size, locations, field of business, business philosophy and strategy, decision-making mechanisms and structures, as well as joint ventures and acquisitions.
"Organizational issues are becoming more of an issue in whether you can make sense of your international benefits," Mr. Hickey said. "What was the driving factor for internationalization? Where do you operate? And how big are your operations? This will clearly impact what your benefits are and will be."
Lack of care on these issues can lead to unnecessary problems, Mr. Hickey said. For example, human resources people and operations staff often get in each other's way or contradict each other, he said.
"Operations promises certain benefits and puts them in the employment contract and only then shows them to (the local) human resources (people)," he said. But a human resources manager might object to these promised benefits. Early communication and coordination could avoid such conflicts, Mr. Hickey said.
Another common mistake is failing to consider at what stage of development a company's international operations are, said Gareth Williams, an international consultant with Mercer in Chicago.
"Globalization is a process, and it is important to know where you are on the continuum and design programs accordingly," he said. "Are we still in an export mode or do we (already) have a strong global presence?"
Companies also should assess whether different locations and units might be in different stages of development, Mr. Williams said.
Failing to consider the maturity of international operations can be costly, Mr. Hickey said. "If you are in the startup phase, you won't be in the business for long if you offer the same level (of benefits) as all competitors," he said.
For example, startup operations may not need full-scale retirement benefit plans right away, he explained.
Some instruments that companies can use when designing international benefits are particularly useful, benefit consultants and managers agreed.
Many companies put in place formal, detailed international benefits policy guidelines and procedures for their international operations. Such guidelines can include, among other things, a prioritization of benefits and rules on who must approve international benefits, Mr. Helmer said. "You must have something you can leave behind," he said.
Employers also must listen to local employees when designing international benefits, said Bobbi Monahan, managing director of global compensation and benefits at Santa Clara, Calif.-based Applied Materials. "When we design benefits programs, we make sure that we are responsive to our employees," she said.
Applied Materials conducts focus groups and biannual global employee surveys, as well as including employees from around the world in task forces that explore potential new benefits, she said.
Also, Applied Materials takes an approach of cooperation to make sure that local rules and customs fit together with global business philosophy, Ms. Monahan said. "We provide a corporate framework to limit liability" and comply with local laws, but "otherwise, (the overseas operations) decide locally what they want to offer."
Anita Clark, director-corporate benefits at Allergan Inc., a manufacturer of eye care and specialty therapeutic products in Orange County, Calif., said her company uses similar strategies.
"We take a balanced approach and rely on locals to bring forth suggestions based on needs," she said. "Corporate approval is only necessary when costs for new benefits exceed $100,000 annually," she said.
Also, Allergan uses three tools for getting input from overseas operations: its international compensation and benefits philosophy statement, a quarterly worldwide pension report, and multinational pooling arrangements, she said.