As multinational corporations expanded in the 1980s and ‘90s, they often allowed local country (or operations) managers to choose benefit-plan designs, carriers, insurance brokers and other advisors. Those individuals, who had the responsibility for the operations’ success and knew the local markets, also managed employee communication and administration, financial strategies and compliance requirements, because it was expedient and perceived to make good business sense.

But times have changed, and new forces are driving multinational businesses toward a more centralized employee-benefits management model—one that aligns benefits and human resources strategies with business strategies. Taking into consideration corporate governance, international accounting standards and shifting responsibilities from government-run social systems to the private sector, this new model also leverages global buying power for maximum cost efficiencies.

Of course, transitioning to a centralized benefits management model is not without its challenges. Here, Aon answers some of the key questions multinational corporations should be asking themselves with regards to moving towards a centralized benefits management model.

Q: What is the “correct” benefits-management model?

A: There is no “one-size-fits-all” strategy. Most multinational corporations are now looking at where they want to be on the centralized/decentralized continuum regarding the management of employee benefits. They know that any movement toward centralization may generate tension between the goals of this exercise and the perspective of the local managers, who may view it as a threat. It is crucial that Human Resources get buy-in and support from top management in order to make any transition and the ongoing effort successful. Also, market changes may cause organizations to move up or down the continuum over time.

Q: Is your employee-benefits strategy aligned with your business strategy?

A: In order to ensure alignment, best-in-class global organizations establish philosophical statements and guidelines governing the various aspects of the employee-benefits process. These guidelines give local operations a framework in which to operate and make decisions, with a monitoring and feedback procedure designed to ensure that the guidelines are being followed and results are tracked. From the results emerge factors that can drive a fine-tuning of the underlying philosophy and guidelines.

Q: Do you have the data and information necessary to manage the global structure?

A: Effective management requires that the data and information needed for analysis and decision-making be available and in a usable format. In a decentralized management environment, it is difficult to collect that material and keep it up to date on a real-time basis in a cost-effective and efficient way. Global systems can produce the desired results, but watch for systems that are adaptations of U.S. systems and not truly globally based.

Q: Have you leveraged your global presence to the utmost financial advantage?

A: In the decentralized model, a business’s leverage is limited to the factors the organization can wield in a given market. A best-in-class global organization can bring financial leverage to the local operation by:

• Having the markets recognize the global critical mass rather than just reflecting the local situation.
• Extracting more favorable terms and conditions and underwriting of insurance products, where used.
• Utilizing broader financial strategies, such as multinational pooling and captives.
• Leveraging relationships with advisors, vendors and service providers to reduce overall cost.

Q: Are local operations getting consistent, best-in-class advice that tracks with your objectives?

A: In the decentralized model, each operation selects its advisors for locally driven reasons. Often, the factors that go into this decision-making do not serve the organization’s global agenda.