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Articles from The Business Forum Journal

MANAGING YOUR INTERNATIONAL BENEFITS - Part II  
by Richard Polak

PROBLEMS DESIGNING INTERNATIONAL BENEFIT PLANS

This is the second in a three-part series of articles on International Benefits.

Here you are, the Human Resource Director or Benefits Manager of a multinational organization, and your boss says:

“We’re opening an office in the UK. How do we staff it?” or “We just bought a competitor in Taiwan; they have 2 employees. Are there any laws we need to be concerned about?” 

or 

“We’re no longer using our distributor in Germany. Hire someone!”

Each of the above scenarios has actually occurred at more than one multinational company. This article will give the HR professional an overview in understanding the issues to consider when designing an international benefit plan.

benefits	U.S.	U.K.	JAPAN	SINGAPORE	INDIA
Pension	401(k)	Defined Contribution  5% Employer  5% Employee	Defined Benefit	Provident Fund 16% Employer contribution	Provident Fund 10% Employer contribution
Death	2x Salary	4x Salary	24x monthly salary	24x monthly salary	None
Disability	66%	70%	None	Rider to Life Insurance	Personal Acc’t Ins.
Medical	80% co-insur.	PPP	Computer Software Plan	Base plus plan	Domicilary Care & Hosp.
Other	Very little	5 weeks vacation; company cars	Separate Benefits for Directors	None	Housing

For the US manager, as an example, while there are many cultures within the US, it is relatively easy to combine employees of different cultures with the same general benefits. One might encounter differences among the HMO and managed care medical plans but these are relatively insignificant when compared to arranging benefits for employees in other countries. The first step is to recognize that there are differences among countries. Note below some actual examples of benefit programs in several countries for the same employer.

You can recognize the vast differences. In addition, here are some other problems one must consider when designing international benefit plans:

• Competition for Labor - In every country, skilled labor is in great demand. Even in Germany where unemployment is high, the competition for skilled labor is also high. In undeveloped countries, it is a constant challenge to keep skilled labor trained and satisfied.
   

• Multinationals vs. Local employers - Who do you benchmark your benefits against? Often overseas, you’d want to benchmark your benefits against multinationals. Local firms attract employees simply because they’re local and employees feel more comfortable within their own environment. Therefore, it is not an equal playing field. You may find it necessary to provide a higher level of benefits than the local firms and compare yourselves to other multinationals in your industry.
   

• Executive Benefits - These vary widely from country-to-country. In the UK, the company can take a tax deduction for offshore pension funds. One can’t generally can’t do elsewhere. In Germany, quite often, the General Manager will have an enhanced pension.
   

• Perks: cars, housing, vacation - Without a doubt one of the biggest issues for some multinationals to overcome is the enhanced vacation and company car policies granted by European companies. This has become accepted as a way of life in certain countries. If you take away or reduce these perks, you may as well close up shop because no one will work for you.
   

• China, India, Russia - These countries pose an entirely new set of problems. In benefit terms, they are just entering the 20^th Century. 

There is much that needs to be understood when considering benefit programs in these countries.

• Beware of local relationships - Your local management in each country has relationships that have been established over time. One must be aware that it is not always in Corporate’s interest to continue these relationships.
   

• Stock programs - This is an increasingly important benefit, especially for high-tech companies. It is important to consider, however, that in certain countries it is not perceived as a valuable benefit while in other countries it is taxed against the employee. One must be careful not to simply establish a worldwide stock program.
   

• Language - Languages of course differ around the world, but what also differs is the definitions of what is translated. For example, in Japan, Term Insurance could very well mean a pension plan to a Japanese Director.
   

• Legislation and Tax - Just like your home country, changes are occurring at a rapid pace all over the world. It’s important to know these changes, as well as the laws, before designing and implementing a benefit plan.
   

• Trends - In the US most new pension plans are designed as 401(k) plans or something similar. The trend around the world is also to design defined contribution plans. However, in certain countries, i.e. Germany and Japan the culture nor the tax laws support this.
   

• Communication - It’s important to understand that the glossy Summary Plan Descriptions (SPDs) design for our employees in the one country are not only overkill in many countries but are perceived poorly.

Previous articles by Richard Polak: