Elf International keeps it simple
French multinational Elf employs more than 80,000 people world-wide. All its international employees – encompassing 60 nationalities and operating in 50 countries – are controlled directly from Elf International Services (EIS) office in Geneva. Elf human resources director, John Allinson, says: “All our international employees are directly handled from here. When they need it, they have a local payroll, but usually this is not necessary.”
Employees seconded to countries that have an international social security agreement have a Swiss contract and contribute to Swiss social security. “In other countries employees could contribute to their origin social security system or to the local social security system,” he says.
The pension fund scheme that Elf offers all employees is a defined contribution plan. “Our employees work for the company from three to 20 years, depending on the duration of their contracts. We have been using defined contribution plans from the very beginning because we don’t want to have future obligations concerning pension schemes,” says Allinson.
He believes that the impact of the European single currency on employees’ benefits is not yet an issue. “We can’t use the euro with expatriates. If you want to manage one German, one French and one British under the same system you cannot use the euro because there is not tax system or cost of living in euros,” he says. “In the future, if we are able to have an European cost of living and an European tax system the situation could be different,” he adds.
However, Allison does not think this will happen because the cultural differences between Europeans are “too strong”. He adds: “Our system is to manage all the different nationalities in the same way. We don’t deal with the current system in each country, but we know how the different systems work so we can compare what are we giving them and what they are getting from their own system. All our employees are under an international package and they are sent all over the world like that.”
EIS currently offers the choice of three currencies in the pension arrangements – euro, US dollar and Swiss franc – and two types of investment: the guaranteed pension scheme, which mainly invests in bonds, and the “risky” pension scheme with 30% of equities.
“It is important to know who is choosing what. The risky scheme is chosen by all our British employees and the citizen of former British colonies. The Americans, the rest of Europe and the other nationalities all take the guaranteed scheme,” he says.
On the investment side, the company uses external managers. “I believe the company shouldn’t be involved in the choice of investment, even though some of my colleagues don’t agree. At the moment we are working with insurance companies who present us with the investment strategy. A number of employees are invited to hear the insurance company proposal and they choose the strategy they want,” he says.
“We are pleased with the work the managers are doing, but when you make a pension fund mainly focused on bonds the results can’t be too interesting,” Allinson says. As the returns have gone down managers are trying “more spice alternatives, such as offering funds of funds to try to get better results,” he says.
However, in the near future the role of the external managers will change because the company plans to increase the employees’ involvement in the investment process once a new system, currently under development, is put in place. “We are working in offering employees their own investment strategy,” he says.
The new system will allow workers to choose from 40 different investment funds. “They will choose three funds for the company contribution and three funds for themselves with the possibility of changing this choice every month,” he says.
All this will be done through the internet, so the main problems the company faces are technical. “When the system is working the employees will manage their pension fund directly. If they make the wrong choice, it will be their responsibility,” Allinson adds.
EIS does not use insurance pooling because it works with different insurers for each different area. “The medical expenses insurer is taken in France, the long term disability in Switzerland, the pension schemes are in Luxembourg and the US, the unemployment insurance in the Channel Islands and so on. It is really a world supermarket of benefits,” explains Allinson.
Concerning mobile employees, he believes more time is needed to find new solutions that could lead to higher returns. “We hear a lot of information coming for example from Britain, about returns about 13% to 14% a year. In Switzerland the average is 7%. Our employees come from all around the world and they can see what their pension fund is giving them compared to other pension schemes . However, many of them consider that a return on defined benefit system is just an indication, while a return on DC plans is something firmer. I am sure that there are some areas that we could improve,” says Allinson.
The EU legislation for mobile employees’ benefits is not helping a lot. “The main problem is that all the EU laws have been based on the fact that the employee has to contribute in the country where he is working and this is an absolute nonsense,” Allinson says, adding: “The situation could change in the future, but the question is at what speed? In terms of additional pension schemes, it is changing very slowly. Countries would recognise the system of the other countries and they would work together on a country-by-country basis, but I can’t see a global solution.”
“Here we have a system which is very flexible. If we saw something was going wrong after a few years, we would move on and do something else, whereas when you are part of the social security system, you cannot change anything,” he says.
Regarding the need for reforms in the social security systems, Allinson says: “Social security is a solidarity system and things will have to change. You have the World Bank recommendation concerning these issues. Switzerland is already applying these rules and the rest of the countries will have to do the same.
“The only solution I see is to free the additional pensions. It is not the problem of the governments, it is the problem of each person. It is true that when you are in a DC plan the investment can collapse, but then it is the person’s money and his responsibility,” he says.
A possible bilateral agreement between Switzerland and the EU would have consequences for non-Swiss workers, who represent 30% of the workforce. “If this agreement is reached, foreign workers will have to wait until they are 65 to be able to take their money back to their home countries, when now they are free to do it before,” says Allinson.
EIS’s principle is very simple. “All our internationals are managed from one point in the world, the same way for everyone,” Allinson concludes.