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Impact Investing

IPE special report May 2018

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European groups becoming subsidiary-conscious

Paula Garrido looks at the results of a new survey
Multinationals are becoming more aware of the need for a greater harmonisation for the worldwide strategies regarding employees benefits and retirement, according to a *survey by consultants William M Mercer.
Paul Kelly, European partner at Mercer in London says: “One of the drivers for establishing global strategies has been the move from defined contribution to defined benefit plans, especially for some US multinationals which have actually decided at a corporate level that they want to be DC schemes and implement that across the world.”
These global strategies increase the development of a common culture throughout the organisation. “They ensure consistency of benefits and remove much of the hassle involved with cross-border transfers,”says Gordon Pollock, worldwide partner at Mercer.
“They also help to avoid any nasty surprises from unfunded pension promises, and enables companies to control and monitor costs, which is particularly important in the current low inflation and low interest environment in Europe, which is pushing up the cost of defined benefit plans.”
The majority of the 230 European and American companies surveyed have a comprehensive organisation-wide retirement strategy in place (25%), have such a strategy partially in place (22%), or have one under development (19%).
Just one in 10 of respondents does not see the need to implement such a strategy and has no plans to reconsider doing so.
US-based companies are more willing to implement these strategies than European multinationals. Less than 20% of the European respondents have adopted such strategies while 30% of US companies have done so.
“Compared with European companies, US multinationals have tended to exercise much more control over their global business activities, including employee benefit strategies,” says Pollock. “Increasingly, however, the Europeans are beginning to take a closer interest in what their subsidiaries are getting up to.”
In this sense, UK companies are more keen on overall strategies than companies in Continental Europe. “If you look at the US and the UK you see that pensions have always been very important to their head offices, but this is not necessarily the case with France, for example, where most of the money would be spent on the state and mandatory schemes. Traditionally the US and the UK have been more able to control their domestic pension schemes,” says Kelly.
According to the survey, the existence of a global retirement strategy does not always indicate that a company has adopted strictly uniform policies in all areas – 13% of respondents mandate the types of plans sponsored throughout the organisation. Around the same proportion of participants in the survey have uniform policies in terms of asset allocation, manager selection criteria , the use of trustees, and other aspects of retirement programmes.
“For many companies it is not appropriate to develop mandatory global retirement policies,” says Pollock. “The general trend is for companies to develop broad strategies and guidelines, providing a framework for subsidiary companies to develop their own policies.”
Almost half of the companies surveyed believe that a global strategy helps to establish appropriate benefit levels. Dealing with employee mobility, controlling costs and optimising investment returns are other important concerns for multinationals.
With regards to their workforces, attracting new talents and retaining employers longer is a critical or major issue for most of the respondents, especially for those in the US. “With full employment from America’s booming economy, one of the key issues is bound to be the recruitment and retention of staff. This is a less critical issue in Europe where the employment level is more patchy,” says Pollock.
The survey also highlights that US companies are more concerned than Europeans with aligning benefit programmes with corporate goals, having consistent benefits across the organisation and giving employees choices among benefits.
“Although the US ratings are higher in these areas, in recent years evidence has shown that is narrowing. European multinationals are now taking a much more active interest in their global operations,” Pollock says.
*‘Managing multinational ‘retirement programs’ 1999 Survey Report, William M Mercer. Tel: 001-212 345 7000.

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