Italian engineering giant, Fiat, has around 220,000 employees, half of them working in Italy, and has operations all around the world. From the company’s headquarters in Turin they control the compensation and benefits policies for Italian employees and supervise the policies applied in other geographical areas.
“In terms of retirement benefits we don’t have an overall policy,” says Giovanni Balbo, compensation and expatriate benefits director at Fiat in Turin. “What we always try to do is maintain what is common practice in each country and always linked to cultural differences.”
Fiat Italy is now running three different pension schemes for the different employee categories. The first was set up in 1986 as a defined contribution (DC) scheme and covers the top management.
The second pension fund, targeted to middle management and supervisors covers 15,000 workers and is also operated on a DC basis.
The third scheme covers all the rest of Fiat’s employees and is part of Cometa, the pension fund for the Italian metal workers which was set up as a collective agreement between the unions and the industry’s employers.
As far as investment goes, the groups’ three schemes covering Italian employees are managed by external asset manager as required under Italian law. These managers have to be chosen through a public tender selection.
“I am a member of the UK pension fund board and I know that choosing or changing managers there is faster and easier than in Italy”, Balbo says.
Balbo believes that the early stage of the pension fund industry is one of the main reasons why the returns obtained so far have not been very good. “We still need more time before we see these schemes working properly. In a country like ours, where all pension funds are operating under a DC system, we should be more interested in retirement and investment, but in fact this is not the case”, he says. Balbo adds: “Personally, I am not very happy with the work the managers are doing because, if you look at the returns, Italian asset managers are still very conservative and there is a need to take greater risks in order to improve results.”
Recently, two financial houses were selected to manage the middle management and supervisor pension funds, which has also taken months of negotiations. Morgan Stanley Dean Witter and Romagest, part of Banca di Roma, are now in charge of managing some E38bn. They will invest 30% of the assets in short-term bonds and 70% will be divided 50/50 between medium and long term equity and bonds.
Interest in investing in any other kind of asset classes, such as real estate, seems to be very low. “In Italy we have been investing in real estate for a very long time but this is changing now,” Balbo says. “A few years ago the government decided to put a special tax on property and investors found themselves having to pay big sums for their property assets. Now they just want to get rid of them.”
The investment criteria used by the group’s pension funds in other countries do not necessarily follow the same approach. “It is impossible to have company-wide strategies when it comes to selecting managers and investing processes,” says Balbo. In terms of mobile employees, the group’s policy is to maintain in the social security and supplementary pension scheme of their home country. “In the future, if a greater harmonisation with the European Union is achieved, we’ll be able to transfer employees into the host country’s scheme, but at this moment, different fiscal treatments around are making workers’ mobility very difficult because the tax credit you get when you contribute to a pension scheme can’t be transfered from country to country.” A greater harmonisation within Europe will also mean the loss of some benefits which Fiat’s expatriates are now enjoying. “Ten years ago if you sent someone abroad you had to basically give them a lot of money,” Balbo says. “Nowadays, within Europe, we give them expatriate benefits such as housing, schooling and trips home during a five year period, and we’ll try to reduce these benefits in the future.”
However, other kinds of benefit – the stock options for top-management – have been introduced recently, in this occasion as a company-wide policy. Around 650 ‘direttore’ in Italy and abroad have received the right to acquire about 1.2m shares. In February of this year, around 5m stock options have been offered again, involving, in addition, around 200 high potential and performance managers of the group. “I think that some top managers are too focused in getting these kind of benefits, and it could be a problem in the future. The stock options should be seen as a way of involving management in the resuls of the cmpany and not as a way to become rich in a short period of time. I don’t think our goal should be to end up with hundreds of millionaires within our group, but it seems to be a common trend for all big companies.”
Also, during 1998, the use of performance-based variable compensation benefits was extended to middle managers and supervisors in Italy and executives to middle managers and supervisors in Italy and executives outside Italy. Since last year this also applies to middle managers abroad, and it is being used by all the group’s companies throughout the world.
In general, Fiat’s policies regarding employee benefits try always to maintain what is related to the local culture. “Regarding health insurance, for instance, the plan we are offering in the US is much better than the ones in place in some European countries, because health insurance schemes are much more developed over there,” Balbo says.
“And we always follow this approach,” he says. “When you operate in so many different countries it is simply impossible to apply general rules or strategies but, we would like to achieve a greater balance within Europe as soon as possible.”