ISS is halfway through its five-year mission to transform its business from the world’s largest cleaning company into “the leading and most innovative international service enterprise”. From the point of view of its 140,000-plus employees worldwide, this means moving from having 65% of the workforce part-time in 1997 to over 80% full-time by 2002. The bulk of turnover will be derived from specialist operations, with only 20% coming from the group’s general cleaning companies.
“We will become a service enterprise with a great number of specialised services,” says Einar Langkjaer, corporate risk manager at group headquarters in Copenhagen. “That’s our aim and we are right on track.”
The group is now a dedicated decentraliser, with as much responsibility being delegated to the local operations, now in 33 countries. Only 10,000 or so of the employee base is in Denmark.
Responsible for the entire corporate risk management programme, Lang-kjaer approaches the employee benefit side in much the same way as for the other risks or liabilities that ISS faces. “What we are trying to do as group-wide is to identify the risks we face, and then see if we can avoid it, or finance it, which is usually done through a mix of insurance and retentions.” The approach is to do as much as possible locally. “Our view is that the local company should feel the burden of the cost. So that I do not have to sit in Copenhagen trying to manipulate the costs that don’t reflect that risk. If they have a bad risk, they pay the premium. It is better for risk control at the local level.”
He acknowledges that as the group grows there is inevitably pressure for greater retentions. “Compared with profit-sharing arrangements with in-surers, the less claims we have, the more cash benefits we have immediately. We do not have any major centralised insurances at the moment, though there is a trend we will go that way.”
The benefits of having a captive are usually initially for the material damage and liability risks a group faces, and only then are employee benefit-type covers considered. “The group has done several captive studies and no-one has proved convincing,” he says. “We have a huge number of employees, therefore we have claims, but they are minor claims. Our claims are high-frequency, whereas captives are suited for the low-frequency areas.”
On the benefits side too, the same philosophy prevails. “Our approach is very decentralised, as the local management will decide on levels of pension, death or disability benefits, and so on.” The general aim is to be as competitive as the local market requires to attract the right level of staff. “We normally have a package of benefits for each country, depending on the social security system and driven by local market considerations, rather than some standard worked out in Denmark.”
But what that level of benefit is will depend very often on the cost issues for the local management. “If they want to provide a more generous pension scheme or additional benefits for their employees, they will have to pay for it. These benefits can act as incentives and show up on the results, but they have to be paid for locally.”
But the composition of the group, with its large proportion of part-time workers, often accompanied by a high turnover, does pose particular problems from a pensions point of view. “We follow the market and provide at that level, whether it is mainly social security or a union-based scheme.” Nearly all countries have a pension scheme, except some Asian countries and in Germany, where it is very difficult to install a scheme for reasons of tax on the contributions over a minimum. And the group risk benefits are provided locally. “Normally, these follow the pension scheme and it is very seldom we will move a group life or disability scheme.” The exception is the UK, where the market is very competitive and the practice is to go into the market to try to find cheaper cover, says Langkjaer.
He has his distinctive view of network pooling arrangements, which ISS uses widely. “When we were deciding on pooling, we registered all the insurance companies we worked with worldwide, and then looked at who is in which pool.” The rule he works by is for the local operation to do the best profit-sharing it can, then if nothing favourable transpires, pool it. “My advice is not to move an insurance arrangement just for pooling. It is a very heavy task to move say, a pension scheme with 1,000 employees.”
One job Langkjaer does do centrally is to collect the information needed about the arrangements for audit purpose, as to the type of scheme, wheth-er funded or not, or on a defined benefit (DB) or contribution (DC) basis. “I try to produce a benefit report each year, not just for the auditors, but for the company. Firstly, we need to see what our liabilities are under the ac-counting rules, such as FAS87 or 88. It’s not often clear-cut, even with DC schemes. In Norway, for example, schemes look like DC, but have an element of DB, due to the targetted ap-proach of providing the benefits. It is not always obvious.” One thing ISS is adamant on: “We do not want any hidden liabilities – we want to know where we stand.”
This is an issue that can also crop up when the group is making acquisitions, and it has a very active programme here. “We are particularly concerned with the hidden liabilities that can emerge. Some fantastic schemes are put into companies, particularly private ones for directors. They have a tendency to build up some nice arrangements for themselves.”
Despite the size and international scope of ISS, expatriate mobile workers have not yet emerged. “We might only have 10 expatriates in the whole organisation!” As the company develops, this is likely to change, when some form of scheme would have to be implemented.
It is up to the local operation to appoint an adviser, but Langkjaer likes to participate in the selection process. “It can help to point them towards someone we know something about, as I meet a lot of advisers. But I strongly believe that the relationship should be run on a local basis.” While the group has a global insurance broker, this arrangement deliberately excludes the employee benefits area. He prefers to choose the appropriate adviser to meet a particular situation, whether it be actuarial, auditor or lawyer. “I like to choose the expert I need at the time. We have thought about using some of the worldwide groups, but we favour the ‘freedom of choice’ we now have. This fits in well with local needs, too,” says Langkjaer.
The reshaped group of 2002, assuming all goes according to plan, will undoubtedly have new needs on the employee benefit side, Langkjaer recognises. “The changes will have an impact on our needs in this area, but we cannot foresee what exactly these will be.”
At this point, he feels the group needs more information, about what it is providing. “While this would not be a major project, it is information I would like to bring to management, particularly with the reorganisation of the company, in order to compare what is being provided country by country, even though we realise this can never be done uniformly. What we would like is not more control of local schemes, but more insight into the various arrangements that we have.”