mast image

Special Report

Impact investing

Sections

What every multinational needs to know

Multinational companies, whatever their size, need two essential things for successful employee benefits and pension provision: information on the benefit programmes offered in each of their local subsidiaries; and centralised financial control of each of the programmes.
Global human resources managers must be open to local alternative concepts and understand that a ‘one size fits all’ approach is not always possible or relevant.
As an example, the French and German approaches to retirement could not be more different. In Germany, financing is handled internally as a book reserve. In France, industry-wide ‘pay-as-you-go’ arrangements are seen as an ideal solution. It is therefore essential to appraise the merits of each approach and respect cultural and legal differences that exist from country to country.
Besides a qualitative appraisal of company benefits, knowledge of state benefits and related legislation in the local subsidiaries provides the HR manager with essential information.
This highlights any social programme likely to create a liability for the subsidiary or the group. Such a liability could have a very real impact on the value or results of a company. Several accounting standards require any such liability to appear in the consolidated balance sheet of multinational companies – accounting standards FAS for the US and IAS 19/26 for Europe.
Benefits that generate a liability are usually long-term benefits; for example ,defined benefit pension schemes or lump sum payments at retirement. Such benefits may be financed internally through book reserves, externally through an admitted vehicle or not financed at all.
When externally funded, it is important to know not only the amount of the liability, but also the methodology used to measure liability and assets. The difference between assets and liability might be very different, thus having an impact on the net worth of a company, depending upon the methodology and accounting standard used. It is therefore extremely important to know the net liability and to manage it over time.
Financing risk programmes such as death, disability and healthcare are equally important for the managers of international companies. Funding must be appraised at the subsidiary level first, bearing in mind local conditions and regulations, as well as the ‘bottom line’. The financing of group programmes should be appraised with a corporate overview that is not available to the local subsidiary.
There are a number of tools that allow companies to optimise the financing of group insurance programmes. The main one is the method of experience rating through the use of insurance pools. The major insurance networks are reliable and competent. However, results will differ because their conditions vary.
A detailed and centralised knowledge of all state and corporate benefit opportunities ,as well as a good understanding of their financing is essential for every company located in two or more countries. This knowledge is essential in providing healthy competition in a very active global market.
Gilles Fréchet is managing partner of ASINTA, the global employee benefits network. E-mail gilles.frechet@attglobal.net

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

Begin Your Search Here
<