Employees Benefits

1. Employees Benefits SESSION 6 - Employees Benefits Expatriate Compensation

2. Reward System Reward System Job Analysis Benefits Job Description Managing Base Pay Jpb Evaluation Working conditions Variable Pay Long-term Incentives SESSION 6 - Employees Benefits Expatriate Compensation Recognition Awards Recruitment Selection & Hiring Training & Dev’mt Career planning Perf. evaluation HR Planning

3. Definition Employee benefits are that part of the total compensation package, other than pay for the time worked, provided to employees in whole or part by employer e.g. Life insurance Pension Workers’ compensation Working hours Vacation Holidays . . . SESSION 6 - Employees Benefits Expatriate Compensation

4. Changes in Benefit Costs over Time • From 1955 to 1975 • Benefit costs rose at a rate almost 4 times greater than employee wages or the consumer price index • From 1963 to 1987 • The rate of growth had slowed to 2 times greater than employee wages • From 1993 to 1999 • Cost of benefits has stabilized SESSION 6 - Employees Benefits Expatriate Compensation

5. The Benefits Picture Today • Most full-time employees in the Western World receive benefits. • Virtually all employers offer some health insurance coverage. • Benefits are a major expense (about one-third of wages and salaries) for employers. Could go up to two-third in some countries. SESSION 6 - Employees Benefits Expatriate Compensation

6. Benefit Costs Perspective • Even though the cost of benefits is rising more slowly, some serious issues at the horizon • Health care costs alone are raising more than 6-8 times the rate of general inflation in the US and EU • Pension financed with companies stocks in deep trouble with the declining stock market • Growing rate of retirees SESSION 6 - Employees Benefits Expatriate Compensation

7. Annual Health Care Cost Increases (US figures) SESSION 6 - Employees Benefits Expatriate Compensation Source: Eric Parmenter, “Controlling Health-Care Costs,” Compensation and Benefits Review, September/ October 2002, p. 44 Figure 13–1

8. Why the Growth in Employee Benefits ? • The Unions played a strong role after 2nd World War • Some strong unions such as Metal or Steelworkers have set a number of benefits due to little freedom to raise wages during the War • Pension plans • Supplementary unemployment compensation • Extended vacation plans • The Employers • Many of the benefits in existence today were provided at employer initiative • Longer working hours triggered health as well as motivation issues • Management was genuinely concerned for their welfare • Employer had a major play in the social environment • Human capital (labor) was crucial for the main industries until the computer age (1980) SESSION 6 - Employees Benefits Expatriate Compensation

9. Why the Growth in Employee Benefits ? • Government in most countries has played an important role in the growth of employee benefits • Mandatory plans mostly found in western world: • Social Security Coverage • Workers’ Compensation • Unemployment Insurances SESSION 6 - Employees Benefits Expatriate Compensation

10. Cost Effectiveness of Benefits • Most employee benefits are not taxable • Provision of a benefit in lieu of pay increase avoids (or at least defer) taxes for both the employee and the employer • Due to governmental endless debts, more an more threats of taxing a number of benefits • Group based benefits • Can be obtained at lower rate • Easy qualification standards SESSION 6 - Employees Benefits Expatriate Compensation

11. Benefit Administration Issues • Four major administration issues in setting up a benefit package • Who should be protected? • How much choice should employees have among an array of benefits? • How should benefits be financed? • Are your benefits legally defensible? SESSION 6 - Employees Benefits Expatriate Compensation

12. Who should be protected? • What probationary periods should be used for various types of benefits? • Which dependents of active employees should be covered? • Should retirees (as well as spouses and perhaps other dependents) be covered? • Should survivors or deceased employees (and/or retirees) be covered? If so, for which benefits? • What coverage, if any, should be extended to disable employees? • What coverage, if any, during layoffs, leaves of absence, strikes, and so forth? • Should coverage be limited to full-time employees? SESSION 6 - Employees Benefits Expatriate Compensation

13. Choice Flexibility • Cafeteria style or flexible benefit plan • Employees permitted great flexibility in choosing the benefit options of greatest value to them • Even companies that are not considering a flexible benefit program are offering greater flexibility and choice, e.g. • Optional levels of group term life insurance • Availability of death or disability benefits under pension or profit-sharing plans • Choices of covering dependents under group medical expense coverage SESSION 6 - Employees Benefits Expatriate Compensation

14. Administering the Benefits Program SESSION 6 - Employees Benefits Expatriate Compensation

15. Flexible Benefits: How Does it Work? • Employer: Your Benefits package is worth £25’000 • Employee: Some of it is fixed • Employer: The rest is flexible -how would you like it spent? • Employee: Like this • Employer: OK 25k 25k 14K 11k 25k SESSION 6 - Employees Benefits Expatriate Compensation

16. Flexible Benefit Programs • Advantages • Employees choose package that best satisfy their unique needs • Flexible benefits help firms meet the changing needs of a changing work force • Increased involvement of employees and families improves understanding of benefits • Flexible plans make introduction of new benefits less costly • Cost containment: Organization sets spending ceiling; employee chooses within that constraint SESSION 6 - Employees Benefits Expatriate Compensation

17. Flexible Benefit Programs • Disadvantages • Employees make bad choice and find themselves not covered for predictable emergencies • Young employees might undervalue the need for a decent retirement plan and neglect contributions to such plan • Adverse selection: Employees pick only benefits they will use; the subsequent high-benefits utilization increases its cost SESSION 6 - Employees Benefits Expatriate Compensation

18. How should benefits be financed? • Alternatives include : • Non-contributory (employer pays total costs) • Contributory (costs are shared between employer and employee) • Employee financed (employee pays total costs for some benefits - by law the organization must bear the cost for certain benefits) • Usually benefit options are contributory • With the cost of benefits rising considerably, employers are increasingly turning to ways for cutting their costs SESSION 6 - Employees Benefits Expatriate Compensation

19. Are your benefits legally defensible? • Benefits have to comply with hundreds of complex sections of the tax code and other “devils”. • Because there are so many rules and regulations, benefits have to be administrated through a benefit administrator who is often a certified actuary SESSION 6 - Employees Benefits Expatriate Compensation

20. Attraction, Retention, & Motivation • Employee benefits are widely claimed to help in the retention of workers as benefits increase with years of service. • Equally, the amount of vacation time increases with years of service. • Decrease of employee satisfaction over the last 20 years especially regarding disability, life and health insurance. • Why: employers shifting costs to employees or reducing coverage to stabilize expenses • Increase perception of a company’s caring attitude • When: introducing day care, elder care, on-site fitness centers,weight loss program, health program (alcohol and drug treatment programs for employees), etc… SESSION 6 - Employees Benefits Expatriate Compensation

21. Cost Containment • Most prevalent practices include: • Probationary period • Excluding new employees from benefit coverage during probation period • Benefit limitations • Limit disability income payments to a maximum % of income and to limit medical/dental coverage to s certain fixed amount • Copay • Requiring that employees pay a fixed or percentage amount for coverage • Administrative cost containment • Controlling costs through policies such as seeking competitive bids for program delivery SESSION 6 - Employees Benefits Expatriate Compensation

22. Cost Containment Terminology SESSION 6 - Employees Benefits Expatriate Compensation

23. US Private-Sector Employer Compensation Costs, June 2003 SESSION 6 - Employees Benefits Expatriate Compensation Source: “Total Employer Costs Rose to 22.61 in Second Quarter,”BNA Bulletin to Management, September 11, 2003, p. 293

24. Types of Employee Benefits • Pay for time not worked • Vacations, holidays, unemployment insurance, sick leave, parental leave, severance pay, Supplemental unemployment benefits (lay-offs) • Insurance benefits • Workers compensation, Hospitalization, health, and disability insurance, HMOs, PPOs, mental health, COBRA, life insurance, part-time worker benefits, pregnancy benefits • Retirement benefits • Social Security, Medicare, 401(k), Employee stock ownership plans, • Services • Credit unions, Employee assistance programs SESSION 6 - Employees Benefits Expatriate Compensation

25. On-site or subsidized child care Elder care Fitness and medical facilities Food services Flexible work scheduling Telecommuting Educational subsidies Sabbaticals Loan programs for home office equipment Concierge services Trauma counseling Other Benefits SESSION 6 - Employees Benefits Expatriate Compensation

26. Pension Plan • What is a Pension Plan • An arrangement between an employer and employee for the payment of post- employment income, hereafter called pension benefits SESSION 6 - Employees Benefits Expatriate Compensation

27. Types of Pensions Plans • Defined Benefit Plans • Specifies the benefit workers will get at retirement • Employer contributes annually an amount into a trust fund • Guaranteed annuity or lump sum upon retirement • Defined Contribution Plans • Specifies the employer’s contribution • Cannot predetermine the employee’s actual pension benefit • Contributions are invested and projected benefits are offered SESSION 6 - Employees Benefits Expatriate Compensation

28. Types of Pensions Plans • Defined Benefit Plans • Employer provides a specific pension level defined in terms of • Fixed dollar amount or • Percentage-of-earnings amount that may vary with years of seniority • Employer finances this obligation by • Following an actuarially determined benefits formula and • Making current payments that will yield the future pension benefit for a retiring employee • Determination of benefit levels • Average earnings at end of tenure (last 3-5 years) or • Average career earnings or • Fixed dollar amount not dependent on earnings benefits are offered SESSION 6 - Employees Benefits Expatriate Compensation

29. Types of Pensions Plans • Defined Contribution Plans • Benefit is defined as the future value of pension fund contributions made on an employee’s behalf • Exact value is unknown prior to retirement ; • depends on future earnings of fund investments • Benefits are solely a function of accumulated contributions; • therefore, the term defined contribution • Value of benefits is variable, dependent on contribution levels and earnings made on invested contributions • Example in the US: 401 (k) plan SESSION 6 - Employees Benefits Expatriate Compensation

30. Pension Alternatives Defined Benefit Plan • Provides an explicit benefit which is easily communicated • Company absorbs risk associated with changes in inflation and interest rates which affect costs • More favorable to long-service employees • Employer costs unknown Defined Contribution Plan Unknown benefit level is difficult to communicate Employees assume these risks More favorable to short-term employees Employer costs known up front SESSION 6 - Employees Benefits Expatriate Compensation

31. Pension: Demographic Evolution When Bismarck invented the state pension, with a retirement age of 65, average life expectancy was only 45. Now, in the OECD, life expectancy is 76 and rising--yet state pensions can still be claimed at 65 or even less. SESSION 6 - Employees Benefits Expatriate Compensation

32. Trends Affecting Retirement • The number of people age 65 and older tripled to about 34 million between 1940 and 1995. • According to U.S. census projections, people age 65 and older are expected to number 80 million by 2050. • In 1960, 45.4 percent of male workers over age 65 were still in the labor force; in 1990, only 27.4 percent were still working.While the labor force participation rates of women between ages 55 and 64 have been rising, further increases are not expected. • Eight baby boomers turn 50 every ten minutes. • The U.S. net national savings rate was relatively stable at about 7 percent of GDP from 1951 to 1980. It has collapsed since 1980, most recently dropping to less than 1 percent of GDP. Although to a lesser extent in Europe, the trend still affect EU countries. • In 1940, a 65-year-old had a normal life expectancy of 12.7 more years. Currently, it is about 17 more years. SESSION 6 - Employees Benefits Expatriate Compensation

33. Value of Employee Benefits • Expect benefits as part of their total compensation • Do not understand true value of benefits • Often undervalue their benefits • Often take benefits for granted • Often cannot list all benefits received • Have preferences regarding types of benefits they want SESSION 6 - Employees Benefits Expatriate Compensation

34. Creating a Relationship Organization Why would a talented person want to work and stay here? Great Company Great Job Great Manager SESSION 6 - Employees Benefits Expatriate Compensation Great Comp & Ben Sources:McKinsey: The War for Talent & Gallup: First Break All The Rules Your Employment Brand

35. Expatriate Management SESSION 6 - Employees Benefits Expatriate Compensation

36. Definition: Expatriates Expatriate (EXPAT) = Third Country National (TCN) = International Mobile Employee (IME) A citizen of one country living and working in another country SESSION 6 - Employees Benefits Expatriate Compensation

37. Definition: Repatriation • Repatriation is the term given to the return of the home country manager • Reasons for repatriation: • The time of the overseas assignment is up • Children’s education • Unhappy with the assignment • Family unhappiness • Failure SESSION 6 - Employees Benefits Expatriate Compensation

38. Expatriate Types • Traditional Expatriate: • Maintain control of host country operations by having home country manager • Technological Transfer: • Introduce new technology/practices from home country to host country • Career Relocation: • have high potential employee gain global experience • Country Startup: • Establish presence in host country while maintaining home country organization culture, processes, approaches, competitive advantage SESSION 6 - Employees Benefits Expatriate Compensation

39. Traditional Expatriate • Long term: • 3 years -permanent • Employee career stage: • Middle • Need for family relocation: • Standard and costly • Need to accommodate spouse career continuation: • Standard and costly • Need for extensive acculturation: • Standard, required for entire family • Mentoring and reintegration critical • Most paid under a balance sheet approach SESSION 6 - Employees Benefits Expatriate Compensation

40. Technological Transfer • Short term - • 6 months or so • Examples: New HRIS, New production technique, New service approach • Employee career stage: • Any • Need for family relocation: • None • Need to accommodate spouse career continuation: • None • Need for extensive acculturation: • None SESSION 6 - Employees Benefits Expatriate Compensation

41. Technological Transfer (continued) • Need for extensive acculturation • None • Maintain home country salary and benefits • Add bonus for extra efforts • Put up in hotel, service apartment • Provide cost of living allowance • Provide emergency health coverage • Provide one or more trips for family and/or employee SESSION 6 - Employees Benefits Expatriate Compensation

42. Career Relocation • Middle term: 2 to 3 years • Purpose: have high potential employee gain global experience • Examples: International finance, Manufacturer with offshore production, Global service provider • Employee career stage: • Early • Need for family relocation: • If married, but usually no school age children • Need to accommodate spouse career continuation: • Mixed • Need for extensive acculturation: • Some, but younger, less settled employees more adventurous • Balance sheet approach, but less costly because of life stage: • Salary, Tax equalization, • Housing allowance, • Frequent trips to home country offices • Mentoring, reintegration plans critical for these employees SESSION 6 - Employees Benefits Expatriate Compensation

43. Country Startup • Long term: 3-5 years • Purpose: • Establish presence in host country while maintaining home country organization culture, processes, approaches, competitive advantage • Major goal: • Find and develop host country national to take over as GM Examples: GM of new manufacturing facility, GM of new hotel • Employee career stage: • Late (maybe last assignment) • Need for family relocation: • Limited-usually empty-nesters, spouse takes retirement • Need to accommodate spouse career continuation: • Mixed • Need for extensive acculturation: • Yes, but little need for mentoring, reintegration • Balance sheet approach, but less costly because of life stage: • Salary, Tax equalization, Benefits, Housing allowance. SESSION 6 - Employees Benefits Expatriate Compensation

44. Critical Factors in Expatriate Selection • ACCEPTING FOREIGN ASSIGNMENTS • DISCUSSIONS WITH SPOUSE/FAMILY SIGNIFICANT OTHERS • CONSIDERATIONS OF PERSONAL/FAMILY RESPONSIBILITIES/OBLIGATIONS • PLANNING FOR CARE OF DEPENDANTS • CONSIDERING IMPACTS OF JOBS ON PROFESSIONAL DEVELOPMENT AND CARREER PROGRESSIONS • LEARNING ABOUT CULTURAL DIFFERENCES BEFORE GOIN ABROAD. SESSION 6 - Employees Benefits Expatriate Compensation

45. Critical Factors in Expatriate Selection (Cont’d) • SPOUSE AND FAMILY SUPPORT • PROVIDING SUPPORT TO FAMILY & RECEIVING SUPPORT FROM FAMILY • WILLINGNESS TO MAKE SACRIFICES FOR FAMILY MEMBERS • ATTENTIVENESS TO NEEDS OF FAMILY MEMBERS • KNOWLEDGE OF FOREIGN LANGUAGE • ABILITY TO UNDERSTAND AND COMMUNICATE ORALLY IN THE FOREIGN SESSION 6 - Employees Benefits Expatriate Compensation

46. Critical Factors in Expatriate Selection (Cont’d) • ADJUSTMENT TO LIVING ABROAD • SENSITIVITY AND ACCEPTANCE OF CULTURAL DIFFERENCES • ACCEPTANCE OF DIFFENENT MORES (VALUES, BEHAVIORS,ATTITUDES) • INVOLVING IN HOST COMMUNITY • COPING WITH DIFFERENT/ DIFFICULT CIRCUMSTANCES • LOCATING RESOURCES (HOUSING. FOOD ETC) IN FOREIGN COUNTRIES SESSION 6 - Employees Benefits Expatriate Compensation

47. Critical Factors in Expatriate Selection (Cont’d) • ADJUSTMENT TO FOREIGN BUSINESS PRACTICES • KNOWLEDGE OF FOREIGN BUSINESS PRACTICES • SENSITIVITY TO APPROPRIATE BUSINESS PROTOCOL/PRACTICES • ESTABLISHING/MAINTAINING BUSINESS CONTACTS • MAINTAIN RAPPORT WITH CONTACTS, CLIENTS AND CO-WORKERS BEING OPEN AND HONEST IN DEALING WITH OTHERS SESSION 6 - Employees Benefits Expatriate Compensation

48. Overall Quality of Living - Ranking SESSION 6 - Employees Benefits Expatriate Compensation

49. BIG MAC Index http://www.angelfire.com/id/SergioDaSilva/bigmacppp.html SESSION 6 - Employees Benefits Expatriate Compensation

50. Sources : MERCER Sources : UBS SESSION 6 - Employees Benefits Expatriate Compensation