Download EXPATRIATE MANAGEMENT COMMITTEE

Annual Global Compensation and International Benefits Committees
September 25-26, 2002 – New York City
Outlined below is a summary of the meeting.
Participants Included:
James Baker, NFTC
Stephen Barry, Credit Suisse Life & Pensions
Lisa Bolton, LVMH
Donna M. Bozadjian, Aetna Global Benefits
Joseph R. Bulvid, Johnson & Johnson*
Alissa Cartun, Citigroup International
Fiona Citkin, FGI
Jonathan Clark, Prudential-Backe
Karen P. Clark, Merck
Francis Coleman, AIG
Jane Davila, Bristol-Myers Squibb
Kevin Dent, Mercer HR Consulting
Kim Dinsmore, NCR Corporation
Missy Dover, Tiffany & Co.
Bill Dunn, Pricewaterhouse Coopers
Sue Evens, KPMG
Lawrence Giles, GE Consumer Finance
Brioni Gonsalves, NCR
Ila Gupta, Pricewaterhouse Coopers
Lance Henderson, Allianz-All Net
Mike Hibberd, Clark/Bardes Consulting
Paul D. Howes, Hewitt Associates
Susanne Jungblut, Watson Wyatt
David Leboff, DoubleClick
Paul Marcotulio, Watson Wyatt
Trevor McCormick, Foster Partners
Marjorie E. Neville, Towers Perrin
Richard O'Brien, AON Consulting
Grace O'Rourke, NFTC
Edward P. Pazicky, XN Financial Services
Michael A. Piker, Alcoa
Maria Pogatsas, AIG
Leon Potgieter, Towers Perrin
Alan E. Rankine, Offshore Benefits LLC
Michael Reiff, Shell International
Angela Reynolds, NCR
Mitchell G. Schuckman, PricewaterhouseCoopers
Kenji Sekine, Towers Perrin
Jeffery E. Shapiro, The Gillette Company*
William R. Sheridan, NFTC
Francie Starnes, AIG
Laurence Stuart, Baker & McKenzie
Hubert Valdemoro, Mercer HR Consulting
Glenn White, Jr., Ernst & Young
*Co-Chairs, IBC Steering Committee
Works-In-Progress
The meeting commenced with an open forum discussion:
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Argentina-push to dollarize compensation programs
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Compensation program consistency around world
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Corporate Governance-use of internal resources
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EAP-extension to expatriate populations
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Global sourcing and managing of benefit services
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Severance program consistency around the world, effort to have consistent approach
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Spain-introduction of health plan to supplement the state-provided program
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Stock options based on percentage of pay, not grade level
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Switzerland-introduction of DC component to facilitate early retirement
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Target for bonuses versus “guarantees”
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UK-merging three programs into one to streamline administration
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Retirement management across global company that facilitates talent development
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Argentina and Brazil-coping with economic downturns
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Twenty five country comprehensive review of all compensation and benefits, one
goal to enhance portability to facilitate cross-business and cross-border movement.
Use of a uniform template to gather cost and benefits information.
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Retention of next generation of talent impacted by declining stock values
Expensing of stock options will impact quantity of future grants
Effect of global reorganization’s impact on design of incentive plans
Increased number of non-US citizens as expatriates create need to develop plans that
facilitate their movement/retention
Expansion of stock purchase plans without discounts
Leveraging vendor relationships
UK-flexible benefits for local employees
Business unit model vs. geographic model with central experts who support human
resource colleagues in the field
Effort to leverage web technology for employee intranet worldwide
Outsourcing of benefit program and administration outside U.S. (Latin America and
Singapore to date)
Taiwan-review of pension plan in response to new legislation
Japan-pension plan still under review, responding to non-US employee
requirements for more information about value of pension-related programs
Introduction of new global incentive plan which required extensive communications
and training
Better grasp of compensation programs outside US
Linking job banding programs across borders
Auditor Independence and Expatriate Services: What You Need To Know (HR 3763
Sarbanes-Oxley Act)
Dave Leboff, Vice President-Compensation and Benefits, at DoubleClick discussed the
background leading up to the recent legislation with particular focus on the act’s impact on
“Non-Audit Services”. He reviewed the mandate of the Public Company Accounting Oversight
Board and Title II that outlines the scope of practice, approval processes, conflicts of interest,
and mandatory rotation of accounting partners. He also outlined the types of non-audit services
that auditors can no longer perform (i.e. actuarial services, legal services unrelated to audit,
management function or human resources). Dave reviewed the responsibilities of CEO’s and
audit committees and the timetable for implementing the legislation.
For a copy of his presentation you can contact Dave at [email protected].
Case Study: Caltex Petroleum-Restructuring the Total Remuneration Package Package for
Maximum Cost-Effectiveness
Alan Rankine of Offshore Benefits and Leon Potgieter of Towers Perrin described the total
overhaul of Caltex’s global compensation and benefits program. The $17 billion entity (a joint
venture of Chevron and Texaco) was organized on a geographic basis. Competition was
increasing while there was overcapacity, product pricing pressures, and a challenge to enter new
retail marketing.
Project involved CEO of Caltex and representatives of the two parents companies, as well as a
team of internal and external specialists.
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Alan and Leon described in detail the scope and management of the project, and development of
a new business philosophy. A major goal was to have a program that would be less paternalistic
and less ethno-centric. The project involved global benchmarking. Another outcome was use of
a global leasing company.
For more information about the study contact Alan Rankine at [email protected].
Corporate Governance-Open Forum Discussion
Paul Marcotulio of Watson Wyatt moderated an open forum discussion on corporate governance.
He framed the discussion by helping to define what is meant by governance; why is it important
now; what areas does it affect internally and externally. The discussion covered the roles of
corporate boards; how governance principals are developed, communicated and managed.
Challenge is setting sensible levels/channels of control.
Overview of Recent Changes of Japanese Retirement Plans
Kenji Sekine of Towers Perrin started his presentation with an overview of Japanese retirement
benefit plans which have several tiers:
Tier I – Public Pension Plan
Tier II – Company sponsored plans
More recently employers have begun to introduce DC or modified DB plans. He then described
the make up of:
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National Pension Insurance (NPI)
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Employee Pension Insurance (EPI)
And company sponsored plans,
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Retirement Allowance Plan (RAP)
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Qualified Pension Plan (QPP)
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Employee Pension Plan
Most popular plans still are career pay plan with a lump sum payout (which is tax-favored). The
QPP and EPF are funded; problem relates to many underfunded QPF’s.
After 2005 the tax preference for RAPs will be eliminated. Some recent changes include: 1) new
accounting standards (FY2000); 2) introduction of tax-qualified DC plans (2001) and 3) new DB
legislation (2002). One outcome has been overt identification of substantial unfunded pension
liabilities.
For companies, the unfunded liabilities can be attributed to:
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Unfunded book reserves
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Unrealistic and rigid assumptions
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Poor investment returns
He then reviewed design features of company sponsored DC plans (contributions, vesting, and
investments, payouts and tax treatment). More DC plans are being established. More typical are
partial conversions from RAP to DC, especially amongst larger companies.
The new DB legislation was geared to protect participant rights by clarifying:
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Fiduciary responsibility
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Minimum funding standards
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Information disclosure
Major companies such as Toyota, Hitachi and Panasonic have divested contracted-out portion of
EPFs. Also, cash balance plans are becoming popular; from employee perspective CB plans are
good because of favorable tax treatment on lump sum benefits. He concluded his presentation
with a summary of effects on multi-national companies.
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For a copy of his presentation you can contact him at [email protected]
International Divestments and Downsizing – An Employment Lawyer’s Perspective
Larry Stuart of Baker & McKenzie began his presentation by contrasting what is typical in the
U.S. and what happens outside the U.S. in terms of:
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Notice
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Consultation
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Negotiation
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Government Approval
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Timing and Severance
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Cultural Prejudices
He reminded us that legal concepts and definitions will vary from one country to another.
Timetable of actions will also have an effect. Good planning and structuring of redundancies
will help mitigate financial liabilities. Larry then reviewed an information checklist including
why decision is valid from a business case perspective.
He stressed the importance of understanding and managing all aspects of communications. He
closed with an outline of trends.
For a copy of his presentation send your request to [email protected].
Corporate Case Study – From Mutual Company to Worldwide Stock Ownership –
Prudential Financial
Jonathan Clark of Prudential-Backe (UK), Bill Dunn of PricewaterhouseCoopers and Ila Gupta
of PricewaterhouseCoopers described Prudential new global share program. Prudential
Insurance was founded in 1875 and made a mutual company in 1915.
Jonathan described the implementation challenges (strategy and design which included a global
stock grant to all employees in 30 countries) and eligibility – i.e. independent contractors
(agents). They had to consider extension to jv entities and new acquisitions (had to exclude one
major acquisition because of dilution effects). Another major area was understanding the
requirements of various regulatory agencies all around the world. PWC had to examine ability in
each country to recharge costs to local entities.
For a copy of the presentation, contact [email protected].
Voluntary Benefits: Global Survey Report
Francis Coleman of AIG and Glenn White of Ernst & Young described a survey they conducted
in early 2002. The focus was on voluntary benefits (i.e. paid in whole or part by employer).
Interviews were conducted of 120 of the top 1000 (by employee size) multinational employers.
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Survey respondents were primarily experienced human resource professionals. Attraction and
retention, not cost, were the primary reason to support provision. A large majority of companies
use/will use the internet to communicate benefits. Respondents were questioned about
satisfaction with service provided by vendors.
For a copy of the presentation, contact [email protected].
Asia/China Update
Trevor McCormick of Foster Partner’s Beijing office, and Paul Howes of Hewitt Associates
provided updates on human resource issues in Asia and China. One trend that Trevor has
witnessed is the increased number of Malaysians used as expatriates in the region (well qualified
but lower costing than other nationalities). In Korea there is a high demand for financial
management professionals. In China there is continued growth in the manufacturing sector. He
questioned the general value with hiring returnees, especially those who have been away from
China for over four years.
Paul reminded us about how far China has come towards being a free-market economy. A
challenge is working on quality and productivity, and that the heritage of perspective that
employer is expected to be paternalistic. Pay packages still have a considerable number of
allowances on top of base pay (75% to 120%).
People management is a critical issue. Hewitt does a survey about the best in class employers in
China, which revealed a shortage of leadership talent. Company culture and opportunities for
career development are very important to employees. It is also important to communicate about
how your company is performing and what comprises their compensation.
For a copy of his presentation, send your request to [email protected].
Germany Update
Susanne Jungblut of Watson Wyatt’s Munich office provided an update on pension programs in
Germany. The state pension plan provides about a 60% replacement rate (as compared to 40%
in the USA). A high ratio of pension assets are held in individual life insurance.
In recent years the government provided plan benefits have been reduced so individuals must do
more on their own (especially higher income earners). Current trends:
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More defined contribution plans
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Increased focus on external financing
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Employee financing
Under current German tax law, external financing is not tax favored, which reinforces the
continued use of book reserves.
Newer pension plans have more investment flexibility. With respect to protecting employees
from a plan becoming insolvent there is a state mandated fund that will provide a degree of
benefits to vested employees. A recent development is the contractual trust agreement where
assts can only be used for pension purposes and the assets are not the company’s. Rather than
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employee “contributions” there are salary deferrals, used for tax purposes. Employers are less
inclined today to make up difference for lower state provided pensions. Susanne also described
the involvement of Works’ Councils and their involvement with pension plan restructuring.
For a copy of her presentation, send request to [email protected].
Latin America Update
Hubert Valdemoro of Mercer provided an update on Latin America:
Argentina
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350% devaluation of peso since January 2002
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60% inflation rate
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Negative GDP
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27% of companies have reduced salaries since 2000/2001
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Unemployment moving to 25%
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Companies have granted some increases but less than inflation rate
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Pressure to dollarize at least a portion of senior executives to base pay to
support talent retention
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Sponsors are negotiating pension plans with plan managers
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Forecast for 2003 is more bad news
Brazil
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Election coming up in November, good chance that socialist candidate will
win
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Base salary still high preference of employees (long term incentives of
lower interest)
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Nothing drastic expected to occur in area of employee benefits
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Not much happening in dollarizing salaries
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2003 inflation should be about 5%
Mexico
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Maquiladoro’s have been hurt by downturn of U.S. economy
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Unemployment up to 20%
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Inflation around 35%
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Negative GDP
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New social security system will not be introduced
Colombia
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Possibility of rise in marginal tax rates (which will lead to requests for
more tax effective benefits)
For a copy of his presentation, send a request to [email protected].
The next meetings of the Global Compensation and International Benefits
Committees will be in early 2003, dates to be determined.
For information about these committees, contact either Grace O’Rourke ([email protected]) or
Bill Sheridan ([email protected]) at 212/399-7128.
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