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Benefits and beyond c. 13 global ppt

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  • 1. Global Benefits
    Expatriate Issues
    Europe
    The Americas
    Asia
    And, more
    Benefits and Beyond C. 13
  • 2. New markets for products and services
    New sources of supply of raw materials and labor
    Economies of scale, logistics, and outsourcing
    New demand for similar products
    Trade Agreements open commerce among nations (quotas and tariffs)
    Thomas E. Murphy
    3
    What’s Driving Global Market
    12/21/10
  • 3. Business is facing new competitors with varying cost structures
    Importantly, wage and benefit costs – globally – are becoming very relevant from a competitive standpoint
    Costs determine how and where they will locate and how they will compete.
    How do we compensate expatriates?
    Thomas E. Murphy
    4
    And. . .
    12/21/10
  • 4. Domestic production – domestic markets
    Then, it starts sending products abroad
    Should it buy or build a plant or service center abroad?
    Economics usually drives this answer
    Over time the company integrates all of its operations (see Ford, P&G, Unilever, Convergys)
    Query: What are the compensation and benefit implications of this change?
    Thomas E. Murphy
    5
    Evolution of Global Enterprise
    12/21/10
  • 5. Global--treats world as single-integrated unit.
    International--treats overseas units as offshoots of domestic strategy.
    Multinational--treats the world as a portfolio of national opportunities.
    Thomas E. Murphy
    6
    Global Integration of Enterprise
    12/21/10
  • 6. Raw materials
    Technology
    Capital
    Facilities
    Human Resources
    Thomas E. Murphy
    7
    Global Sourcing
    12/21/10
  • 7. Values aligned with Global Strategy
    Must develop global leadership and technical talent – cannot rely solely on home country
    Respect local culture and customer traits
    All HR, Financial, MIS systems support the Global Strategy
    Integrate systems and policies as much as possible, but recognize cultural and national differences.
    Thomas E. Murphy
    8
    Global Culture
    12/21/10
  • 8. Global Core Competencies
    The Organization
    Individual leadership
    Competitiveness
    Complexity
    Alignment
    Change
    Multiculturalism
    Learning
    Cultural sensitivity
    Negotiation and conflict resolution
    Encourage creativity
    Select and develop people
    Ethical and legal compliance
    12/21/10
    Thomas E. Murphy
    9
  • 9. Access new markets, strategic relationships, M & A opportunities.
    Access new raw materials or acquire inventory of products to sell.
    Find lower labor costs?
    Leverage supply chain
    12/21/10
    Thomas E. Murphy
    10
    What’s the Business Strategy?
  • 10. There are some very basic territorial, political, legal, and economic factors to consider.
    Thomas E. Murphy
    11
    But . . .
    12/21/10
  • 11. Work councils
    Layoff restrictions
    Intellectual property rights
    Taxation of total reward system
    Financing sources, different capitalization process vis a` vis U.S.A.
    Risk averse reward systems
    Publically provided benefits.
    Thomas E. Murphy
    12
    Factors: Political and Legal
    12/21/10
  • 12. Industry wide union agreements
    Strong Social Welfare Programs
    Totally different reward system
    Less emphasis on litigation
    Importance of relationships
    The Tribe
    12/21/10
    Thomas E. Murphy
    13
    Factors: Political and Legal
  • 13. Organizational differences between U.S. and EU businesses.
    Shareholder-based versus bank ownership
    Subsidization and privatization.
    The importance of employment standards in EU; EEO in US.
    Thomas E. Murphy
    14
    Factors: Political and Legal
    12/21/10
  • 14. Economic:
    High Tax Rates
    Take-home pay
    Government subsidies and mandates
    Less emphasis on results based compensation
    “Add-ons” -- one month’s pay, bonus, “vesting of benefits,” all of which affect cost of labor.
    Short-term versus longer term results.
    Thomas E. Murphy
    15
    Factors - Economic
    12/21/10
  • 15. Vocationally trained work force
    Education levels
    Work ethics, team, or individual
    Labor intensive vs.. technology
    Dependency Ratio
    Incentives (extrinsic vs. intrinsic)
    Work-life balance
    Thomas E. Murphy
    16
    Factors – Human Capital
    12/21/10
  • 16. How do your values and administrative procedures fit?
    Power and Distance
    Individual vs. Collective
    Risk Tolerance
    Masculinity
    Pay relationships between executives and workers
    Thomas E. Murphy
    17
    Factors: Culture
    12/21/10
  • 17. National government taxes, finances, sets budgets, and distributes health care funds through regional health agencies.
    All agencies are not for profit
    There are limited means to effect competition
    The national government sets standards, plan of benefits, coverage requirement, and the reimbursement levels
    Thomas E. Murphy
    18
    Europe – Health Care
    12/21/10
  • 18. Less reliance on employer sponsored benefits and widespread acceptance of universal health and retirement plans – financed by employers and taxpayers, or both.
    Result: basic health care is accessible to all.
    Thomas E. Murphy
    19
    And, for our purposes . . .
    12/21/10
  • 19. Result: there is more reliance on a national social security retirement income to replace income from work
    Less reliance on the use of capital markets to fund retirement benefits
    Thomas E. Murphy
    20
    And . .
    12/21/10
  • 20. How do other countries approach publicly funded health and retirement plans?
    What impact does this have on business? Does it mean higher taxes? Higher labor costs?
    What are the approaches employers take with respect to the compensation and benefits of expatriate workers in host countries?
    Thomas E. Murphy
    21
    So . . . There are three issues:
    12/21/10
  • 21. Thomas E. Murphy
    22
    Global Benefits
    12/21/10
  • 22. In the U.S. families (a) save for their children’s college education costs; (b) save for their own retirement, and (c) must share in some of the expense of their health care.
    Thomas E. Murphy
    23
    We should note:
    12/21/10
  • 23. These are paid for by the government and financed by individual and business taxes.
    Thomas E. Murphy
    24
    In many other countries
    12/21/10
  • 24. Long history of providing health care through the government sponsorship or mandates
    Universal access for all residents
    The mandated plan should provide comprehensive benefits sufficient to alleviate sickness and suffering.
    Cost sharing should not impede point of service care
    Thomas E. Murphy
    25
    Europe – some general principles
    12/21/10
  • 25. If possible, choice of physician should be preserved.
    Primary care should be the centerpiece of care. This better assures long term health.
    There should be cross border coordination among EU countries.
    Plans should assure accountability, efficiency, and quality.
    Thomas E. Murphy
    26
    Europe – some general principles
    12/21/10
  • 26. National government determines capital expenditures for hospitals and awards for research.
    Most doctors are private but are reimbursed by the government for services rendered.
    Some countries employ most doctors as government providers.
    In most countries, the patient can choose to see a provider outside the system.
    Thomas E. Murphy
    27
    Europe – some general principles
    12/21/10
  • 27. In such cases, the doctor will be paid directly by the patient or by his private insurance company.
    In many cases, the national system only reimburses the prescribed payment for certain treatment or service. If the doctor chooses to charge more, the patient or his private, supplemental insurance company must pay the difference.
    Thomas E. Murphy
    28
    Europe – some general principles
    12/21/10
  • 28. Almost in all cases, the reimbursement is made on a “fee for service” basis.
    In some countries, the physician might be paid a per capita fee based upon the number of “patients” in his or her region.
    In many countries, the public health care is administered in hospitals.
    There are few integrated practices in European countries.
    The Milan (Lombardia) experiment.
    Thomas E. Murphy
    29
    Europe – some general principles
    12/21/10
  • 29. In many countries, if the patient wants quicker service, and choice, he pays for them outside of the national plan.
    R/x care is often included but government uses leverage to reduce prices.
    Thomas E. Murphy
    30
    Europe – some general principles
    12/21/10
  • 30. In come countries, the health care plan is mandated upon employers to provide. They must choose from several TPAs in their region. The plan of benefits is set by the government. The TPAs are non-profit. For the unemployed, the government subsidizes the acquisition from among the same TPA.
    See Exhibit Tables 13.1, 13.2 comparing designs and outcomes.
    Thomas E. Murphy
    31
    Europe – some general principles
    12/21/10
  • 31. Payroll taxes paid by employers and employees
    The Value Added Tax
    General tax revenue
    In few cases, regional tax revenue
    There is a growing but still limited imposition of POS co-pays by patients
    Thomas E. Murphy
    32
    Sources of Benefit Financing (Europe)
    12/21/10
  • 32. Thomas E. Murphy
    33
    Who has the higher labor costs?
    12/21/10
  • 33. See: BLS International Wage Survey (3.1, 3.3)
    Estimates: France, employee earning €3000 per month, pays €350 for health care, and the employer pays €1200 per month.
    Labor Costs
    12/21/10
    Thomas E. Murphy
    34
  • 34. The budgeting process catches many providers short for the year – result poor or delayed service.
    The reimbursement levels are too low
    No market encouragement for research and development
    Spiraling costs – no limits or barriers to the utilization of health care resources.
    Efficacy: longevity, infant mortality, costs, survival rates for critical conditions
    Thomas E. Murphy
    35
    Some issues -
    12/21/10
  • 35. In Japan where there is a European style national health care plan:
    50% of the hospitals are bankrupt because of inadequate revenue from the government to cover the burgeoning number of patient services.
    The average elapsed time for a patient to see a primary physician is 3 minutes.
    Thomas E. Murphy
    36
    For example . . .
    12/21/10
  • 36. Some good, mandated programs in large cities typically applied to employees among state and collective enterprises or government owned facilities.
    But, 50% of its urban, and 90% of its rural population (total of 66%) are not covered.
    About 75% of the population pays for its own health care. In many cases, the cost of services equals one year’s pay.
    Thomas E. Murphy
    37
    What about China?
    12/21/10
  • 37. The China system is plagued with evidence of corruption (bribes are often paid to get services), long waits, and poor service.
    New initiatives are under way to reform the system – in some cases using HSA-type accounts.
    Financing of the existing system is made through employer payroll taxes that are inadequate (7%).
    Thomas E. Murphy
    38
    What about China?
    12/21/10
  • 38. With respect to financing, in China 66% of the population pay 90% of the total health care costs.
    Efficacy is below standards: life expectancy, infant mortality are especially a problem
    Thomas E. Murphy
    39
    What about China?
    12/21/10
  • 39. No mandated health care for private employers.
    There is no substantial health care insurance industry in China.
    There is considerable waste in the system, and hospitals, for example, are expected to generate 70% of the operating revenue.
    Thomas E. Murphy
    40
    What about China?
    12/21/10
  • 40. Thomas E. Murphy
    41
    Social Security and Retirement
    12/21/10
  • 41. Social Security related to work
    Periods of non-work, however, can be counted for eligibility and benefit amount.
    All systems (few exceptions) are PAYGO
    Formula is based on final pay, years of contributions, and age.
    Employer and employee make contributions
    Thomas E. Murphy
    42
    Europe – Social Security
    12/21/10
  • 42. Thomas E. Murphy
    43
    Europe – Social Security-general principles and characteristics
    12/21/10
  • 43. There are often several funds that pay retirement – a minimum plan that is paid to everyone who qualifies and the amount is the same. They may also receive a supplemental plan that is calculated based upon his average earnings. (France)
    The person’s employer may also have contributed to a private plan that will provide benefits. This is not as common as in the U.S.
    Thomas E. Murphy
    44
    Europe – Social Security-general principles and characteristics
    12/21/10
  • 44. Many Social Security plans are segmented and differentiated by industry.
    Many countries do have a flat retirement amount that will be paid regardless of earnings.
    In many European countries, the three pillar concept is applicable: government, employer, and employee are expected to finance retirement.
    Thomas E. Murphy
    45
    Europe – Social Security-general principles and characteristics
    12/21/10
  • 45. Most plans are PAYGO, but some countries are beginning to invest portion of the revenue in capital markets.
    Several Eastern European countries have introduced private accounts where part of the payroll tax can be invested by the participant in capital markets.
    Some European countries have mandate additional, employer sponsored plans with specific design features.
    Thomas E. Murphy
    46
    Europe – Social Security-general principles and characteristics
    12/21/10
  • 46. Some countries have mandated employer sponsored defined contribution plans as well.
    Thomas E. Murphy
    47
    Europe – Social Security-general principles and characteristics
    12/21/10
  • 47. People retiring earlier
    People living longer
    The Social Security systems are running out of money.
    Reform: reduce benefits, increase retirement age, increase work years requirement, increase payroll taxes, reduce benefit, make fewer inflation adjustments.
    Coordination among EU countries.
    Thomas E. Murphy
    48
    Europe: so what’s the problem?
    12/21/10
  • 48. The current program is in response to the new market economy.
    There is mandated coverage for about 2% of the population (urban, employed); rural population has no coverage.
    It is a PAYGO system financed by 28% payroll tax (20% from employer, 8% from employee)
    There are large numbers of “legacy” employees covered and there are no contributions for many of their service years.
    Thomas E. Murphy
    49
    China and retirement?
    12/21/10
  • 49. There are some “personal accounts” included in the design. It is a supplement to the pension and grows with added service.
    The plan is underfunded because of legacy costs.
    Retirement age is 60 for males and 55 for females.
    Minimum service requirement: 15 years
    Base pension pays on average about 20% of final pay.
    Thomas E. Murphy
    50
    China and retirement?
    12/21/10
  • 50. Benefits are indexed.
    Plan is available, but not mandated, for foreign, private, and other enterprises in urban areas.
    The plan does not apply to former workers who are not currently in the system.
    There are huge differences between pension amounts of government workers and those of other enterprises – gov’t as much as 8 times.
    Thomas E. Murphy
    51
    China and retirement?
    12/21/10
  • 51. China’s rapid economic rise, and transitioning transition from producer to consumer market.
    However, it does not have social security (retirement or health care) infrastructure to support its market role and the inherent volatility it brings to the business and labor market.
    Thomas E. Murphy
    52
    China and retirement?
    12/21/10
  • 52. Transitioned from PAYGO to private accounts in 1981.
    Financed by payroll contributions and investments in capital markets
    Each participant has private account representing payroll tax contributions by employer and employee.
    Each worker contributes 10% of earnings; there is a cap.
    Thomas E. Murphy
    53
    Chile and Private Accounts
    12/21/10
  • 53. There is a guaranteed floor plan that is paid if the participant’s investments fail.
    Employer is not obligated but can contribute; there is tax-favored treatment.
    There are 12 funds to choose from as well as age-based investment guides.
    Participants at retirement can elect pre-determined withdrawals or an annuity.
    Thomas E. Murphy
    54
    Chile and Private Accounts
    12/21/10
  • 54. The Chilean plan has high administrative costs.
    It has generally been regarded as a success.
    New investment made in the Chilean capital markets.
    It places investment risks on participants.
    The system is financially sound.
    Sweden, 7 eastern European countries, the U.K. and Germany have introduced some form of private accounts.
    Thomas E. Murphy
    55
    Chile and Private Accounts
    12/21/10
  • 55. What impact do Social Security and Health Care systems have on overall labor costs?
    Higher labor costs in Western European countries than in the U.S.
    Direct relationship to higher payroll taxes used to finance such benefits.
    China is well below western levels.
    See Table 13.4
    Thomas E. Murphy
    56
    How do labor costs compare?
    12/21/10
  • 56. Expatriates
    What is their pay? What are their benefits?
  • 57. Technology transfer
    Lack of talent in country
    Consistent application of company policies
    Succession plan/Diversity management
    Direct learning about the country
    Thomas E. Murphy
    58
    Expatriates – The Issues
    12/21/10
  • 58. The Palestinians (and Israelis)
    Economic incentives (QIZ)
    Madaba tour
    Abe Lincoln essay
    Career – shirt, tie, government
    Brainstorming
    12/21/10
    Thomas E. Murphy
    59
    Jordan, France, and Italy
  • 59. No meetings outside of the plant
    No delegation
    No agenda
    IBM
    No accounting or knowledge of costs
    Auto Accident
    No addresses
    Ramadan and off-days.
    Hugs for Hesham
    Excuses – Ottomans
    Conspiracies and mistrust of government – Egypt Air
    12/21/10
    Thomas E. Murphy
    60
    More . . .
  • 60. WASTA
    Egypt Air
    In the “black.”
    The Notary and the Germans
    Driving exam
    Bulgarian and contract to buy
    Memorization
    12/21/10
    Thomas E. Murphy
    61
    Jordan, France, Italy
  • 61. Jordan, France, and Italy
    All is in the “Black!’
    Family is very important
    Work, Life Balance
    Don’t let them wear hats!
    Women – put your picture on your CV!
    House builder’s pride
    Slow food
    Bi-lingual
    Entrepreneurial
    Residency process
    12/21/10
    Thomas E. Murphy
    62
  • 62. Lessons Learned
    Face is important!
    Some great values . . .
    Business is often based upon building relationships – be patient and respectful.
    Cultural differences often are based upon enmity between ethnic groups. They can torpedo typical business incentives.
    Bureaucracy is overwhelming – enforcement is not.
    Tax avoidance is rampant – and one is encouraged to avoid tax compliance.
    Family takes precedence over government.
    12/21/10
    Thomas E. Murphy
    63
  • 63. Passport
    Technical Expertise
    Cultural sensitivity
    Required experience for promotion - part of the succession plan
    Thomas E. Murphy
    64
    Expatriates – Selection
    12/21/10
  • 64. Cultural protocols
    Religion
    Language
    Country economics
    Host country politics
    Very little done before the assignment
    Thomas E. Murphy
    65
    Expatriates - Training
    12/21/10
  • 65. What is the goal?
    What about cost of living?
    Make-whole policy? (“Balance Sheet”)
    The host-country policy? (“Market Rate”)
    Thomas E. Murphy
    66
    Expatriate Compensation
    12/21/10
  • 66. Thomas E. Murphy
    67
    Ma, dove e come abiterremo?
    12/21/10
  • 67. Thomas E. Murphy
    68
    12/21/10
  • 68. Factors that Affect Design
    Tax Laws (U.S. and Host Country)
    Employment and Social Insurance Laws
    Currency Fluctuations
    Cost of goods, services, transportation
    Culture and traditions
    What about the Benefits Model?
    Thomas E. Murphy
    69
    Expatriate Pay
    12/21/10
  • 69. Estimated to be 2-to-3 times salary at parent location.
    Includes COL adjustments, home leave, transportation, housing, education.
    Must be attractive to entice move.
    Compensation consistent with company policy.
    Thomas E. Murphy
    70
    Expatriate Pay Cost
    12/21/10
  • 70. How, and from where, will pay be delivered?
    In what currency?
    Evacuation – emergency (political or medical).
    Working hours and public holidays.
    International Compensation!
    Thomas E. Murphy
    71
    Compensation Details
    12/21/10
  • 71. Health Care
    Temporary living quarters.
    Rent or buy?
    Travel expenses.
    Shipment and storage.
    Driver’s License, insurance
    Work Visa
    Thomas E. Murphy
    72
    Foreign Assignment Issues
    12/21/10
  • 72. Spouse and family accommodations, schools, careers, volunteering, leisure time.
    Should expatriate continue to participate in parent company benefit plans? Which ones?
    Thomas E. Murphy
    73
    Foreign Assignment Issues
    12/21/10
  • 73. What do you do about rewards that are U.S. based and results are determined by U.S. operations?
    What are the advantages and disadvantages of balance sheet vs. host country approaches?
    Remember: the U.S. considers income of its citizens and residents to be taxable no matter where it is earned!
    Thomas E. Murphy
    74
    Expatriates
    12/21/10
  • 74. Thomas E. Murphy
    75
    Approaches to Expatriates
    12/21/10
    We will make
    You whole!
    You will get
    What they get!
    Well. . .
  • 75. Advantages
    Equity between assignments and other expatriates in same country.
    Facilitates expatriate reentry.
    Easy to communicate.
    Disadvantages
    Disparities among TCNs and HCNs.
    Can be complex to administer.
    Very Expensive
    Thomas E. Murphy
    76
    Balance Sheet . . .
    12/21/10
  • 76. Advantages
    Equality with HCNs.
    Simplicity
    Identify with host country.
    Equity among different nationalities.
    Disadvantages
    Variation between assignments.
    Variation between expatriates of same nationality in different countries.
    Thomas E. Murphy
    77
    Market Rate . . .
    12/21/10
  • 77. See: The Milan case (443-447)
    Let’s analyze the adjustments that would be required.
    Your apartment is ready :
    12/21/10
    Thomas E. Murphy
    78
    Remedy – a series of adjustments!
  • 78. Assignment could result in double taxation by U.S. and host country.
    Most companies have Tax Equalization Policy –withhold an amount equal to home country of expatriate and company pays the rest.
    §911 of the IRC = $91,400 (FEI Deduction)
    What about Social Security taxes?
    What about Value Added taxes in host country?
    Thomas E. Murphy
    79
    Tax Issues
    12/21/10
  • 79. Career blockage
    Essential for promotion
    Burnout
    Family issues
    Technical vs. leadership talent
    BIG Difficulties on return
    12/21/10
    Thomas E. Murphy
    80
    Expatriates - Other Issues
  • 80. Length of assignment
    Defining “success and failure”
    Trailing spouses
    How to establish MBOs or other Performance Management factors, e.g., different accounting, long-term goals, manager’s role, who conducts review?
    Thomas E. Murphy
    81
    Other Issues
    12/21/10
  • 81. Thomas E. Murphy
    82
    ExpatriateApproaches
    Select the best based upon careful research of cross-cultural sensitivity issues.
    There is no “universal” management style, but there are generic competencies to consider.
    Provide resources for housing location, spouse “development,” kids education.
    12/21/10
  • 82. Some ideas . . .
    I miss Italy, but I’m . . .
    Am glad to be back!
    Provide significant cultural orientation.
    Make sure expatriates are prepared for trade union issues in the new country.
    Make a pre-assignment trip.
    Plan for reentry – avoid the typical problems
    12/21/10
    Thomas E. Murphy
    83