Operational Challenges an Obstacle to Centralisation, says Aon

The increasing trend for multinationals to centralise employee benefits decisions to centres of excellence (CoE) is having a limited impact on operational realities, reports Aon Global Benefits.

The just-released ‘2015 Aon Global Benefits Survey’ shows that a lack of centrally held benefits information is blocking strategic priorities, while benefit administration is draining resources. In addition, most organisations are adopting a ‘just enough is good enough’ attitude to most areas of employee benefits management.

The research also shows that traditional multi-national pooling is on the wane, while captive funding for insured benefits and other financing initiatives are increasing.

The survey, produced by the global benefits unit of international insurance broking and risk advisory group Aon, is based on responses from 184 global benefits and rewards specialists around Europe representing many of the world’s largest multinationals.

“The survey results are striking,” said Carl Redondo, Leader of Aon’s Global Benefits practice in the UK. “There is a clear trend of centralisation at multinationals, yet it isn’t yet flowing through to the way that employee benefits are managed.

“There appears to be an increase in the influence of global CoE but the vast majority of decisions are still being taken by local stakeholders. The data also shows us that the effectiveness of CoE is generally is being restricted by a lack of up to date information and administration activities”.

The 2015 survey shows five clear conclusions:

  • The market trend of increasing centralisation of benefits management is ahead of the operational reality. Decision making at most multinationals has heavy involvement from local stakeholders. The survey shows that 40% make mainly local decisions, while 15% make total local decisions. At the other end of the scale, just 7% make total global decisions.
  • There are clear opportunities in all areas of benefit plan management to improve efficiencies and drive savings: the survey shows a lack of excellence in the management of plans and with most organisations using the ‘just enough is good enough’ approach, meaning opportunities are lost. Nearly 65% agree their plans are only fit for purpose.
  • Benefit administration issues are a resource drain, which is likely to get worse as the trend of centralisation continues. As benefits expertise is removed locally, global CoE are increasingly taking responsibility for all areas of plan management and administration. The study shows benefits administration and a lack of information as key challenges for respondents.
  • Most organisations report a lack of centrally held benefits information, which is a barrier to driving strategic priorities. Strikingly, 56% lack a global benefits database yet see reviewing benefits in key countries as one of the top ranking priorities for the next 12-24 months.
  • The popularity of multinational pooling looks to have peaked as organisations move to captives and other financing initiatives to improve efficiencies. Less than 10% of participants without an existing pool are looking to implement a new pool and only one third of those with a pool are actively keeping the structure under review.

“The stand out message is that whilst organisations are building the infrastructure to manage employee benefits globally we are still in a transition to that model,” said Redondo. “As they go through this, global benefits teams are being hampered by a lack of data and administration, reducing overall effectiveness.

“The trend towards benefits CoE is a positive step to improving the governance and effectiveness of benefit programmes around the world. However, the study highlights that establishing one is only the start of the journey; significant change management is then needed to drive value from the new model.”

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