2017 ENERGY ACUMEN GLOBAL EXECUTIVE SUMMARY

Transcription

1 2017 ENERGY ACUMEN GLOBAL EXECUTIVE SUMMARY

2 10 YEARS OF GLOBAL EMPLOYEE BENEFIT PLAN SURVEYS FOCUSING ON: U.S. AND NON-U.S. EXPATRIATES INPATRIATES ROTATORS LOCAL NATIONALS TEMPORARY ASSIGNEES 2017 GLOBAL EXECUTIVE SUMMARY

3 2017 Global Survey Results Executive Summary Introduction This year marks the tenth consecutive year of the Ascende Global Employee Benefit Plan Survey, which measures the unique benefit practices and trends specific to the needs of a globally mobile workforce, focusing on U.S. and non-u.s. expatriates, inpatriates, rotators, local nationals and temporary assignees. It is important to note that while this survey is inclusive of all multinational firms regardless of industry sector, the respondents have typically comprised of energy-based companies. Therefore, the data and commentary provided will have a particular focus around this group of employers. Organizations in the oil and gas sector operate much differently than others, especially with respect to talent acquisition and management. Energy firms are very capital intensive and can have a higher concentration of expatriates and rotators compared to non-oil and gas businesses. For example, the hiring strategy of a start-up tech company with global operations will likely place more emphasis on intellectual capital, local talent abroad and a younger demographic with both male and female hires. While the gender makeup of most survey participants remains 98% male and 2% female, we have observed shifts in average age and years of service among expatriate groups. This population has become slightly younger and less tenured median years of service decreased from nine to seven years in the past year. This would indicate that layoffs and/or employee retirements have begun to take effect and impact the older workforce. Industry data has indicated that the oil industry is fighting a generation gap and companies TENURE IN THE PAST YEAR FROM 9 TO 7 YEARS 63% of participants indicated recruiting from within the organization was their best practice for succession planning. are faced with replacing the Baby Boomers who make up much of senior management. What is commonly referred to as the Great Crew Change the looming retirement of thousands of older workers has energy companies trying to bridge the gap by training younger employees, recruiting outside the industry and enticing veteran employees to remain in positions longer. Employee attraction and retention remain critical success factors in global mobility programs. Despite tough market conditions over the past three years, companies need top talent to execute the business strategy at the country level. Employers should be proactive and mindful of key talent exiting the workforce. An experienced workforce is important from a succession and knowledge transfer standpoint, which is why we surveyed participants to gauge current approaches. Half of the companies surveyed noted the following approaches for succession planning as it relates to their global assignees: Documentation of key roles and essential tasks (e.g., procedure manuals) Identification of successors and/or long-term career paths Recruit from outside the organization 1 COPYRIGHT 2017 ASCENDE, INC.

4 Sixty-three percent of participants indicated recruiting from within the organization was their best practice for succession planning. The survey participants were split in terms of having a formal strategy for attracting and retaining global talent. Ten out of the 21 companies did not select or list any particular strategy for attraction and retention. However, 11 companies identified one or more strategies, with adjustment to compensation being the top response. Organizations could focus greater attention in this area to ensure their staff is equipped for success in their roles, and that the organization has a talent pipeline. As we know, oil and gas is a cyclical business, so it is crucial for energy firms to take immediate action before business needs shift and competitors begin to ramp up. Expatriates Global mobility programs are evolving, both in structure and in the makeup of their participants. This year s survey results included some interesting demographic shifts with respect to expatriate employees. While employers give special attention to this group of workers and recognize the need for their talent, there has been a continued, downward trend in group size. In 2014, employers were supporting an average of 585 U.S. and non-u.s. expatriates. This population count has decreased to almost 300 employees in As noted previously, a majority of the participating companies surveyed are in the oil and gas sector; therefore, the market downturn has had a significant Expatriate and TCN Participation Count Median Number of Employees impact on their staffing for international operations. Based on this trend, it is evident that capital budgets are being tightened. Firms continue to measure and monitor costs, looking for any opportunity for cost savings and jobs are at the top of this list. Expatriate workers cost more to employ compared to local nationals or even their domestic counterparts when considering salary, allowances, uplifts and benefits. So, it is not surprising that organizations have not excluded this population from companywide layoffs or chosen to repatriate them for cost reasons In addition to the reduction in force, the number of U.S. expatriates age 50 and below increased by 27% and the number of U.S. expatriates over age U.S. Expatriates 50 decreased by 33%. While this group has typically been much older than its domestic peers, the U.S. expatriate population has started decreasing in age in recent years. This age shift could be a result of a number of factors, led by an aging workforce approaching retirement U.S. Expatriate Average Age Non- U.S. Expatriates GLOBAL EXECUTIVE SUMMARY 2

5 age. Downsizing has probably contributed to this staffing change. Additionally, the existing globally mobile workforce may be feeling the burden of travel, being away from home and the stresses of their job during their working years. Simply put, they are aging out forcing companies to step up their efforts in recruiting a younger population. Employers must realize that they need to retain their existing talent, because the skill set and expertise are unique. While the standard expat package typically includes valuable components, employees tend to have a greater concern about their benefits. The survey did not show major changes to expatriate health programs in the past year, which means organizations understand that employee benefits are more critical than ever. The less disruption employees and their families experience, the better. It appears that most firms did not actively pursue making changes to their expatriate health insurance. In fact, plan marketing has subsided in the past year; only 26% of participants received quotes on international health coverage versus 52% from the previous year. Fourteen out of 18 participants indicated that they were either satisfied or more than satisfied with their current providers, which is why the mix of carriers is mainly unchanged. Cigna Global Health Benefits remains the top carrier (up to 53% from 43% last year); followed closely by Aetna International at 32%. This market concentration by two primary carriers is notable considering the significant investments made by competing insurers (UnitedHeathcare Global, MetLife Expatriate Benefits and GeoBlue) who continue to be challenged in gaining market traction. Despite the challenges most companies are facing, 2017 survey data indicates that they are holding firm on benefit plans and not considering drastic changes. About 80% of organizations made no changes to deductibles, out-of-pocket maximums and coinsurance levels for health plans supporting expatriates. Those companies that made plan design changes made adjustments to their out-of-network U.S. coverage levels, which was probably a result of mirroring domestic plan benefits. Not surprisingly, we have begun to see the emergence of the impact of specialty drugs in expatriate plans. As little as four years ago, the specialty drug cost trend was not on the radar of the international insurers. Yet we have Plan Feature (for services received outside the United States) noted that in this year s survey that 26% of participants with an expatriate medical plan have a four-tier structure for prescription drugs compared to 14% of participants last year. As pharmacy costs typically make up a significant portion of total medical spend, this is a trend plan sponsors should be monitoring. Typically, employers will have varying benefit levels for plan coverage in and outside of the United States. Globally, access to care outside of the U.S. can be less costly, so organizations should want to encourage their expat group to seek treatment in the work assignment location. One way to do that is to limit out-of-pocket expenses for services rendered abroad. This approach can assist with driving claims costs outside of the United States, which can have a positive impact on overall plan costs. In terms of plan design features for U.S. care, there may or may not be a differentiation in coverage for expatriates and their U.S. domestic counterparts. While some employers have chosen to offer expatriates the same U.S. coverage as domestic employees, it is evident that most employers are offering richer coverage to the global population Global Median 2017 Global Median Individual Deductible $100 $100 Family Deductible $200 $200 Individual Out-of-Pocket Maximum $1,300 $1,300 Family Out-of-Pocket Maximum $3,000 $2,900 Coinsurance 90% 90% 3 COPYRIGHT 2017 ASCENDE, INC.

6 Plan Feature 2017 Global Median 2017 Domestic Median 2017 Global Median 2017 Domestic Median U.S. In-Network U.S. In-Network U.S. Out-of-Network U.S. Out-of-Network Individual Deductible $500 $750 $800 $1,500 Family Deductible $1,000 $1,500 $2,000 $4,000 Individual Out-of-Pocket Maximum $2,500 $3,500 $5,000 $8,000 Family Out-of-Pocket Maximum $6,700 $7,500 $13,400 $16,800 Coinsurance 80% 80% 60% 60% There was not much movement in health plan spend for the expatriate population from 2016 to The median increase for employers medical and dental plan costs was about 4%. This can be viewed as relatively positive news; it is lower than historical global health trend, which has been between 8% and 10%. In the past, firms have needed to cut or reduce benefits to maintain costs, but it appears any cuts were more discretionary in nature this year. Incumbent carriers may also be offering competitive renewal pricing to maintain existing business, which provides a favorable outcome to plan sponsors. The median per-employee, per-year (PEPY) cost (gross) for expatriate medical plans for the 2017 plan year is $14,474. The 2016 survey results reflected the median PEPY cost at $13,808. For the 15 companies that participated in both the 2016 and 2017 Global Employee Benefit Plan Surveys, subsidy levels were virtually unchanged the median medical subsidy has remained at 75%. Cost sharing is now the new normal for expatriate health plans to help sustain year-over-year increases and offset the rich plan coverage. The cost of insuring an expatriate employee continues to be greater compared to U.S. domestic personnel. Due to the size and composition of the group, health insurance costs for expatriates typically exceed those of any other employee group. Many multinational businesses rely on this skilled talent, and offering richer benefits can come at a great cost (which continues to increase each year). However, employers may see some cost relief in the years to come if the younger workforce continues to impact the demographic makeup of the expatriate population. Companies who employ both U.S. and non-u.s. expatriates (also known as third country nationals or TCNs) may choose to have different approaches for their benefits coverage. Similar to last year, almost half of employers are offering a standalone health plan for TCNs. Vendor representation is slightly more diverse in the TCN space due to non-u.s. insurers such as AXA PP and Bupa Global being able to insure this employee risk. First dollar coverage is still market practice for the medical plan offering. TCNs will more than likely $15,000 Gross Costs 12,000 9,000 $12,023 $10,920 $10,662 $11,309 $12,159 $11,920 $13,661 $12,310 $13,808 $13,588 $14,474 $13,837 6, U.S. Expatriate Median Medical PEPY Domestic Weighted Average Medical PEPY PPO 2017 GLOBAL EXECUTIVE SUMMARY 4

7 have access to socialized insurance in their home country; therefore, the concept of copayments, deductibles and out-of-pocket maximums are foreign and not viewed favorably. In most instances, insurance premiums for TCNs are lower than those for U.S. expatriates; therefore, 75% of employers supporting TCNs have a separate rating structure for this group. There was not a significant change in the subsidy strategy year over year for TCN medical plans we observed an increase in the median from 93% in 2016 to 97% in 2017 (based on 11 companies that participated in both the 2016 and 2017 Global Employee Benefit Plan Surveys). With respect to ancillary coverage, a majority of participants (89%) continue to keep their U.S. expatriates on the U.S. domestic ancillary program. Approximately 40% of employers supporting non-u.s. expatriates place these employees on separate life and accident policies with benefit levels and maximums that are lower than those of their U.S. expatriate peers. We routinely caution clients to pay close attention to the eligibility and exclusion language in their ancillary policies; U.S. domestic carriers have varying and shifting preferences for global risk that may impose coverage gaps. 11 of 20 companies now have additional insurance in place for their short-term international travelers. Business travel accident (BTA) policies are a much-needed benefit for companies with a globally mobile population that has domestic and foreign exposure. There has been a significant increase to the riders attached to corporate BTA policies 73% of employers include medical evacuation coverage (57% last year), and 40% provide out-of-country medical benefits (7% last year). The concept of duty of care is becoming more prevalent for organizations with business travelers. It is evident that additional insurance needs are now of importance. Local National Benefits Organizations continue to expand the use of local national employees versus expatriate employees to support operations across the globe. This may be attributable to organizations entering a new market or establishing a larger presence in a country, required 53% of participants anticipate hiring more local nationals in the coming year rather than placing expatriate employees. localization or a shift to a lower-cost workforce. Other explanations may include the type of market (developing versus emerging), experienced local replacements or understanding of local markets and relationships. While providing access to potential new markets, the strategic decision to train and develop local talent can increase the level of complexity of work for the staff at corporate headquarters as new programs are introduced to support a growing local national population. For example, it can be a challenge to track the ever-changing requirements related to employment law in general and employee benefits in particular. Employers also find themselves challenged by having to identify and partner with local service providers that are capable of meeting the needs of the organization. As identified earlier, depending on the country of operation, multinational 5 COPYRIGHT 2017 ASCENDE, INC.

8 84% 80% of participants indicated that they provided benefits over and above any local socialized programs. employers are likely to see an increase in benefits burden when local socialized programs fail to meet the needs to the local population. Those participants supporting local nationals had the most concentration in South America, Africa and the Middle East (including the Mediterranean) regions. As privatization of state-owned enterprises (SOEs) gains momentum, we expect continued growth in local national populations for many organizations. Eighty percent of participants indicated that approvals for benefit decisions and strategy was managed by the corporate headquarters team. This suggests that senior management is concerned about the increasing costs of the global benefits program. With the majority of participants indicating that they provided benefits over and above any locally required socialized programs, corporate global governance is viewed as increasingly critical to a company s long-term success. This is likely due to a lack of local resources to support the effort and a desire to retain some headquarters oversight of cost and compliance. 80% of participants indicated that approvals for benefit related decisions and strategy was managed by corporate headquarters team. Almost 60% of participants with local plans place responsibility on the local human resource staff to manage compliance. Although strategic oversight and guidance is conducted at the headquarters level, almost 60% of participants with local plans place responsibility on the local human resource staff to manage compliance. This reflects the continued trend of companies focused on local compliance. Multinational Pooling Multinational pooling is a specialized financial vehicle that aims to reduce the escalating costs of insurance and coordinate employee benefit plans in their organizations. The pooling program can bring economies of scale to the purchase of local national benefit programs and provide greater access to local plan information. Despite generally strong satisfaction with the performance of pooling vendors, only 27% of the participants currently use a pooling program. We believe that this will be an area of future growth as costs begin to escalate in local markets, due to increased use of local programs combined with increasing local national populations and inflation in local markets. While cost containment is a compelling reason organizations favor pooling programs, visibility of local national programs and the necessary component of risk management are important factors as well. Well-Being With increasing medical costs globally, many organizations are focusing on well-being to help stabilize future costs and increase employee productivity. Although we know many employers are interested in well-being as a concept, 80% of survey participants indicated that they did not have a worksite well-being program. In addition, 90% of participants did not offer a financial well-being program. Thirty-seven percent of participants offer health risk assessments to their U.S. expatriate employees. This result seems low, given the high cost associated with an expatriate assignment GLOBAL EXECUTIVE SUMMARY 6

9 Employers may want to consider that well-being goes beyond an employee s basic health status; it includes physical, mental/emotional and financial aspects, any of which can have an impact on an employee s productivity. Offshore Savings Plans Offshore savings plans remain an effective tool for offering retirement benefits to the TCN population that is similar to the domestic employees program. Establishing these plans with individual accounts and investment options similar to a 401(k) is the most popular strategy. Data indicated the median plan size is between 100 and 499 participants, with half of respondents indicating total assets were less than $10 million. Eighty percent of the plans offered provide a company match for employees, while in 2016, 100% of respondents 80% offered a match. The most common match formula is dollar for dollar, up to 5% of eligible pay. Two employers surveyed offer both an employer match and a fixed contribution to the plan. Immediate vesting in 2017 remains the most popular schedule as it was in 2016, with 30% of employers offering plans with this feature. Additional Observations Cost and compliance remain top issues when dealing with a globally mobile workforce. Due to escalating costs and changes in business needs, we have seen a shift in the makeup of expatriate assignments. In 2016, 60% of respondents indicated that there were no changes in the past 12 months, but this year that percentage has decreased to 45%. Expatriate Assignments In 2016, 60% of respondents indicated that there were no changes in the past 12 months but this year that percentage has About 30% of participating companies have reduced the frequency of expatriate assignments and increased the use of local nationals. In addition, 75% of organizations are now sourcing talent locally rather than placing international assignees in those jobs. This shift in global talent is currently driving greater corporate oversight of local programs, further emphasizing the importance of global governance. Offsetting the decline in expatriate assignees is a relative increase in the use of short-term travelers. Eleven out of 20 companies now have additional insurance in place for their short-term international travelers. This includes an out-of-country medical rider attached to a BTA program or a separate travel medical policy offered in conjunction with U.S. health plans. We see companies placing more emphasis on pre-assignment orientation. Seventy percent of the surveyed group indicated this as a priority compared to 62% last year. This allows companies to make sure employees are prepared for their assignment, so the investment made does not result in a failed assignment. 80% of the plans offered provide a company match for employees, while in % of respondents offered a match. The most common match formula is dollar for dollar, up to 5% of eligible pay. decreased to 45% 7 COPYRIGHT 2017 ASCENDE, INC.

10 Conclusion With the current state of the oil and gas market, we have seen a downward trend in the use of expatriates and a greater use of local nationals. The makeup of expatriate assignments are changing as employers look to be more cost efficient. For the 2017 plan year, many companies have maintained the relative status quo with expatriate benefits; there were no significant changes in plan design or funding. The use of more local nationals brings more compliance concerns and the need for greater corporate oversight with this group. Opportunities remain with global assignees such as well-being initiatives for expatriates and multinational pooling for local nationals. As the recovery of the market continues, employers should be thinking more about how to effectively retain and attract employees as they look toward About Ascende a Division of EPIC Ascende is one of the largest employee benefits focused consulting firms in Houston, and is the Southwest regional platform for EPIC. Ascende specializes in health and welfare consulting, benefit plan administration, retirement and investment advisory, wellness, communications, global benefit solutions, mergers and acquisitions consulting and human resources consulting services. Ascende also offers services unique to the employee benefits industry through the Ascendent Pharmacy Coalition, a purchasing cooperative that reduces pharmaceutical costs to employers. Ascende Global Solutions Ascende has a dedicated team of specialists with capabilities to provide services supporting U.S. expatriates, third country nationals, international rotators and local nationals. Ascende has extensive experience advising on clients international assignee workforces, ranging in size from startup operations with two expatriates to global operations with hundreds of international assignees. The knowledge gained from collaborating with such diverse clientele gives our consultants insight into the day-to-day issues that an organization may face when trying to manage employee benefit programs on a global scale and allows us to deliver tailored solutions to mitigate business risk. Ascende Business Intelligence With over 15 years of experience with business intelligence tools, Ascende has become an industry leader in the collection, analysis and reporting of survey data specific to employee benefit plan and program design, standards and cost. This investment in business intelligence gives our consultants a great understanding of the market and what it takes to remain competitive and, in turn, gives plan sponsors the information necessary to remain ahead of the curve. To discuss the results of the Global Employee Benefit Plan Survey in more detail, or to request additional custom analysis, contact Ascende: Javier Yturralde Director, Global Solutions jyturralde@ascende.com (713) Breia Foston Consultant, Global Solutions bfoston@ascende.com (713) GLOBAL EXECUTIVE SUMMARY 8

11 About EPIC EPIC is a unique and innovative retail property and casualty and employee benefits insurance brokerage and consulting firm. EPIC has created a values-based, client-focused culture that attracts and retains top talent, fosters employee satisfaction and loyalty and sustains a high level of customer service excellence. EPIC team members have consistently recognized their company as a Best Place to Work in multiple regions and as a Best Place to Work in the Insurance Industry nationally. EPIC now has more than 1,000 team members operating from offices across the U.S., providing Property Casualty, Employee Benefits, Specialty Programs and Private Client solutions to more than 20,000 clients. With roughly $280 million in run rate revenues, EPIC ranks among the top 20 retail insurance brokers in the United States. Backed by the Carlyle Group, the company continues to expand organically and through strategic acquisitions across the country. For additional information, please visit About Worldwide Broker Network Ascende is an active participant and leader within the Worldwide Broker Network (WBN), the largest fully integrated network of property casualty brokerage and employee benefit consulting firms in the world. Ascende s President, Jim Watt, serves on the Board of Directors and Javier Yturralde, Global Solutions Director is an active participant in the collaboration with WBN partners in over 100 countries around the globe. The WBN partners are extremely knowledgeable in the countries where they operate. They represent the subject matter expertise needed in each country to understand local culture and support our clients goals and objectives. The WBN relationship provides Ascende with direct access to over 15,000 insurance and employee benefit specialists around the world and offers several important advantages including: A face with a name: Ascende has met and worked with WBN affiliated organizations around the globe. As an organization, WBN meets twice a year to exchange information and to further its collective capabilities in a rapidly changing global environment. Meeting our WBN partners twice a year is not only a differentiator but serves to deepen relationships and strengthens the services, by setting expectations that we collaboratively provide our clients. Jim Watt has led the effort to expand the employee benefit capabilities within the network since Ascende joined in Ascende is the client s advocate in the relationship: The services provided go beyond the introduction to a network partner. Sometimes the biggest challenge is the ability to access 100+ PARTNER FIRMS 500 CITIES 100 COUNTRIES 6 CONTINENTS 25 YEARS LOCAL KNOWLEDGE WORLDWIDE NETWORK INCLUDE THE BEST LOCALLY OWNED & MANAGED FIRMS key information in local markets when the size of the local operation is a small number of employees. Ascende s Global Solutions team will support the interaction at the local level and provide key followups, ensuring the programs are implemented in a timely manner. Access to local resources helps make the world a smaller, more connected place. 9 COPYRIGHT 2017 ASCENDE, INC.

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