Globalization of China Enterprises: Introduction of Global Employee Welfare Regulation

According to Tower Watson’s “2012 Asia Pacific Multinational Research” report, based upon 40 interviews with Chinese enterprises, the regulation of employee compensation and benefit presents an important challenge to the continued success of Chinese enterprises’ globalization process. When Chinese enterprises go abroad and conduct business on the world stage, they must often answer questions such as, “What are the risks associated with employee remuneration?” How do regulators of these global affairs manage these risks? This article will focus on the importance of the supervision of global employee remuneration, risk awareness and the actual operating mode of risk management, risk awareness, and global supervision.

The importance of the development of global remuneration regulation is based on a typical globalization model. When a Chinese enterprise establishes branches abroad to establish subsidiaries in a foreign country, the process may involve a series of mergers and acquisitions with foreign companies. The progressive realization of the globalization of production and sales will inevitably encounter risks associated with human resources. The process of the globalization arrangement of enterprises raises difficult questions for the design and management of employee remuneration. This is because social, political, economic, and cultural backgrounds may affect employee remuneration. Therefore, in the process of globalization, it becomes important to brainstorm ideas for employee compensation and benefit plans and to create designs for providing a global strategy service to enterprises.

At the same time, companies must note that local laws and regulations are undergoing constant changes. In many Western countries, laws related to employee compensation and regulations are complicated. In the United States, the laws associated with pension plans consist of more than one thousand pages.  Many countries have also set up special laws and regulation for the respective accounting standards for employee compensation and benefits. The United States, Britain, Australia and other countries have different accounting standards that differ from international accounting standards, which also cover associated benefit filing requirements. These guidelines are not only tedious to study and understand, but they often change over times.

As the companies continue to push forward the process of globalization, the embedded risks associated with human resources, with financial risks and legal risks inevitably increase as well. In order to effectively control these risks, companies need to establish decision-making processes for systematic employee remuneration in order to support worldwide operations. It is worth mentioning that although there are risk associated with global regulatory control of the primary tasks, the execution of global regulatory processes also can bring strategic advantages in other areas. For examples, through global regulations, companies can adjust benefit plans and programs around the practices, but their overall strategic objectives remain the same. Taking advantage of scales of global economies, companies can use a unified global supplier in order to control or reduce the cost of a benefit. Enterprises can learn the best practice in the markets so that global regulatory systems can be promoted and shared. Through the vision of globalization, HR can be can be structured and developed using staffing plans that take advantage of the global supply of talent.

Global Employee Remuneration Risk Management Awareness

In the process of globalization, companies can face three major risks, namely: risk associated with HR, financial risk, and legal risk. These risks need to be considered when planning the direction of corporate management.

HR Risk. In here we are referring to HR, it makes sense to focus mainly on employee remuneration aspects of the risk discussed. In response to risks and benefits, enterprises often have to take this into account in several aspects: 1) Worldwide affiliates should be able to design and develop employee welfare programs that are aligned with employee recruitment, retention, and motivation strategies for meeting worldwide business objectives.  2) The worldwide corporate welfare program should be consistent with the global staffing solutions. 3) When the individual employee compensation and benefits plan is adjusted, the relationship between enterprises and employees can be affected. For example, during the recent financial crisis, employee welfare cuts often were the first choice for people looking to reduce costs. When a global company makes a decision to cut benefits, there is no force or relationship between that enterprise and its employee to make them take more careful consideration of the needs and relationships of the employees. Thus arose the need to create arrangements that facilitated better communication between the employers and the employees. When there is a lack of HR risk, performance management could create adverse effects within a society.

Financial Risk- Employee benefits are seen as one aspect of financial management. Companies generally need to consider the following factors. 1) whether an enterprise can design and develop benefit schemes that control the amount of the impact on cost and finance. 2) Companies should quantify the assets to fit the particular benefit plan, the liabilities for the enterprise, the impact of cash flow on profit and loss as well as the impact of credit assessment and borrowing capacity. 3) Enterprises can take advantages of scale and synergies in order to reduce the cost of welfare programs. In 2009, the United States Court for Bankruptcy Protection ruled that General Motors’ problems were caused primarily by the enlarged annual benefit plan’s expenses, mostly related to GM employee costs.

Legal Regulatory Risk- In response to the risk of laws and regulations, companies need to consider some very important factors.  These are: first, whether the enterprise has sufficient local resources to ensure benefit plan compliance. Second, were expenses properly assessed by local shareholders, and were the benefit plan participants exposed to the possibility of prosecution. Third, the company must appreciate the local laws and regulations that may exist on the corporate brand and the reputation of the potential impact. For example, some of the mature markets of the Western enterprises are required to strictly comply with a range of laws and regulations. Because of a lack of understanding of local legal salaries, benefit plans and designs, an enterprise can potentially bring unnecessary losses to the company’s reputation, harm its brand image, and incur financial losses.

The operation of global welfare regulation can serve as an entry point for risk assessment, risk management, and risk control. This will promote business growth, the management of HR costs, and the optimization of the risk of benefit plans to help companies to achieve their business objectives and long-term development goals.

Risk assessment is the starting point for regulation of global welfare. Enterprises around the world must first establish a complete database in order to understand the status quo of their particular benefit plan; this includes having an understanding of the content, cost, and changes underway. On this basis, benefit plan compliance should be periodically assessed and the company should research the welfare program market to assess competitiveness.

In the process of developing a welfare strategy, global enterprises need to note that employees at different levels differ from each other in terms of need, whether those employees are from the corporate headquarters or from branch offices around the world; this must take into account both strategic planning and the actual operation. The needs and the concerns of different parts of an organization differ from each other. Therefore, the framework of the enterprise for strategy implementation and enforcement should be at global headquarters and local levels. Local interactions at different levels can help create a clear and coherent decision-making process and should also facilitate the division of labor, which can promote smooth communication and exchange of ideas.

In order to conduct regulation of global employee welfare effectively, international enterprises usually have a committee that is in charge of global employee welfare; this team consists of an HR director, a personnel risk control department, and a chief financial officer who operates under license and on behalf of the relevant members of the Board and the Remuneration Committee. Once the commission has agreed upon the course to be taken in terms of global benefits and pensions, the financial department should provide assistance and support. The international business operations will be set up around the welfare committee or welfare group.

The Global Welfare Committee’s primary responsibility is to develop a global welfare strategy and to extend business around the branch. The business development is 3 to 5 years and it includes long-term business objectives related to the development of strategies to benefit different locations.  In this context, the commission needs to take into account the internal fairness and competitiveness of welfare benefits. Another important duty of the Global Welfare Commission is to identify and monitor various risk control indicators and management indicators of various welfare programs in order to reflect significant transactions.

Only through a global welfare regulatory system can a global enterprise control the risks associated with welfare and develop and improve global welfare strategies. These sorts of welfare programs can truly serve the enterprises’ long-term sustainable development.