April 21, 2022
As companies move through the governance process, approvals are one of the key functions that effectively connect the process to the global strategy. This section looks at materiality/risk; threshold criteria; reporting; approval authority; simplification; and integrating global consistency.
Managing Risk and Oversight with Limited Resources
Approval processes try to structure the spectrum of risk and materiality to mitigate impact on a company. Given employers’ limited resources, having all decisions made centrally may not be feasible, especially when understanding local customs and norms related to low-risk and low-cost benefits (such as meal allowances). On the other hand, having central oversight over high-risk and high-cost benefits (e.g., retirement and medical plans) can ensure that a company is maximizing employee impact without creating unintentional problems.
Building an approval matrix that is integrated into your organization’s structure will make the governance process successful. Companies tend to use a tiered system to identify who the final decision maker is depending on the level of risk and materiality (Figure 1).
Approval Threshold Criteria
Figure 2 shows the top three criteria for approval thresholds. According to Business Group on Health’s Global Benefits Governance Survey, they are spending, severity of impact and deviations from market or global strategy. Over the past 14 years, the Business Group has seen employers shift from a focus on benefit type (predominantly retirement plans) to a broader, more consistent approach to governance for all benefits. Oversight of retirement is still important, but companies have shifted their process to be more encompassing as their governance structures have evolved and matured.
Source: Global Benefits Governance Survey 2021
Every company has its own preferred report model, but the key components are those that will enable leadership to make the most effective decisions.
Companies develop internal reports to understand:
- Regulatory changes;
- Design changes;
- Cost increases (overall and/or per employee);
- Vendor changes;
- Timing requirements;
- Stakeholder involvement;
- Global financial mechanisms (e.g., captives); and
- Other global strategic initiatives (e.g., EAP, leave, minimum benefit standards).
These reports allow decision makers to understand what changes are occurring and what influences those efforts. According to the Business Group survey, the four most common elements included in the reports are plan design, benefit changes; financing/funding; and vendor selection and management (Figure 3).
Some companies develop a database through a SharePoint or share-drive system to store and track their internal reports, which can be organized by country, region and/or year.
Determining who makes the final decision at a company will vary depending on the company’s structure and budget ownership. According to Business Group on Health’s Global Benefits Governance survey, the two most common decision makers are the corporate benefits manager and global governance committee (Figure 4). Given that employers have differing structures (decentralized to centralized) and varying tiers of approval, other prominent approvers include local business leaders, local team, regional team, and corporate HR executives.
Simplification of Approval Process
Approval matrices evolve as companies’ governance processes mature. Employers rolling out global governance try to incorporate quite a few different leaders as part of their governance committee to provide perspectives during the initial assessment and approval. There is an effort to make the process manageable as companies shift into maintenance. Those key stakeholders are involved earlier in the process to ensure that the renewals and design changes align with global strategy and fewer stakeholders are required in the approval process (with the exception of retirement plans given their compliance requirements and materiality risk level).
What Global Employers Should Consider When Building and Adapting Their Approval Processes
There are many considerations to keep in mind when creating an approval process that will be effective for an organization. Below are questions to guide the development of the approval process and related data collection efforts:
- Is there a clear framework for decision-making and approvals at all levels?
- Does the framework apply to health benefits or to all benefits?
- At what level (corporate, regional, local) and by whom are benefits decisions made?
- How are benefits “flagged” for different approvals if necessary (e.g., defined tiers, monetary threshold levels)?
- How are relevant personnel educated about the approval process? How often?
- What action occurs if the approval process isn’t followed? Is it effective in improving compliance?
- Once changes are approved, who is responsible for implementing them? How is relevant staff informed of these responsibilities?
- Are tracking mechanisms used to evaluate and modify the governance process?
- Is there a team in charge that understands the complete governance process?
- Are data collected about how well each element of the process works?
- Does the team have the opportunity to evaluate the governance process data?
- Can the team implement approaches to improve the process?
- What recourse exists if weaknesses in the process aren’t corrected?
- Is improving the governance process the responsibility of corporate staff, local staff or both?
- What processes are in place to make benefit changes (required by country legislation) within the government-mandated timeline and in a manner consistent with the company’s stated philosophy?
- How often is a financial review of the benefit plans completed?
- What is the scope of the financial review? Does it primarily focus on one area (e.g., retirement) or is it inclusive of all benefits?
How to Incorporate Global Consistency Strategy
As companies implement their global consistency strategy, the approval process is the perfect integration point to ensure that the strategy is implemented in the long run. During the renewal process, companies rely on their global brokers and consultants to provide guidance on local readiness to implement these global initiatives (e.g., captive, minimum standards, EAP). This integration may take several years, but the approval process gives companies the opportunity to raise the implementation question on a regular basis.
The approval process is the fulcrum of the global benefits governance process. It gives employers opportunities to make their global strategies a reality while providing transparency of who is responsible for what within their overarching structures. Companies have a variety of approaches to the approval process regarding materiality/risk level, governance elements, threshold criteria, and approval authority to meet their overarching business priorities. The Business Group has seen companies move toward including global consistency efforts and simplification as their governance processes mature.
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