Multinationals can boost the effective take-home pay of European employees by up to 12% simply by restructuring reward packages, according to Taxand a global tax advisor.
According to global compensation, equity and employment tax experts, multinationals are implementing compensation packages on a country-by-country basis rather than on a global or pan-European basis thus failing to take advantage of cost efficiencies which can be passed on to staff. Moreover, the backbone of most organisations, the middle manager, is often overlooked when it comes to pay and benefits design in favour of senior executives.
By not realising the benefits of centralised benefit buying power, combined with local tax efficient compensation arrangements, multinationals and their employees are missing out. By focusing on maximising take-home pay and more meaningful benefits-in-kind, companies could allow employees to take home up to 12% in additional after tax pay and buying power at little or no cost to themselves.
Sarah Pickering, Global Compensation, Equity & Employment Tax Service Line Leader, Taxand said, “The case for creative remuneration has never been stronger. As the job market picks up, companies need to hold on to their talented employees. Yet in the current environment of low bonuses, static annual pay, underwater or unvested stock plan awards, headcount reduction and potential increases in personal tax rates, incentivising staff is a real challenge. In today‘s global employment marketplace a national remuneration strategy is no longer sufficient.”
Multinationals need to revisit tax efficient pay structures, for example salary-sacrifice plans that give social security savings as well as providing benefits with reduced income tax. Secondly, purchasing employee benefits on a regional or global basis, for example pan-European or global medical insurance policies, allows improved benefits or cost savings to be negotiated. Thirdly, providing employees with more benefit choices means that take-home pay goes further leaving employees more spare cash for other things.
Pickering continued, “Middle managers, or the ‘marzipan layer’, can be the ‘lifeblood’ of an organisation. They include the leaders of tomorrow. They make or break change and growth initiatives on the ground and are often the employee group with the most technical experience and employer investment. They implement strategy on behalf of executives yet they don‘t get the recognition and perks. Increasingly they are heavily taxed— they may just fall into a country‘s highest tax threshold—and are the group where reduced or removed state benefits hurt most. Consequently, they are the group who are the most likely to move jobs for the benefit of a few thousand Euros in salary increase.”
The direct and indirect costs to the employer of replacement far outweigh the salary increase gained by the employee. However, new reward plans are only effective if the value they can deliver to employees is recognised. This goes beyond communication of how the plan works to actually educating employees on wider financial matters. Focusing on middle manager reward policies is a smart forward move for all companies.
The top five areas for multinationals to consider when reviewing compensation structures:
- Tax, social security free or reduced rate remuneration choices, such as childcare vouchers, bicycles, gym memberships and welfare assistance.
- Purchasing benefits in kind, in bulk and on a pan-European or global basis can deliver significant financial benefits to employees, including medical and dental insurance, life assurance, retail vouchers, concierge services and training.
- Giving employees more choice to design a benefit package which suits their individual circumstances.
- Using external providers who have technology based administration tools that make the operation of such arrangements more cost efficient.
- Improving the communication of benefits combined with financial education so employees know the true value of what is offered and can make informed decisions.
Paul Arkwright
Publisher
