Study: Management Backing, Corporate Culture Key to Global Pension Administration

October 28, 2002 ( - The number of multinational companies running their pension plans with a strict top-down approach rather than local decentralization declined from 20% to 11% in the last years, a Mercer study found.

However, while the number of responding companies which rely on a centralized global process jumped significantly between 2000 and 2002, from 50% to 84%, the Mercer study found that centralized programs are more often carried out informally without global policies.

For example, Mercer found that although 72% of respondents generate global performance data, those figures are collected on an ad hoc, informal basis.

Meanwhile, Mercer said, 64% of respondents have established a collaborative framework focusing on building relationships and incorporating local fiduciaries into the decision making process.

Senior Management Backing Key

More than three-fourths (77%) of all respondents indicated that senior management empowerment is a critical factor to their success. Some 70% of respondents indicated that a cooperative corporate culture also is extremely important, according to the survey.

Mercer said in the study that getting the most value from global coordination depends:

  • local plan design
  • asset allocations
  • regulations
  • product availability..

Developing Investment Strategy

When it comes to setting investment strategy for a global pension fund, Mercer found that the number of companies generating global liability projections ticked up slightly from 51% to 53% over the past two years, many multinationals aren’t doing such projects as frequently. While 65% reported doing annual country-by-country studies in 2000, the number fell to 48% in the latest study.

Some 73% of respondents said they require corporate officials to approve their capital markets assumptions.

Nearly all respondents in the current survey said they do asset liability modeling. Two years earlier, only 56% did some asset liability modeling. Also, more companies are developing worldwide investment objectives – 60% in 2000 versus 77% in 2002. According to the survey, those global investments objectives are communicated informally with only 36% of respondents saying they have formal global investment policies.

Common objectives focus primarily on outperforming customized benchmarks and controlling risk relative to liabilities, with 88% and 84%, respectively, saying these two objectives were either important or very important in managing investments.

Despite more interaction on investment strategy and monitoring, more than half (55%) of investment manager hiring is decentralized, with 27% of respondents indicating they use a combination of centralized and decentralized processes to hire investment managers globally, Mercer said.

More information about the survey is available at  Mercer’s Web site .