China is the center of a great deal of attention these days, as companies hurry to establish and expand operations in a fast-growing economy and set up offices, plants, and distribution networks.

There’s one business fundamental that does not get a great deal of global attention, but is nevertheless critical for doing business in China—employee benefits. “For companies everywhere, benefits can be a complex area. But there are a number of factors that make the management of benefits an especially challenging—and increasingly important—issue in China,” says Susan DeGregorio, a Hewitt consultant specializing in global health care strategies. “For example, the government medical coverage provided to People’s Republic of China (PRC) citizens is fairly basic, and it’s now common for companies there to provide supplemental medical coverage.”

At the same time, China’s rapid economic growth is driving a war for talent that’s making total compensation packages key to attracting and retaining employees. And on the supply side, employers have more benefit options to draw on as insurance companies expand into China.

Overall, it’s a fast-changing and complicated benefits landscape that’s being shaped by companies on the ground in China—including Corning and Disney.

Disney: Charting a New Course
Like many corporations, The Walt Disney Company has been growing in China, and today, the company’s Shanghai-based subsidiary employs some 200 people, principally in the areas of sales, marketing, and support. “That may not be a huge number, but it represents a substantial increase in a short time frame, and it will continue to grow at a pretty good clip,” says Keith Busch, Director of Compensation and Benefits for Asia-Pacific at Disney, the global entertainment company headquartered in Burbank, California.

To keep up, the company is taking on more “China-hired foreigners”—that is, non-PRC citizens working in China and hired locally. The availability of strong foreign talent already residing in China, and the general inflow of foreign talent into China, has resulted in significant new opportunities for employers and employees alike. And, says Busch, “That’s increasing our challenges from a compensation and benefits standpoint, as we have found there’s currently a good deal of uncertainty in the China market and variability among companies on how to design appropriate compensation and benefits packages for China-hired foreigners—especially in the market where customized compensation and benefits packages are designed for these ‘nontraditional’ employees.”

It’s a challenge that’s becoming increasingly familiar in China. “In the past, companies here typically had expatriate employees and local hires,” says Bin Chen, a benefits consultant in Hewitt’s Shanghai office. “But because of the business expansion in China, we are seeing increased hiring in this category.” Not long ago, such employees were rare enough that companies dealt with them on a case-by-case basis. But now, a more systematic approach is needed to provide these employees with benefits.

Disney offers PRC nationals in their workforce a competitive benefits package to supplement government-provided plans. With that in mind—and to ensure that their plan continues to be responsive to employee needs and the fast-changing benefits landscape in China—the company decided it was time to make some key changes to their medical coverage for China-hired foreigners. Disney recognized that this group had special concerns, including occasional difficulties in finding the care they wanted and language problems in dealing with local hospitals/clinics. At the same time, however, the company did not want to simply provide a traditional expatriate medical benefits package, as these China-hired foreigners are considered local employees who are expected to remain with Disney in China for the foreseeable future. “We want them to become integrated, to the extent practicable, into our operating norms in China,” says Busch.

Because this is something of an emerging issue, there weren’t a lot of well-defined best practices to follow. To navigate this uncharted territory, Disney worked with Hewitt to benchmark the marketplace and come up with a redesigned plan.

In the end, Disney made several important adjustments to their plan. For example, to meet current and projected business needs, the company created a single medical plan covering all China-hired foreigners, in all the company’s China locations. Benefit levels were increased to better accommodate treatment in foreigner wards. (Many Chinese hospitals have separate areas for citizens and foreigners.) They moved their plan to a new carrier that had experience in serving China-hired foreigners and a proven track record in the area of claims processing. And they used copays and a preferred provider network to encourage treatment in mainland China, while enabling employees to go to Hong Kong or Taiwan through expanded geographic coverage if doing so suited their situation.

The plan went into effect in April, and it has proved to be affordable and effective. “The idea was to have our medical provider network in China be the primary source of care for China-hired foreigners, and that’s what’s happening,” says Busch. At the same time, he says, “It’s a plan that employees have confidence in. That means that they can focus on serving customers, rather than worrying about their coverage.”

Corning: Finding Harmony
“With HR in China, you cannot react slowly,” says Cal Richardson, International Compensation and Benefits Director for non-U.S. operations at Corning Incorporated, the $4.58 billion diversified technology company. “In China today, a person can easily find several other jobs and jump very quickly to another organization. So it’s important that we demonstrate to our employees that they are highly valued by the company.”

A year and a half ago, that posed a real challenge for the Corning, New York-based company. Corning’s business in China has grown rapidly through expansion and acquisition; and the company plans to continue growing in the foreseeable future. Corning’s China businesses include low-cost manufacturing and high-tech design of products for the telecommunications industry and display technologies markets, and ceramic substrates (for diesel and automotive emissions control). These diverse businesses had a disparate array of benefit plans, making it difficult to create a sense of unity across operations, transfer employees between businesses, and efficiently communicate and manage their plans. The approach also did not support the “One China” strategy that Corning has focused on in the last few years. As a result, says Richardson,“We consolidated the benefit plans of our wholly owned businesses, which were offering different benefits from different insurance companies, into a single, unified plan.”

Corning carefully researched which benefits were most important to Chinese employees. Not surprisingly, the list included medical coverage, but life insurance and, in particular, housing benefits also ranked high. “Housing in China is expensive,” says Richardson. “It’s not uncommon for people to have to travel an hour and a half each way to work because of the cost of housing.”

In response, Corning enhanced and aligned the company-funded supplemental housing benefit that employees can draw on for rent, mortgage payments, and renovations. The company contributes to employee housing funds, which vest gradually over four years, when employees have access to the entire balance.

This housing benefit is designed to work with Corning’s retirement program, which begins vesting after four years of employment, with full vesting taking place in seven years. “Once the housing benefit is fully vested at year four, we lose that retention hook,” says Richardson. “The pension plan provides a second retention component that carries out for several more years.” In addition, as the relatively young Chinese workforce ages, Corning can study the importance of housing. If supported by the market, business objectives, and Corning’s strategic direction, the company could consider shifting resources from the housing program to retirement and better meet employees’ evolving needs.

In designing and implementing the new plan, Corning put together a team that included local businesspeople, as well as HR experts from Corning and Hewitt. “It was a collaborative effort with Hewitt,” says Richardson. “We would get in the room and brainstorm ideas, and we ultimately came out with a great solution—and some innovative ideas, such as including our China employees in our international insurance pool.” The effort moved quickly, from the launch of planning in February 2005 to the rollout of employee communication in November of the same year.

Corning’s harmonized approach has brought consistent medical benefits to their Chinese employees and increased the value of overall benefits significantly, giving the company a powerful retention tool. And because of economies of scale, centralized administration, and careful plan design, the company is providing these expanded benefits for just a little more than they spent on the more limited plans that were in place before.

Perhaps most important, the rapid implementation of the new approach—and the focus on benefits that were most critical to employees—has gone a long way toward supporting the integration of Corning’s Chinese businesses. “Our benefits harmonization initiative demonstrated to our employees that Corning is truly committed and responsive to their needs,” Richardson says. That’s key, he adds, because “China is a very dynamic market, and if you don’t keep a close watch on it, you may slip on your retention strategy.”

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