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Hewitt Associates, Inc.
847-295-5000
100
Half Day Road
Lincolnshire, IL 60069
www.hewitt.com
Sales
$2
billion
HR Consulting - Category Directory
HR Outsourcing - Category Directory
Business Description
Hewitt is a leading global provider of human resources outsourcing and
consulting services. Our mission is to excel, around the world, at helping
our clients and their people succeed together. In fiscal 2003, which marked
our 42nd consecutive year of revenue growth, we provided services to more
than 2,600 clients. We believe that we are well-positioned to continue our
growth in a business environment characterized by a growing recognition of
the critical importance of human resources, increasingly complex human
resources challenges and rapid technological change.
Since our founding in 1940, we have continuously extended and expanded our
human resources service offerings in response to our clients’ needs. Early
in our history, we specialized in providing actuarial services for sponsors
of retirement plans and executive compensation consulting. These remain core
competencies of the firm today. Benefits legislation in the 1970’s and the
proliferation of flexible benefits and 401(k) programs in the 1980’s
substantially increased companies’ needs for advisory and administrative
services related to health and welfare benefits, retirement benefits and
compensation programs. In 1991, we introduced the Total Benefit
Administration™ system, which we believe is the first technology platform
for outsourcing the administration of the three major benefit service areas
using a single, integrated system and database. Following significant
investments in technology, infrastructure, and people, and with over twelve
years of experience, outsourcing is now our largest business segment.
Of our $2.0 billion of net revenues in 2003, 63% was generated in our
outsourcing business and 37% was generated in our consulting business. Our
outsourcing business is comprised of three core benefits administration
services, our new payroll administration service and our workforce
management solution. Our consulting business is comprised of three service
areas, including health management, retirement and financial management, and
talent and organization consulting.
We believe that our leadership in outsourcing and consulting and our ability
to provide integrated solutions across and within both businesses are
important competitive advantages. With our full range of services, we are
able to leverage the data and knowledge we gain through outsourcing to
provide more comprehensive and market-based solutions in our consulting
business. Likewise, we utilize the expertise developed through our
consulting business to meet the specific objectives of our outsourcing
clients through high-value, cost-effective solutions.
Through our outsourcing business, we apply our human resources expertise and
employ our integrated technology systems to administer our clients’ human
resources programs: benefits, payroll and workforce management. We assume
and automate the resource-intensive processes required to administer our
clients’ human resources programs, and we provide on-line tools and
information that support decision-making and transactions by our clients and
their employees. We enable companies to streamline their human resources
administration and processes in order to enhance effectiveness and reduce
costs, and to employ web-based technologies to automate processes and
transactions. With the information and tools that we provide, our clients
are able to optimize the return on their benefits, payroll, and human
resources investments.
Our benefits outsourcing services include health and welfare (such as
medical plans), defined contribution (such as 401(k) plans) and defined
benefit (such as pension plans). Our recent acquisition of Northern Trust
Retirement Consulting (“NTRC”) in June 2003 also extends our defined
contribution services. Our recent acquisition of Cyborg Worldwide, Inc., the
parent of Cyborg Systems, Inc. (“Cyborg”), a global provider of human
resources management software and payroll services, expands our outsourcing
service offering to include payroll administration, allows us to provide our
clients with a stand-alone payroll service and, importantly, enables us to
offer a comprehensive range of human resources outsourcing services. Our
payroll services include installed payroll software and fully outsourced
processing. Our workforce management outsourcing services include workforce
administration, rewards management, recruiting and staffing, performance
management, learning and development, and talent management.
To date, we have provided our outsourcing services primarily to companies
with complex human resources programs and over 10,000 employees. As of
September 30, 2003, we were providing benefit outsourcing services to
approximately 270 clients (typically through three-to five-year contracts)
representing a total of approximately 410 benefit services, including 61 new
services relating to the NTRC acquisition. We define a benefit outsourcing
client as a company that has outsourced to us the administration of one or
more of the three core benefit services. We define a benefit service as any
one of the three benefit administration services that we provide for a
client. As a result, for clients who offer health and welfare, defined
contribution and defined benefit programs, we have the opportunity to
provide three benefit services. We are focused on developing deep client
relationships and establishing ourselves as the outsourcing provider of
choice across all of our outsourcing services. We have grown our outsourcing
revenues by both expanding existing client relationships and adding new
clients.
We believe that we will continue to deliver significant growth in our
outsourcing business by expanding relationships with existing clients,
increasing the penetration of our target outsourcing market, extending our
service offerings, addressing the complex and changing needs for health
benefit management services, providing outsourcing services to mid-sized
companies, establishing new business alliances, and growing our business
outside the United States.
Through our consulting business, we provide a wide array of consulting and
actuarial services covering the design, implementation, communication and
operation of health and welfare, compensation and retirement plans, and
broader human resources programs and processes. Our consulting clients
include a diverse base of companies, many of which have been clients for a
long time. We have grown our consulting revenues by both expanding existing
client relationships and adding new clients. Looking back over the last five
years, of our 100 largest consulting clients in 1998 (ranked by revenues),
88 are consulting clients today and have been in each of the last five
years.
We plan to continue to grow our consulting business by extending services
into our existing client base, targeting companies we currently do not
serve, continuing to address the complex and changing needs for health
benefit management services and growing our business outside the United
States.
Industry Background
Human resources outsourcing and consulting have grown rapidly in an
increasingly service and knowledge-based economy as companies view the
effective management of human capital as critical to optimizing business
results. As companies strive to improve profitability and productivity, the
effectiveness of human resources expenditures is an area of increased focus.
Furthermore, the increasing complexity of human resources processes and
programs, the need to develop new or improved programs in response to
changing regulations or competitive pressures, and the desire to realize a
high return on investments in these programs, all contribute to the rising
premium placed on effective human resources.
International Data Corporation, in its Worldwide and U.S. HR Management
Services Forecast for 2003-2007, projects total U.S. human resources
services spending to grow at a 12.5% compounded annual growth rate from
approximately $30 billion in 2002 to more than $54 billion by 2007. This
growth projection consists of: (i) a 20.8% compound annual growth rate for
human resources business process outsourcing (e.g., hiring, benefits,
management, training and development and performance management) from
approximately $6 billion in 2002 to $15 billion in 2007; (ii) an 8.4%
compound annual growth rate for human resources processing services (e.g.,
benefits administration and payroll) from approximately $11 billion in 2002
to $17 billion in 2007 and (iii) a 11.4% compound annual growth rate for
human resources consulting (e.g., human resources strategy, best practices
and process re-engineering, process improvement, organizational,
compensation and benefit design) from approximately $13 billion in 2002 to
nearly $22 billion in 2007.
Companies are focused on maximizing the return on their human resource
investments by structuring human resource programs that meet employee needs
and expectations and by delivering those programs efficiently. Companies are
recognizing that in order to attract, motivate and retain talented
employees, they must provide human resource programs that are viewed as
valuable, as well as tools that enable employees to make choices regarding
their benefits and to conduct related transactions. At the same time,
companies are challenged by rising health care costs, the growing complexity
of health and welfare and retirement plans, frequent technological changes,
the need to comply with changing regulations and the demands of their
employees for choice, information and responsiveness. Consequently,
companies are seeking outside assistance with the design, management and
administration of their human resource programs.
Benefits administration outsourcing includes transactional functions such as
benefits program administration (including providing enrollment materials,
recordkeeping and COBRA administration), regulatory compliance, claims
management and participant call center management, as well as strategic
components such as benefits program design and provider selection. The three
primary areas of benefits administration outsourced by companies today are
health and welfare, defined contribution and defined benefit programs.
The global business environment is becoming increasingly complex,
competitive and technology focused, and employees and employers are
demanding more choice and self-management of benefits. The continued shift
from a manufacturing-based economy to a service- and knowledge-based economy
places a greater premium on a company’s ability to attract, motivate and
retain the human capital necessary to generate value. According to the U.S.
Bureau of Labor Statistics the estimated number of 25 to 44- year-old U.S.
workers is expected to decline from approximately 70 million in 2000 to 68
million by 2010, while the trend of historically low unemployment among
college educated professionals (2.9% in 2002) will continue. As a result, we
believe competition for talent is expected to become more intense and
companies will increasingly seek outside consultants for guidance on human
resources issues.
Business Segments
Our two principal business segments are outsourcing and consulting:
• Outsourcing—We apply our human resources expertise and employ our
integrated technology systems to administer our clients’ human resources
programs: benefits, payroll and workforce management. Our benefits
outsourcing services include health and welfare (such as medical plans),
defined contribution (such as 401(k) plans) and defined benefit (such as
pension plans). Our recent acquisition of Cyborg expands our outsourcing
service offering to include payroll administration, allows us to provide our
clients with a stand-alone payroll service and, importantly, enables us to
offer a comprehensive range of human resources outsourcing services. Our
payroll services include installed payroll software and fully outsourced
processing. Our workforce management outsourcing services include workforce
administration, rewards management, recruiting and staffing, performance
management, learning and development, and talent management.
• Consulting—We provide a wide array of consulting and actuarial services
covering the design, implementation, communication and operation of health
and welfare, compensation and retirement plans and broader human resources
programs and processes.
While we report revenues and direct expenses based on these two segments, we
present our offering to clients as a continuum of human resources services.
Outsourcing
Today, the most significant part of our Outsourcing segment consists of
benefits outsourcing services, which includes three principal categories of
employee benefit programs:
• Health and Welfare;
• Defined Contribution; and
• Defined Benefit.
Building on our experience in benefits outsourcing, we have extended our
benefits outsourcing approach and developed a solution for workforce
management. Our recent acquisition of Cyborg also expands our service
offering to include payroll administration on a stand-alone basis and
enables us to provide our clients with a comprehensive range of workforce
management solutions. We believe that our infrastructure, strong brand name
and human resources market leadership, combined with Cyborg’s underlying
software platform, are competitive advantages which enable us to provide
strong payroll, workforce management and human resources management
solutions.
Outsourcing represented 63% of our net revenues in fiscal 2003. We deliver
outsourcing services primarily to organizations with more than 10,000
employees which have complex human resources and benefit programs. During
fiscal 2003, 101 of our outsourcing clients were Fortune 500 companies. Our
outsourcing clients typically sign three- to five-year contracts and most of
our clients have renewed their contracts with us upon expiration of the
initial term.
Through an integrated suite of technologies that span infrastructure,
data-warehousing, human resources applications, security, service centers,
portals and content management, we provide automated solutions to our
clients’ human resources and benefits-related processes that is flexible
enough to adapt to a broad range of program complexity and to accommodate
the needs of clients ranging in size from less than 1,000 to well over
500,000 employees. Our outsourcing services are designed to help clients
eliminate inefficiencies in human resources and benefits delivery to
employees, continue to meet business objectives in a changing environment
and meet compliance obligations of their human resources and benefits
programs. We relieve human resources managers of the resource-intensive
day-to-day processes required in the administration of human resources and
benefits programs, including recordkeeping, data management, systems
integration, and transaction and decision support. We follow a comprehensive
process to develop an understanding of our clients’ needs, learn their
systems and culture and jointly define their objectives. Our comprehensive
approach provides a secure solution to manage employee data, record and
manage transactions directed by employees, managers, and human resources
professionals and administer human resources, benefits, and payroll
processes. In addition, we transmit and transfer data between our clients
and both their employees and outside parties (such as health plans, trustees
and investment managers). We also provide employers with web-based tools
that enable them to report on and analyze the effectiveness and the return
on investment in their benefits, compensation, and human resources programs
and facilitate project management with us.
Our outsourcing services enable our clients to satisfy their employees’ and
managers’ needs for information, decision-making tools and support, and
ability to take action related to benefits, payroll, and human resources. We
offer our clients’ employees three ways to communicate with us and manage
their benefits and human resources programs: Internet, automated voice
response system and call centers. This multiple access approach encourages
employees’ self-management of their benefits, which in turn helps our
clients control and reduce their human resources and benefits costs. Our
web-based tools, Your Benefits Resources™ and HR WorkWays™, are fully
integrated with the Total Benefit Administration™ and workforce management
platforms and provides employees, managers, and human resource professionals
with personalized content and fast, accurate, and easy-to-use decision
support tools that allow “real-time” management of their human resources and
benefits decisions and transactions. Your Benefits Resources™ also provides
employees with seamless integrated interfaces to outside providers of
services such as investment advice and health care provider directories.
Automated voice response provides participants certain transaction
capabilities over the phone. These self-management solutions can be further
enhanced through AccessDirect™, a personalized directory service that
enables employees to connect to their human resources and benefits providers
and access services. For employees, managers, and human resources
professionals who need more assistance with human resources, payroll or
benefits issues, we staff our call centers with employees who have received
extensive training in issues specific to the client’s programs.
Health and Welfare. Our health and welfare outsourcing services are a
natural extension of our health management consulting capabilities.
Administering health and welfare benefit programs is an important and
complex task for employers who must manage both the rising cost of providing
health insurance and employees’ demands for increased choice of health and
welfare benefit options. Every year, each company has a period of time
(typically three to four weeks) during which employees are required to make
decisions regarding their health and welfare options and enroll in programs
for the following year. Each employer must communicate its benefit offerings
by providing employees with information explaining the available options and
answering employees’ questions regarding the various alternatives. Once
employees have submitted their choices, the employer must then accurately
communicate these choices to provider organizations. For companies managing
benefits administration internally, staffing a human resources department
with adequate support to effectively and efficiently handle this annual
surge of activity is extremely challenging. Furthermore, ongoing health and
welfare administration requires managing payroll deduction and status data
that determine each participant’s health plan eligibility and transmitting
eligibility data to health plans and providers.
Our technology-based delivery model offers employers a cost-effective and
efficient solution to their health and welfare benefits administration
needs. We are able to manage the annual enrollment process in a seamless
manner for the employer and have the ability to clearly communicate to
employees their available choices. We also are able to deliver significant
value to our clients outside of the annual enrollment process and in the
context of ongoing benefits administration. For example, Hewitt Associates
Connections™, our automated data management and premium payment process,
connects us with more than 250 insurance companies and other health plan
providers in the United States, Canada and Puerto Rico, facilitating data
transfer, resolving quality issues, validating participant eligibility and
paying premiums in order to eliminate overpayment to health plans.
Additionally, we offer automatic payment of employees’ portion of program
costs, providing significant efficiencies to the employer and helping to
ensure that contributions to health plans for inactive employees and
retirees are appropriately credited. Further, we document and report issues
and statistics to assist plan sponsors in driving better plan performance.
Our services are available to employees 24 hours a day, seven days a week.
Your Benefits Resources™ enables employees to enroll in and manage their
health and welfare benefits via the Internet. In addition to using Your
Benefits Resources™ to obtain information about the various options
available and model their health and welfare benefit costs under various
assumptions, employees can also use our automated voice response system or
our call centers. Additionally, ProviderDirect, another web-based service,
allows employees to identify in-network medical providers by criteria such
as specialty, location and gender. Our Participant Advocacy service provides
assistance directly to employees regarding the resolution of health plan
eligibility, access and claim issues. In addition, in January 2004, we
expect to begin providing Health Care Spending Account administration
services through the Internet that will provide employees with a paperless
way to manage their health care spending accounts and file claims for
reimbursements.
Based on our knowledge of the marketplace and the number of employees to
whom we provide services, we believe Hewitt is the largest provider of
outsourced health and welfare administrative services. As of September 30,
2003, we were providing health and welfare outsourcing services to 143 plan
sponsors, of which 2 were related to the recent NTRC acquisition. We believe
our experience and expertise in managing complex health and welfare plan
administration issues will be a significant factor in the continued growth
of this business, especially as plan sponsors continue to focus on managing
the cost of multi-option health and welfare programs.
Defined Contribution. Most companies outsource the administration of their
defined contribution plans. Defined contribution administration requires
management of significant volumes of participant, payroll and investment
fund data and transactions, and daily transaction data transmissions between
companies and their defined contribution plan trustees and asset managers,
as well as daily posting of investment results to employees’ individual
defined contribution accounts.
Unlike many of our competitors who provide defined contribution outsourcing
services as a means to accumulate plan assets in their proprietary
investment funds, we do not manage investments. As a result, we are able to
maintain an objective, independent position regarding our clients’ choices
of funds to include in their plans. Our focus is on providing reliable, high
quality and comprehensive services to both the plan sponsor and to the
employee.
Through our Total Benefit Administration™ system, we maintain and manage
defined contribution data for clients, while accommodating clients’ choices
of trustees and investment funds. This allows our clients to provide defined
contribution programs that their employees value, transfer the
administrative burden for these programs and control costs. In addition, we
work with researchers at leading academic institutions to analyze the
considerable amounts of data we accumulate to identify trends in participant
investment behavior. This additional intelligence allows us to help our
outsourcing clients refine their strategy for meeting employees’ investment
needs.
We provide web-based access 24 hours a day, seven days a week through our
Your Benefits Resources™ site for employees to make various elections and
changes to their defined contribution accounts. Employees can also use our
automated voice response system or our call centers to ask questions and
make various elections and changes. This is appealing to employees who
increasingly desire the ability to actively manage their investments.
Through integrated Your Benefits Resources™ capabilities, we also provide
employees with access to investment advice from third party vendors and
self-directed brokerage account options through our subsidiary, Hewitt
Financial Services, and its alliance with Harrisdirect, a leading provider
of on-line brokerage services.
According to a survey conducted by Plan Sponsor magazine, we are the third
largest provider of outsourced defined contribution administration services
based on number of employees. Based on our knowledge of the marketplace and
number of employees to whom we provide services, we believe we are the
largest provider of outsourced defined contribution administration services
that is not also an asset manager. As of September 30, 2003, we were
providing defined contribution outsourcing services to 159 plan sponsors of
which, 46 were related to the recent NTRC acquisition. While the domestic
market for defined contribution outsourcing is relatively well-developed, we
believe the international markets offer us opportunities for expansion as
employers in many countries outside the United States are beginning to adopt
defined contribution plans. We believe our global reach and our strategy to
increase our international presence will provide an opportunity to grow this
service offering. We believe industry consolidation will provide other
opportunities for expansion in this area. For example, in 2002, we partnered
with National City Corporation to provide 401(k) administration services,
including recordkeeping and customer service, to National City Corporation
clients.
Defined Benefit. Most mid-sized and large employers continue to sponsor
defined benefit (pension) plans. Pension plans are subject to numerous laws
and regulations and the administration of them has historically been
extremely complex and paper-intensive, resulting in challenges for
employers. Because inaccurate or improper plan administration can have
significant adverse consequences, many employers seek third-party providers
to administer their plans.
Our defined benefit outsourcing services were a natural extension of the
retirement and financial management consulting services that we have
provided since our inception. Through our Total Benefit Administration™
system, we have re-engineered, streamlined and shortened the traditional
processing of an employee’s retirement. Our approach relies on a high degree
of automation for both calculations and execution of transactions for each
participant. Total Benefit Administration™ includes a database that captures
all historical data for current and past employees, enabling employers to
accurately apply plan provisions to appropriate participant populations, and
often times, for multiple plans. Additionally, for employers who are
implementing plan changes, Total Benefit Administration™ offers an Internet
channel that provides employers with decision-making support.
Through Your Benefits Resources™, we provide employees convenient and
easy-to-use web based tools to model their benefits based on various
retirement dates, information regarding their retirement options, and the
ability to initiate and process their retirement on-line. Employees can also
use our automated voice response system to model their benefits. Through our
call centers, we provide access to pension counselors who are knowledgeable
about employees’ pension programs and options and who can explain the often
complex process of how their pension plans work.
Based on our knowledge of the marketplace and the number of employees to
whom we provide services, we believe we are the largest provider of
outsourced defined benefit administration services. Further, we believe that
only a small percentage of organizations have outsourced their defined
benefit administration to date. As of September 30, 2003, we were providing
defined benefit outsourcing services to 112 plan sponsors, of which, 13 were
related to the recent NTRC acquisition. We believe there are growth
opportunities for us as we continue to leverage our technology, expertise
and experience to bring our defined benefit outsourcing services to
companies which have not yet outsourced their defined benefit plans.
Workforce Management. We have built on our experience in outsourcing and
consulting to provide our workforce management solution. This service
enables our clients to outsource a wide range of human resources
administrative functions, including workforce administration, rewards
management, recruiting and staffing, performance management, learning and
development, and talent management. Through our workforce management
solution, we enable companies to streamline their human resources
administration and processes in order to enhance effectiveness and reduce
costs, and to employ web-based technologies to automate processes and
transactions. By outsourcing their human resources functions to us,
companies are able to receive improved services and tools for employees,
managers and the human resources function without having to continually
invest capital and resources to keep pace with rapidly developing human
resources technologies and processes. This service is provided through a
combination of our own capabilities and alliances with other specialized
providers.
In fiscal year 2002, we completed initial implementation work for our first
workforce management client, the U.S. operations of Sony Electronics, and
successfully launched operations on October 1, 2002. We now have four
workforce management clients. For our second workforce management client, a
large pharmacy benefits management company, our health and welfare
outsourcing services started in November 2002 and our defined benefit and
workforce management services started in April 2003. Implementation work is
also underway for our third and fourth workforce management clients. The
third client is a healthcare organization and we expect that workforce
management services will commence in early fiscal 2004. The fourth client is
a global financial services organization and we expect that workforce
management services will commence on a global basis in the second half of
fiscal 2004. During 2003, we also expanded services for our first client.
Our new workforce management offering is an important element of our
outsourcing growth strategy.
Payroll. Our acquisition of Cyborg gives us the capability to provide
payroll services both through licensing and installing software and through
a fully outsourced payroll services model. We believe that the demand for
payroll services among large companies is significant and growing, and we
expect to provide value to clients by applying the same human resources
experience, continuous systems enhancement and process improvement to
payroll that we have to our other outsourcing services.
Through our payroll business, we now provide installed human resources
management system and payroll software as well as outsourced payroll
processing. The range of payroll processing services we offer includes:
payroll processing, time and attendance management, tax and other regulatory
compliance assistance, and year-end tax and other payroll reporting. We
expect to build on our experience in human resources outsourcing to extend
the core Cyborg system to offer a fully outsourced payroll model.
As a natural extension of the workforce management outsourcing work we do
for Sony, we will also begin providing outsourced payroll services to Sony
in December 2003.
Consulting
Consulting represented 37% of our net revenues in fiscal 2003. We offer
consulting services to a diverse range of clients. In today’s increasingly
service and knowledge-based economy, companies regard the effective
management of human capital as critical to the success of their business.
Companies recognize that in order to attract, motivate and retain talented
employees, they must provide benefits, compensation and other human
resources programs that employees view as valuable as well as the tools to
enable employees to make choices and conduct related transactions.
To meet this need, we provide a wide array of consulting and actuarial
services covering the design, implementation and operation of health and
welfare, compensation and retirement plans and broader human resources
programs and processes. In addition, we use the information and data we
collect and analyze through our outsourcing services to develop consulting
approaches that are effective and provide value to our clients.
Our consulting services consist of three principal categories:
• Health Management;
• Retirement and Financial Management; and
• Talent and Organization Consulting.
Health Management. Increasing health care costs present a challenge for many
companies at a time when employees expect broader and more cost-effective
health care choices and general economic conditions place demands on
employers to reduce spending. We believe we have an opportunity to help
employers control these escalating costs and take advantage of the
transformation of health and welfare benefits from a managed care to a
consumer-driven system in which employees are provided with cost and quality
information tools to more effectively manage their use of the health care
system. Our health management consultants help clients design comprehensive
health and welfare strategies, from the initial philosophical approach to
specific benefit plan content that supports our clients’ human resources
strategies. We assist our clients in the selection of health plans that
balance cost and value and improve employee satisfaction. We also help
clients determine which funding approaches (i.e., insured, self-insured, or
risk adjusted insured) and employee contribution strategies will best meet
their objectives.
We help our clients achieve these goals through our proprietary technology
applications and tools that we have developed, including:
• The Hewitt Health Value Financial Index. A tool for comparing all
employer’s health care benefits and costs against a database of
approximately 14 million participants;
• The Hewitt Health Value Performance Index. Detailed quality, financial and
administrative performance data on over 1,800 health plans across the United
States;
• The Hewitt Health Resources eRFP. We believe this is the highest volume
Internet purchasing site in the group health insurance industry, supporting
over 5,000 HMO negotiations and renewals annually; and
• Consumer Satisfaction Web Site. Feedback on employees’ satisfaction with
individual health care plans as an additional measure of employer
performance.
Our health management consulting business provided services to approximately
390 clients during fiscal year 2003. We believe we continue to be
well-positioned to address the growing, complex and changing needs for
health benefit management services through our integrated approach, enabling
us to provide high-value, cost-effective solutions to meet the specific
objectives of our clients.
Our health management consulting business is closely integrated with our
health and welfare benefits outsourcing business to provide a comprehensive
solution from strategy and design to delivery and administration of health
and welfare benefits. We are able to extract detailed design, demographic
and health plan cost data from our outsourcing clients and aggregate the
data to provide unique insights for our consulting clients into the quality,
cost efficiency and rate structure of nearly every local health plan in the
United States. Furthermore, due to our health and welfare outsourcing
experience, we are able to design programs that not only meet our clients’
business objectives, but that also can be administered, communicated and
delivered efficiently and cost effectively. In addition, for our consulting
clients that are also outsourcing clients, we are able to leverage the data
and knowledge we accumulate through outsourcing to create efficiencies,
speed implementation and execution of strategies and enhance our service
offering in providing consulting services to them.
Retirement and Financial Management. Virtually all large companies sponsor
retirement plans as part of their overall employee benefit programs–either
defined benefit plans, defined contribution plans or a combination of these
plans. Many large companies also offer retiree medical and life insurance
benefits as part of their overall retirement benefit program. Over the past
few decades, the liabilities and assets which underlie these programs have
grown considerably, and the regulatory and accounting standards which govern
retirement plans have become increasingly complex. Additional services are
often needed with respect to retirement plans in the case of significant
corporate events or changes such as workforce reductions, early retirement
programs, mergers or acquisitions. All of this has contributed to a
continuing demand for retirement-related consulting.
Our retirement and financial management business, which we refer to as “RFM”,
assists clients in three primary activities: (i) developing overall
retirement program designs that are aligned with the needs of companies and
their employees; (ii) providing the actuarial analysis in support of
clients’ plan funding and expensing obligations; and (iii) consulting on
asset allocation, investment policies and investment manager evaluation.
There has been significant activity around retirement program redesign, as
companies look to simplify plans, better manage overall program costs and
risks, and align their program design with their business objectives. Our
RFM consultants work with clients to understand their business and workforce
strategies, to define their philosophy with respect to retirement programs,
and to design programs that reinforce the key messages to their workforce,
while also helping to ensure that the programs comply with applicable
governmental regulations. To assist in the design process, we have developed
a variety of interactive, real-time modeling and analytical tools to help
employers understand the effect of program changes on individual employees
and to highlight the issues inherent in making an effective transition from
one program to another. We measure the competitive position of our clients’
retirement programs using our proprietary Benefit Index® tool, which
calculates the relative value of a company’s benefit program compared to a
group of selected companies in the same industry, of similar size or in the
same geographic region. We believe Benefit Index® is the industry benchmark
for measuring the relative value of an organization’s retirement program. We
also help employers develop individual websites, often with modeling
capabilities, to communicate the details of new retirement programs and
often to allow employees to project their own benefits under different
assumptions or program choices.
When employers sponsor defined benefit plans or retiree welfare plans, they
typically require the services of a qualified actuary. Actuarial
relationships tend to be long-standing, ongoing engagements, and actuarial
services represent a significant portion of our RFM business. As actuaries
for a plan, we calculate the plan’s funded status, the annual cash
contribution requirements under applicable governmental requirements, the
annual expense impact under applicable accounting standards and other
benefit related information for the company’s annual financial statements.
In addition to these services, our RFM actuarial consultants provide
additional benefit plan services by assisting with the annual budgeting and
planning process, preparing financial projections for asset and liability
trends (a joint effort with our RFM investment consultants) and providing
cost analyses during union negotiations. Our RFM actuarial consultants also
assist clients in due diligence investigations and analyses of proposed
mergers, asset sales, acquisitions and other corporate restructurings to
help our clients understand the implications of such transactions on the
liabilities and funded status of the plan, as well as on the future cash
contribution and expense trends.
Our RFM investment consultants work with fiduciaries of both defined
contribution and defined benefit plans to help them set investment
philosophies, determine asset allocations and select asset managers. We also
monitor the performance of a large number of asset managers and, since we do
not manage assets, we are able to provide clients with objective and
independent analysis of investment policies and procedures.
Our RFM consulting business is closely aligned with our defined benefit and
defined contribution outsourcing business. With our full range of services,
we are able to provide comprehensive retirement program solutions for
clients, from strategy and design of retirement plans to actuarial and
investment services and administration, communication and implementation of
retirement plans. For consulting clients that are also outsourcing clients,
we are able to leverage the data and knowledge we accumulate through
outsourcing to assist them in developing plan design features and actuarial
services better suited to their specific needs.
Our RFM consulting business provided services to approximately 1,680 clients
during fiscal year 2003. We expect that our RFM services will continue to
contribute to our overall growth, especially as clients have begun to adopt
a global outlook and focus on selecting consultants with international
capabilities. Over the past several years, we have expanded our global RFM
capabilities significantly, through both internal growth and a series of
acquisitions and alliances in Canada, France, Germany, Hong Kong, Ireland,
Mexico, The Netherlands, Norway, Portugal, Sweden, Switzerland and the
United Kingdom.
On June 5, 2002, we acquired the benefits consulting business of Bacon &
Woodrow, a leading actuarial and benefits consulting firm in the United
Kingdom. We refer you to Note 6 to the consolidated and combined financial
statements for additional information on this acquisition. Our increased
presence in the United Kingdom, where many of our clients also have
significant operations, has enhanced our ability to offer global design,
communication, actuarial and investment consulting services.
Talent and Organization Consulting. Our talent and organization consulting
business is focused on four primary activities: (i) devising strategies for
attracting, developing, motivating, rewarding and retaining the leadership
and other talent our clients need to succeed; (ii) providing solutions to
the people-related issues arising from organizational change (such as
mergers and acquisitions); (iii) helping create and implement customized
reward and performance management programs, including annual incentives,
stock options and other performance-based plans; and (iv) reducing costs and
enhancing our clients’ productivity through more effective human resource
functions and processes.
Our services continue to focus on helping our clients address the challenges
of finding, managing, engaging and rewarding talented employees and leaders.
Meeting these challenges successfully is expected to become even more
important as the competition for talent becomes more intense. The U.S.
Bureau of Labor Statistics has estimated that the number of 25 to
44-year-old workers is expected to drop from approximately 70 million in
2000 to 68 million by 2010, while the trend of low unemployment among
college educated professionals (2.9% in 2002) continues. There are similar
trends in other countries globally. We expect competition for qualified
people to intensify as the pool for talent decreases but the need for that
talent increases. We believe this trend makes our services that much more
valuable and attractive to clients.
Through our numerous talent and rewards tools, data and services, we help
companies align their human resources investments with their business
objectives, identifying critical human resources practices based on a given
business environment, geography and labor force situation. For example, our
Total Compensation Measurement™ and Variable Compensation Measurement™ tools
enable clients to analyze and assess compensation effectiveness and to
compare their compensation programs with over 590 companies in the U.S.
alone, including approximately 75 of the Fortune 100. We also help clients
use focus groups, interviews, surveys and other methods to better understand
their workforce, enhance their relationships with their employees and
encourage the types of behavior that ensure business success.
Our talent and organization consultants also assist clients with significant
human resources issues arising out of events such as mergers and
acquisitions, divestitures, initial public offerings, spin-offs, joint
ventures and other restructurings. In each of these organizational changes,
people play a critical role in determining the ultimate success or failure
of the transactions. Our Hewitt Mergers & Acquisitions Management Center™, a
website supporting project management and providing access to technical
expertise needs ranging from due diligence to integration, enables seamless
collaboration between our clients, consultants and external service
providers. Since January 2000, we have provided organizational change
services in connection with over 550 transactions, giving us important
gateways into companies with whom we have not historically had firm-wide
consulting relationships. We expect this number will grow even larger as we
target and increase our investment in building new business with large
multinationals headquartered outside North America.
Our human resources effectiveness consulting service helps clients reduce
human resources operating costs, generate more productivity in the
workforce, and drive more effective people-related decisions. Our
consultants employ technologies and tools to analyze the activities and
costs of the human resources function in order to improve efficiencies,
reduce costs and enhance effectiveness of the function.
Our talent and organization consulting business provided services to
approximately 900 clients during fiscal year 2003. As companies continue to
expand globally and seek assistance in developing and implementing
successful organizational change, we anticipate that our services will be in
increasing demand. As demographic projections indicate an increasing
shortage of talent globally, we also expect that clients will require
assistance in creating effective strategies for attracting and retaining
talent and for compensating them in a way that is aligned and consistent
with broader business objectives.
Our talent and organization consulting business is closely aligned with our
workforce management outsourcing services to help clients transform their
human resources processes and improve the efficiency and effectiveness of
the human resources function. We also provide communication, training and
change management services to support this transformation. We believe we
will be able to leverage our deep human resources knowledge and consulting
experience in this transformation process to benefit additional outsourcing
clients in the future.
Competition
We operate in a highly competitive and rapidly changing global market and
compete with a variety of organizations. In addition, a client may choose to
use its own resources rather than engage an outside firm for human resources
solutions.
Outsourcing. The principal competitors in our benefits outsourcing business
are outsourcing divisions of large financial institutions, such as
CitiStreet (a partnership between subsidiaries of State Street and
Citigroup), Fidelity Investments, Mellon Financial (through its subsidiary,
Mellon HRSolutions), Merrill Lynch, Putnam Investments, T. Rowe Price and
the Vanguard Group, and other firms that provide benefits outsourcing
services such as Towers Perrin. Some of our payroll competitors include
Automatic Data Processing, Ceridian and Paychex while our principal
workforce management competitors include some of our benefits outsourcing
competitors and companies such as Accenture, Electronic Data Systems and
Exult.
Consulting. The principal competitors in our consulting business are
consulting firms focused on broader human resources, such as Mercer Human
Resource Consulting, Towers Perrin and Watson Wyatt Worldwide. We also face
competition from smaller benefits and compensation firms, as well as from
public accounting, consulting and insurance firms offering human resources
services.
We believe that the principal competitive factors affecting both our
outsourcing and consulting businesses are the ability to commit resources
and successfully complete projects on a timely and cost-effective basis, our
perceived
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