ManpowerGroup 2008 Annual Report Download - page 34

32 Management’s Discussion & Analysis Manpower Annual Report 2008
Management’s Discussion & Analysis
of financial condition and results of operations
plan based on the historical rates and the expected future rates for each respective country. Changes to any of these
assumptions will impact the level of annual expense recorded related to the plans.
We used a weighted-average discount rate of 6.4% for the U.S. plans and 5.2% for the non-U.S. plans in determining the
estimated pension expense for 2009. These rates compare to the 6.3% and 5.0% weighted-average discount rates for the
U.S. plans and non-U.S. plans, respectively, used in determining the estimated pension expense for 2008, and reflect the
current interest rate environment. Absent any other changes, a 25 basis point change in the weighted-average discount rate
would impact 2009 consolidated pension expense by approximately $0.1 million for the U.S. plans and $1.3 million for the
non-U.S. plans. We have selected a weighted-average expected return on plan assets of 7.3% for the U.S. plans and 5.2%
for the non-U.S. plans in determining the estimated pension expense for 2009. The comparable rates used for the calculation
of the 2008 pension expense were 7.5% and 5.4% for the U.S. plans and non-U.S. plans, respectively. A 25 basis point
change in the weighted-average expected return on plan assets would impact 2009 consolidated pension expense by
approximately $0.1 million for the U.S. plans and $0.4 million for the non-U.S plans. Changes to these assumptions have
historically not been significant in any jurisdiction for any reporting period, and no significant adjustments to the amounts
recorded have been required in the past or are expected in the future. (See Note 9 to the consolidated financial statements for
further information.)
U.S. Workers’ Compensation
In the U.S., we are self-insured in most states for workers’ compensation claims for our contingent workers. We determine
the proper reserve balance using an actuarial valuation, which considers our historical payment experience and current
employee demographics. Our reserve for such claims as of December 31, 2008 and 2007 was $79.2 million and $81.2
million, respectively. Workers’ compensation expense is recorded as a component of Cost of Services.
There are two main factors that impact workers’ compensation expense: the number of claims and the cost per claim. The
number of claims is driven by the volume of hours worked, the business mix which reflects the type of work performed (for
example, office and professional work have fewer claims than industrial work), and the safety of the environment where the
work is performed. The cost per claim is driven primarily by the severity of the injury, related medical costs and lost-time wage
costs. A 10% change in the number of claims or cost per claim would impact workers’ compensation expense in the U.S. by
approximately $3.0 million.
Historically, we have not had significant changes in our assumptions used in calculating our reserve balance or significant
adjustments to our reserve level. During 2008 we experienced a stabilization in workers’ compensation expense, primarily as
a result of our continued focus on safety which includes training of contingent workers and client site reviews. Given our
current claims experience and cost per claim, we do not expect a significant change in our workers’ compensation reserve in
the near future. However, we have historically experienced an increase in the number of claims following a recessionary
period. Should this pattern reoccur, we could potentially experience higher costs for a 2-3 year period starting in 2009.
Social Program Remittances and Payroll Tax Audit Exposure
On a routine basis, various governmental agencies in some of the countries in which we operate audit our payroll tax
calculations and our compliance with other payroll-related regulations. These audits focus primarily on documentation
requirements and our support for our payroll tax remittances. Due to the nature of our business, the number of people that we
employ, and the complexity of some payroll tax regulations, we may have some adjustments to the payroll tax remittances as
a result of these audits.
In France, in particular, the government has various social programs that are aimed at reducing the cost of labor and
encouraging employment, particularly for low-wage workers, through the reduction of payroll taxes (or social contribution).
Due to the number of new programs or program changes, and the complexity of compliance, we may have adjustments to
the amount of reductions claimed as a result of the audits. During 2007, there was a change in the payroll tax calculation
under certain French social programs, retroactive to January 1, 2006 and effective through September 30, 2007. During
2008, we learned that this same change was applicable to 2005. (See Note 1 to the consolidated financial statements for
further information.)
We make an estimate of the additional remittances that may be required on a country-by-country basis, and record the
estimate as a component of Cost of Services or Selling and Administrative Expenses, as appropriate. Each country’s estimate
is based on the results of past audits and the number of years that have not yet been audited, with consideration for changing
business volumes and changes to the payroll tax regulations. To the extent that our actual experience differs from our
estimates, we will need to make adjustments to our reserve balance, which will impact the results of the related operation and