Watson Wyatt moves up a gear

Managing consultant Ray McKenna says firm plans to triple fee income in five years

Watson Wyatt was "a sleeping giant" in the Irish benefits consultancy sector, according to its new motorcycling, water-skiing managing consultant Ray McKenna. "We're taking off our sheep's clothing," he says.

For anyone with a mental image of a giant sheep climbing on the back of a Harley and shedding white fluffy hair around the human resources departments of large Irish corporations, this essentially means poaching consultants from larger rivals, expanding its human capital practice beyond its traditional pensions focus and becoming a plc.

Last Sunday, the Europe-based Watson Wyatt partnership, which started life in the 19th century as Watson & Sons in the UK, was acquired by the US-headquartered Watson Wyatt plc. Money exchanged hands and several of the UK-based partners are multimillionaires as a result of the deal, but not the Irish ones, McKenna says.

McKenna, who is 40, has come to the helm of the firm (following the retirement of former managing consultant Kevin Spring) at something of a transitional time.

The company here, officially Watson Wyatt Ireland Ltd as of August 1st, has been "a bit more low key" than its operations in the UK, where it advises 70 per cent of the FTSE 100 companies. In the Republic, it is overshadowed by its competitor Mercer, which dominates the market with an estimated 60 per cent share.

It's a long way back to Watson Wyatt, which claims a 15 per cent share. "We're probably punching way below our weight in the Irish market," McKenna admits. Expansion was given a kick-start last year with the acquisition of KPMG's human capital practice, from where McKenna joined the company. Watson Wyatt now employs 80 people in its Irish offices, up from around 30 five years ago. McKenna expects that Watson Wyatt's recruitment strategy will result in staff numbers of 100 or more by the end of the year.

The benefits consultancy market is going through a period of consolidation and McKenna intends Watson Wyatt to be among the buyers.

The five-year plan involves a doubling, if not a tripling, of size in terms of employment numbers, client base and fee income, which he will not disclose. Globally, Watson Wyatt has revenues of $1.1 billion (€890 million).

McKenna believes his own appointment exemplifies a different direction for the Irish firm. Controversially, he is not an actuary and eschews a different approach from the industry stereotype.

"Anything beyond a black tie around here would have been seen as pretty racy," he says.

The firm is not just adjusting its style, but its content too. "The traditional scene of a job for life plus pension when you retire is changing, so we are no longer pure pension advisers," McKenna states simply.

The company has just launched a healthcare practice, snapping up a leading consultant in the field from Mercer, and plans to invest in its insurance services division, which advises IFSC companies.

Issues such as risk management, a pick 'n' mix approach to employee benefits and executive remuneration are currently to the fore.

McKenna believes Irish companies need to increasingly adopt modern approaches to executive remuneration, with a heavier emphasis on performance-related pay and appropriate benchmarks for executive rewards.

"Shareholders are demanding it, investors are demanding it and good corporate governance is demanding it," he says.

"Overpaying people is a waste of time. They don't appreciate it," he adds. "But if they are underpaid, they do notice it."

Although it has a client base of over a thousand, most of Watson Wyatt's fee income is derived from about 300 large companies and for many of these companies, the biggest bugbear remains their balance-sheet-wrecking pension schemes.

Advising companies on what to do about the expensive legacy of defined benefit, or final salary, pension schemes is still Watson Wyatt's "bread and butter".

Deficits in the funding of these schemes are commonplace. Driven by stock market losses in recent years and the low interest rate environment, the deficits, or at least the effects of them, are now being exacerbated by the Pensions Board's minimum funding rules and new accounting standards, according to McKenna.

"There is some element of short-termism in this. If we're over-regulating, we will defeat the purpose of regulating. Companies are saying we are not putting up with it, we are closing our schemes to new members and we are within our rights to do it."