Watson Wyatt & Company Holdings
At Watson Wyatt, we create financial value through people and for people. Our consulting work contributes to the security of millions of people. Everything we do—from aligning the workforce, to helping employees make wise decisions, to guiding pension investments—creates financial value for shareholders and employees.
Watson Wyatt Worldwide is an affiliation of two independent entities formed to provide global actuarial, benefits, and human resources consulting services. Watson Wyatt Partners, based in the United Kingdom, is a private partnership with 25 offices in England, Ireland, and Europe. Watson Wyatt & Co., based in the United States, has 62 offices in 18 countries in the Americas and the Asia/Pacific region, and is the principal subsidiary of Watson Wyatt & Company Holdings, a public company. Watson Wyatt & Co. employees own about two-thirds of the shares. The two affiliates share resources, technologies, processes, and business referrals.
The Wyatt Company: 1946–69
In 1946, Birchard (Byrd) E. Wyatt and seven partners cofounded The Wyatt Company of Consulting Actuaries. B.E. Wyatt was in his 30s, with an M.B.A. from the Wharton School of Business and work experience at the Social Security Administration. Wyatt opened offices in Washington, D.C., and New York, as well as in the midwestern cities of Detroit, Chicago, and Cleveland.
The following year, William Rulon Williamson became president of the company, working in the Washington, D.C. office. Williamson helped set up the Social Security program as chief actuary of what became the Social Security Administration, and it was there that he met B.E. Wyatt. Under Williamson the company established its Executive Compensation Service and initiated an annual survey of the salaries of top managers in companies across the country. Wyatt's first Top Management Survey was released in 1949. Williamson resigned from the company in 1950 to start his own company.
As actuaries, the Wyatt partners evaluated the risks, such as life expectancy and accidental or premature death, on groups of people. In this capacity, they helped clients set up pension plans, determined premium rates, and advised investment managers of the resulting pension funds.
Wyatt expanded as tax and pension laws changed, beginning with the 1957 Federal Welfare and Pension Plans Disclosure Act. In 1958, the partners incorporated the organization as The Wyatt Company. By that time it had eight offices, including one in Canada. By 1962, Wyatt had offices coast to coast.
Pension Concerns: 1970s
In 1971, Wyatt published its first annual Employee Compensation Survey, examining the pay of office workers. With the passage of the 1974 Employee Retirement Income Security Act (ERISA), more and more businesses turned to pension consultants to help them revise and administer their pension plans. That law resulted in many companies terminating their defined benefit plans and switching to other types of programs. According to a survey reported in a 1977 Washington Post article, in 1973, 87 percent of responding companies provided retirement benefits. By 1977, that figure had dropped to 80 percent.
Under defined benefit plans, firms had to pay the promised benefits no matter what happened to their profits or assets. Companies began to explore options such as profit sharing, employee stock ownership plans, and Individual Retirement Funds that defined contributions (how much an employer paid in) rather than how much would be received when someone retired.
During this time, Wyatt grew by opening new offices and buying other actuarial companies. In 1975, it bought Cole & Associates, a Boston-based firm, and in 1979, the company expanded overseas, acquiring U.K.-based Harris Grahman Pattison and opening offices in Hong Kong and Malaysia.
Employee Benefits Consulting: 1980s
By the beginning of the 1980s, Wyatt employed more than 400 actuaries and employee benefits consultants and operated 21 offices in the United States and another 12 in Canada, Europe, and Asia. It soon moved into Latin America, opening an office in Mexico, and in 1985, it conducted the first compensation survey of employees of multinational corporations in the People's Republic of China. In addition to pension planning and plan administration, the company now offered its more than 8,000 clients such consulting services as risk management, international services, and employee communications.
In 1986, Congress passed the Tax Reform Act, adding to employers' demand for consultants. At the same time, many businesses were moving toward offering more diverse and "flexible" kinds of benefits. Recognizing that all employees did not have the same family patterns or saving habits, plans began appearing that let employees choose benefits packages suited to their own needs regarding health and dental insurance, life insurance, annuities, and other retirement options.
By 1988, Wyatt was experiencing growth at a rate of 20 percent a year through aggressive marketing, and Michael H. Davis, operating out of the Boston office, was named chief executive officer. In 1989, the company had 3,500 employees and revenues of $332 million from its benefits consulting, making it the third largest employee benefits consultant in the world, behind William M. Mercer Inc. and TPF&C.
Wyatt created Wyatt Software Services, Inc. to develop software packages to help administer benefits programs and opened its 35th foreign office in Gothenburg, Sweden. The company now had more offices outside the United States than it had in the country.
Uncertain Times: 1990–95
At the beginning of the decade, Wyatt's healthcare consulting business was growing rapidly as employers tried to control health and medical expenses. Its overseas business also grew, with new offices opened in Europe and Indonesia. In 1991, the company had revenues of $440.5 million.
During 1992, the company developed alliances to provide administration and investment management services for 401(k) retirement plans and to offer benefits administration services to its large U.S. clients. It also was appointed to help design healthcare programs for the governments of Costa Rica and New Zealand. But with the recession and uncertainty about federal healthcare proposals, employers began cutting back on using consultants and all major benefits consultants saw revenues slide. Wyatt experienced its first drop in revenue and a loss of more than $10 million. The company indicated that its U.S. operations were making money but losses occurred overseas and in its software operations. Wyatt downsized and created a new regional management structure.
A.W. (Pete) Smith became CEO of Wyatt in 1993. Smith joined Wyatt in 1975 with the acquisition of Cole & Associates and eventually managed the Wyatt office in San Francisco. In that position, he arranged the joint ventures between IBM and Apple Computer that created Taligent and Kaleida. Smith's philosophy, according to an interview with the Washington Post's Jonathan Glater, was that professional service organizations should "provide services that help clients ... not to have services that need to be sold."
Smith implemented that philosophy through the One Wyatt Vision, which continued the firm's traditions of local independence and professional freedom while urging its offices to use a common approach and make better use of the expertise within the organization. For example, in anticipation of more clients outsourcing the administration of all of their benefits, Smith centralized Wyatt's plan administration services into one profit center. He also announced that Wyatt would be forming a marketing alliance with R. Watson & Sons, a U.K. actuarial firm.
R. Watson & Sons: Late 19th-Century Company Origins
R. Watson & Sons (Watsons) was a private partnership headquartered in Reigate, outside of London. Started in 1878, it had grown from a family operation to become the leading benefits consultant to major U.K. companies and a strong insurance consulting firm. During the 1980s, the firm began moving into Europe.
In 1982, Watsons combined with two other U.K. actuarial firms, Racon & Woodrow and Duncan C. Fraser, to form European Actuarial Consultancy Services (EURACS). EURACS bought the pension consulting division of Banque Bruxelles Lambert, the second largest bank in Belgium. This enabled the firms to expand into continental Europe to better access multinational companies for their employee benefits, insurance, and compensation packages. This was a response to the trend of multinationals to seek pension and related consulting services from one company. In 1989, Watsons formed Watsons Europe, a pan-European financial consulting service.
Changes in legislation and reductions in employee benefits under England's state pension program led Watsons to propose an industrywide pension program for the engineering industry. In 1987, Watsons, working with the Engineering Employers' Federation, appointed Friends Provident, one of Britain's major mutual life insurance companies, to develop and administer the Engineering Industry Pension Scheme (EIPS). Enrollment was voluntary and the new program offered employers an option to the state pension scheme. EIPS was particularly attractive to small and medium-sized companies because it made it possible for them to offer employees diverse packages to meet their specific needs.
Watsons continued to expand internationally, and by 1994 it had 800 employees in 14 offices in the United Kingdom, Ireland, continental Europe, the Caribbean, and Africa.
A Global Alliance: 1995
In April 1995, the alliance between R. Watson & Sons and The Wyatt Company became final. The two firms would operate globally under the name Watson Wyatt Worldwide, sharing resources, technologies, and consulting expertise but maintaining their independent entities. Linkages between a U.S. benefits consulting company and an overseas consulting firm were just beginning to be tried, with several objectives: to help U.S. clients in foreign markets, to gain new customers, and to gain an advantage in a very competitive environment.
Watson Wyatt Worldwide had 4,500 employees in 89 offices and generated more than $500 million in fees. Each firm remained independent—Watsons as a partnership and Wyatt as an employee-owned corporation. Wyatt's actuarial practice was weak on the European continent, while Watsons' was strong. Wyatt had 11 benefits consultant offices, however, and Watsons had only four. Thus the new alliance allowed both companies to combine their expertise into a larger and stronger presence on the continent.
To establish the alliance, Wyatt transferred its U.K. operations to Watsons in exchange for a 10 percent interest in the partnership's defined distribution pool and a seat on Watsons' management committee. Watsons purchased about 2 percent of Wyatt's privately held stock and gained a seat on Wyatt's board. The two firms also consolidated their European operations into Watson Wyatt Holdings (Europe) Limited, with Watsons owning 75 percent of that new entity and Wyatt the remaining share. The alliance resulted in only a few layoffs, with all 200 of Wyatt's employees in its U.K. offices transferring to Watsons' offices. Under the alliance, Wyatt took the lead role in the Americas and the Asia-Pacific region and Watsons had primary responsibility in Europe, Africa, and the British Caribbean.
The alliance formed a four-person management committee to oversee Watson Wyatt's strategy. The committee was chaired by Wyatt's president, "Pete" Smith; its COO, Paul Daoust; Robert Masding, Watsons' incoming senior partner; and Philip Cockbain, head of Watsons' benefits practice. In July 1996, the two firms legally changed their names. Wyatt became Watson Wyatt & Company; Watsons became Watson Wyatt Partners.
In and Out of Outsourcing: 1995–99
The global alliance, the One Wyatt Vision, an improved economy, the movement toward managed healthcare, and employers' interest in streamlining benefits resulted in a nearly 30 percent gain in earnings for Watson Wyatt Worldwide for fiscal 1995. This was the largest increase among the top ten benefits consulting firms, most of which also posted double-digit growth figures.
At the end of December 1995, Watson Wyatt announced a joint venture with State Street Bank and Trust Co. to provide benefits administrative outsourcing. The venture, Wellspring Resources LLC, built on Watson Wyatt's outsourcing centers in Florida and Minnesota, established a few years earlier. Developing an outsourcing practice was a very expensive undertaking, however, costing about $25 million according to Michael Schachner in a December 1995 article in Business Insurance.
Over the decade, Watson Wyatt invested heavily in developing proprietary technology to meet clients' human resources needs. Its web-based e-HR systems made it possible for employees to access human resources information and programs very easily. Through these virtual HR departments, employees could go online any time to make changes in their 401(k) plans or add a dependent to a health plan, among other things.
After a comprehensive strategic review of its operations, Watson Wyatt decided to focus on its strengths rather than try to provide every service to a client. Its first move was to get out of the administration outsourcing business. The company wrote off its $58.7 million investment and spent another $60 million to end its relationship with Wellspring Resources. The firm also sold its risk management consulting business to Towers Perrin (1998) and transferred its recordkeeping business for defined contribution plans to First Data Investor Services Group (1999). For 1999, Watson Wyatt had revenues of $761.3 million, with $647.1 million coming from benefits consulting.
The company also got a new president and CEO, John J. Haley. Haley joined Watson Wyatt in 1977 and was global director of the benefits group before becoming president. Later that year, Haley announced plans to sell about 25 percent of Watson Wyatt's stock to the public, the first public stock offering by a major benefits consultant.
Human Capital Consulting: 2000
Watson Wyatt & Company now concentrated on three lines of business: the benefits group, the human capital group, and the e-HR group, each of which contributed to helping clients such as General Electric, IBM, Microsoft, and General Motors attract, retain, and motivate employees.
In October 2000, in conjunction with the IPO, the company merged with a wholly owned subsidiary of Watson Wyatt & Company Holdings, becoming the holding company's primary subsidiary. The holding company was incorporated in January 2000. The stock sale raised $70 million, which Watson Wyatt planned to use to buy other firms.
Also in 2000, Watson Wyatt increased its Canadian benefits consulting services with the acquisition of KPMG Canada and launched the Watson Wyatt Human Capital Index, a research tool that showed a clear connection between human resources strategies and a company's bottom line. Meanwhile, Watson Wyatt Partners added a human capital group to its services, which also included risk and healthcare consulting, insurance and financial services consulting, investment advice, and pension administration.
2001 to the Present
In 2001, a jury awarded the Connecticut Carpenters Pension Fund $32 million in damages in its suit against Watson Wyatt. The suit claimed errors in valuations during the 1990s that resulted in undervaluated liabilities. Watson Wyatt's appeal of the amount was denied. In June of that year, the company held a second public offering of stock and in August announced an alliance with Workscape Inc. to develop and deliver Employee.com, an online HR portal that would provide employees with company-sponsored information.
With a fairly tight employment market, the outlook for human resource consultants was rosy. Within the field, however, a major issue continued to be how to provide clients with all of the various services they needed. Watson Wyatt President John Haley explained his philosophy in a 2001 Consulting Magazine article: "There are a lot of consulting firms that built their strategy around one-stop shopping. But our view is that these are sophisticated buyers of services. Just because you may have access from providing one service to them, you don't get to sell them other services unless those services are also world-class." Watson Wyatt hoped to develop various partnerships with its competitors to meet specific needs of individual clients. If successful, that strategy would be implemented globally through Watson Wyatt Worldwide. The market, the human resources consulting field, and the clients would decide.
Principal Subsidiaries: Watson Wyatt & Co.; Watson Wyatt Holdings (Europe) Limited.
Principal Competitors: William M. Mercer; Towers Perrin; Hewitt Associates; Accenture; EDS.