Relocation Policy: Group Moves as a Result of a Merger or Acquisition
The success of a merger or acquisition is greatly influenced by how well an organization addresses challenges and human resources issues related to its employee base. Statistics demonstrate the majority of all mergers or acquisitions result in financial disappointment and most failures are directly linked to people issues and not business challenges. Human resource issues are often not fully considered until serious problems arise, at which time handling them effectively is difficult.
Considering the employee impact while formulating overall corporate strategies is a critical factor in driving a successful merger or acquisition. A key strategic partner in this initiative is human resources department, which is integral in assessing what kind of people and what the key individual capabilities are that the company will need once the merger or acquisition is complete. This is especially critical if a group move is a component or result of the merger or acquisition.
When coordinating a group move as part of a merger or acquisition, we recommend the following:
1. Create a group move team and leverage the expertise of a relocation partner (either existing or a specialist). An effective plan and the right team to execute the plan will increase the odds of facilitating a successful group move. The team will be able to identify all of the resources required to manage the needs of the employees and also provide valuable direction and insight. This approach also helps to ensure consistent communication and reinforce the overall business goals in terms of human capital.
2. Determine who will be asked to move. Even while rising unemployment rates are announced in daily news reports, corporations continue to want to reduce employee turnover and retain their existing employees, thus minimizing the costs associated with recruiting and re-training. Communication and relocation strategies must be pre-determined and specific to the individuals that the company desires to relocate.
3. Formulate a formal communication plan announcing the move. Many companies embark on studies, based on what part of the workforce is to be retained. Effective employee communication is critical as is the timing. An announcement of a merger or acquisition is a very sensitive topic for employees as it leaves them feeling unsettled and unsure about both their role and their future. It is critical to monitor all of the questions raised from the employees and specifically about a potential relocation. The communication should inform the employees of the company plans and express the corporate desire and commitment to retain current employees.
4. Planning the group move through relocation surveys. Employee opinion surveys can be a useful part of a group move relocation planning. They should provide an opportunity for employees to express their perspective, to create participation and engagement from the beginning and allow the relocation team to base initiatives and benefits on the specific needs identified by the employees.
Remember, each group move requires careful planning to ensure a balance between the needs of the employer and the employee. Utilizing the relocation policy to fit in the overall strategic vision of the organization can be an effective tool, but there are also specific requirements to facilitate a successful group move that are not typical in everyday corporate relocation, so, be sure to develop a succinct strategy, comprehensive communications plan, and leverage the expertise of a relocation management company partner.
Posted on 01/26/2010 in Relocation Policy | Comments (0)
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Relocation Policy and Duty of Care for Expatriates and International Business Travelers
As companies continue to seek growth opportunities and lower their costs of production, globalization has continued resulting in an increasing number of employees are now working outside their home country of residence as expatriates or international business travelers.
As discussed in a duty of care whitepaper published by International SOS (www.internationalsos.com/dutyofcare), with the International workforce increasing in both range and frequency, and continued activity in more remote locations, the employee and the employer are exposed to greater risks. Away from familiar surroundings, employees may encounter uncertain environments, presenting increased and unfamiliar threats to health, safety and security (infectious diseases, terrorism, war, natural disasters). Employers have a legal, fiduciary, and more Duty of Care for their employees.
The company is at risk and liable for breaching not only the laws of the country in which they operate and in which their employee are nationals or permanent residents, but also those laws in the countries to which their employees travel on business or live as expatriates. The liability can occur through civil codes, statutes, and common law and may result in civil damages or in criminal fines and imprisonment.
Employers may be aware of their own country’s Duty of Care, but may be unfamiliar with the Duty of Care requirements in a foreign country. They may not know the full extent of the risks and threats because they are often in a different physical location than the employee.
A relocation policy should carefully analyze its expatriate and business traveler population. Conditions that change the range of the employer’s responsibility include:
- Type of international assignments (short-term international assignment or long-term expatriation, international business traveler, etc.)
- Home and host locations. The risk and level varies by country.
- Work responsibilities of the employee based on their job description and the needs to complete their particular task.
- Family or significant others accompanying the employee.
Prevention of harm is typically less costly. It is recommended taking the strongest preventive measures to secure the health, safety and security of the employee while on an international assignment with procedures in place to try and protect the employee against reasonably foreseeable risks.
Duty of Care legislation continues to evolve in order to meet new international workplace challenges. Employers need to educate the employees about the risks, monitor the environment for potential hazards and update international assignees on any developments that could become critical incidents. Additionally we recommend providing adequate support and assistance for employees in event of a crisis or emergency.
"Reprint of some or parts of this article are courtesy of International SOS Pte. Limited. © 2009 International SOS Assistance, Inc. Source: Claus, L., Duty of Care of Employers for Protecting International Assignees, their Dependents, and International Business Travelers, London: International SOS, 2009".
Posted on 12/3/2009 in Relocation Policy | Comments (0)
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Relocation Policy: Ensuring that your Transferees Have the Facts Regarding the Purchase of a Short Sale Property
Let’s begin with the definition of a short sale? A short sale is a sales transaction in which the seller's mortgage lender agrees to accept a payoff of less than the balance due on the loan. Some time ago, lenders would not participate in short sale transactions and would rather initiate foreclosure actions. In a rising housing market, it could increase the recovery while preserving the right to pursue the borrower for any deficiency.
However, with the high number of homes today currently in foreclosure, lenders are willing to consider a short sale transaction. The alternative would be for the lender to assume ownership of the property, paying more money out of their pocket with the money tied up in a non-performing asset that costs that lender heavily in leverage on their working capital.
For many home buyers, including those engaged in relocation, it may be enticing to buy a property offered through a short sale transaction, as some short sales are priced incredibly low. So low, that the sellers' bank will never accept them. In some real estate markets, less than 1 in 10 short sale transactions make it to closing. When a property is listed as a short sale, it doesn’t necessarily mean it’s actually for sale (it is subject to lender approval), nor does it mean it will sell at the listed price.
In a short sale, the lender is in control of the transaction and can dictate the terms and the timing. When they do respond to an offer, the short sale lender will typically try to negotiate more money out of the transaction. Often times, the buyer is given an ultimatum of paying more money or losing the property. If the listing is below market, quite often multiple offers are received. To get an offer accepted, it will typically need to be priced near market value.
In addition to the challenging and often frustrating negotiation process with short sales, the transaction is also lengthened, taking anywhere from 2 to 4 months, on average, to close. Because of the delay, the mortgage loan rate lock is more expensive for longer periods. If an extension is necessary, the buyer may incur additional fees. Even if the buyer can float the rate, they are at the mercy of the financial markets as to the rate they may ultimately obtain. Neither of these situations is optimal for the transferee.
For relocating employees, purchasing a short sale property may not be the best alternative. Many home buyers do not understand the process and view the opportunity as ‘getting a great deal on a new home.’ And, while that may be true in some instances, there are challenges and other mitigating factors that may impact the individual, especially if they’re engaged in a corporate relocation.
One of the primary objectives for employees engaged in relocation is to have the individual and his/her family settled and assimilated in the new location as quickly as possible. With the current real estate market, we have witnessed delayed sales cycles on the existing home and its financial impact on the overall relocation including increased benefit exceptions. When you add to that a non-confirmed purchase process, which may or may not yield any financial benefit to the individual, the result is a significant amount of additional stress and pressure on the employee and family and potential additional increases in benefit exceptions including interim living.
The facts of life in short sales work against the transaction, while sabotaging the transferee’s ability to control the deal. And in many instances, the transferee and the company would be benefitted by a traditional home purchase.
Posted on 10/21/2009 in Relocation Policy | Comments (1)
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Even in a challenging economy with tight budgets, is a straight lump sum payment the best option for relocation benefits?
In today’s business climate, many human resource practitioners are challenged with reduced budgets and increasing pressure to attract and recruit top talent. In the area of relocation, when the financial resources are limited, we often see more organizations trend toward issuing lump sum payments for their incoming recruits. While a lump sum program reduces the administrative burden for the company, it has both positive and negative repercussions for both the company and the employee in the long run.
For the new recruit or relocating employee the overwhelming advantage is that they have personal control of how to spend the money, oftentimes they are able to net out a portion of the monies for their own savings or personal spend. While individuals are enticed by the freedom, when they actually begin the process of the relocation, especially if they own a home and have a family, they are often overwhelmed and longing for assistance with both the process and the vendor management.
For the company, the primary advantage of a lump sum program is the reduced administration and overall time commitment from internal resources. On the flip side, the company has no record of where the money is being spent or how, so employees may and often do seek out additional financial assistance, especially if they are having challenges selling their existing home. Also, from a tax perspective, the employee may be benefitting twice, depending on how the lump sum is paid. Finally, there is an indirect cost to the company of productivity should the employee not be fully functional and working in the destination on time due to their own personal management of the move and the associated suppliers etc.
So, what is the answer for your company? We recommend that each organization first determine the overall goals of the entire relocation program, in tangent with recruiting, retention and overall human resource business objectives. Then, we partner with companies to develop a structured relocation policy, often with multiple tiered benefit levels, to support the company’s overall objectives and goals. The following questions may be of assistance as you begin this process or re-evaluate your current relocation benefits.
- How is the lump sum amount determined? Is the calculation being done in a way that is equitable and based on the employee’s location, family size and salary/grade level?
- How is the lump sum being paid? Is the benefit paid through payroll with tax withheld at the time of payment or is the amount being tax assisted? If the lump sum payment is being grossed-up, should the policy include a reduced lump sum along with a household goods move and/or other deductible benefits?
- Who is tracking the lump sum payments to account for overall spend?
- Are exceptions being made to the program and if so, who is tracking them?
- Are other bonuses distributed, in addition to the relocation lump sum, which are intended to be used to offset relocation costs?
We continue to watch the growing trends around lump sum relocation benefits and work with our clients to ensure that the lump sum is applied correctly and equitably, continuously reinforcing the overall program goals. Have you seen a recent change in the provisions of lump sum benefits? Do you have any best practice applications?
Posted on 09/2/2009 in Relocation Policy | Comments (1)
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The ‘Soft’ Side of Relocation Policy
As well as changing jobs, relocation changes lives. The outcome of a successful relocation will depend to a large extent on the ‘soft issues’ that affect a transferee. It is vital for a relocation policy to address these soft issues involved in a transferee’s decision making process.
According to the 2007 Employee Relocation Council Family Issues Research Report, couples that have dual careers are increasing, 58% of transferees have dependent children and the reluctance to relocate is due to employee/family resistance to move 67% of the time. Most concerns the employee experiences are personal, and the majority of employees will not be willing to share such information with the human resources department or new employer.
Additionally, the cultural complications surrounding a possible global assignment, with all the inherent challenges, and the potential stress can be overwhelming. In order to minimize stress and maximize the speed in which the employee becomes productive in the new location, it is important to engage with the employee. Ways to do this include:
- Communicate and initiate discussions with your employees as soon as possible, once the decision has been made, with transparency and sensitivity.
- Offer a pre-move visit for the employee and their family to see the new location and to meet the people who work there and to see the surrounding area.
- Allow your relocation provider to partner with relocation-trained real estate agents to assist in familiarizing the employee to the area and current real estate market.
- Provide assistance in relevant areas such as education provision, elder care, pets.
- Recognize the needs young children, teenagers and elder relatives.
- Be aware of the importance of the timing of a relocation and if there are short-term reasons for an employee not to relocate, such as a critical time in children’s education.
- Provide career counseling and help with job searches in the new location for the employee’s partner/spouse.
During a time of cost cutting, investing in a smoother transition for the employee and their family may yield benefits such as higher productivity, employee retention and reduction of risk of relocation failure. Even the most generous package financially does not guarantee a successful relocation.
Truly progressive organizations understand that family concerns impact the success of a domestic relocation or global assignment. And those are the companies that will succeed in today’s competitive environment.
Posted on 08/21/2009 in Relocation Policy | Comments (0)
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Above-Base Compensation: Allowances, Differentials, Premiums…What’s the Difference?
Most companies sending employees on international assignment provide some type additional above-base compensation benefits to mitigate the expense of living abroad. Typically, the assignee’s new compensation package is based on the home-country salary structure with possible adjustments to the cost of living and housing, combined with a type of home and host income tax protection, and possibly some form of incentive pay. The balance sheet approach is frequently employed to ensure that the assignee neither gains nor loses as a result of taking the assignment. These above-base compensation elements are routinely called “allowances,” “differentials,” and “premiums,” but it is important to use these words correctly as the terms are often misused. While not a serious problem, it still behooves those of us in the business of global mobility to understand and use these terms properly.
In the majority of instances, the most costly component of an expatriate assignment is housing. Very few organizations want their employees to live for “free;” rather they provide a housing differential, which represents the difference between the actual or average housing cost in the home location and the actual or average housing cost in the host location. Employee salary and family size are usually taken into account when determining the housing differential. The assignee contributes to the cost of housing by maintaining home country mortgage payments, for instance, or through housing deduction taken directly from salary based on the average housing costs as presented by an independent consultant.
In addition to differentials, there may be a variety of allowances paid to expatriates; such as one-off payments at the time of their relocation to the host location or repatriation to the home country, or during the course of the assignment. The miscellaneous expense allowance, also known as the relocation allowance or settling-in allowance, is a good example of a one-time payment made to the assignee to be used to offset expenses that are not specifically covered under some other aspect of company policy. Whenever an allowance is paid to supplement a gap in an assignee’s balance sheet, such as housing or cost of living, the allowance actually becomes a differential because the sum was calculated to fill the discrepancy between the two amounts. On the other hand, if the company opts to provide additional cash for transportation, let’s say, and the assignee is free to decide how to apply the money, than this payment is considered an on-going allowance.
Premiums are sometimes offered to assignees as an incentive to accept the assignment. Not as common today as in years past, the International Assignment Premium (IAP), also called the Foreign Service Premium (FSP), is an above-base compensation payment that recognizes the challenges faced by the assignee and family in moving to a foreign country. More companies are willing to offer a Hardship Premium, Hazard Pay or Danger Pay, which is a type of payment that acknowledges the unusual difficulty living in the host country, whether due to climate, political instability, environmental risks, or lack of amenities. The Hardship Premium is usually a percentage of salary and some companies decide that a certain threshold must be reached before this is applied.
Understanding the differences between international assignment allowances, differentials, and premiums is an important element of the knowledge-base necessary to manage and administer complex global mobility programs, whether one works for a service provider or the corporation sponsoring expatriate assignments.
Posted on 07/7/2009 in Relocation Policy | Comments (1)
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The Economy, Changing Workplace and Mobility
The seasonally adjusted unemployment rate of 9.4 percent is now at a 25-year high. Economic reports earlier this month on pending home sales and manufacturing seemed optimistic, but figures later released indicate the economy remains slow-moving. After the housing bubble led to a financial crisis, the current recession began. Economists say recoveries after such a crisis tend to be slower, as credit remains tight even after growth returns.
Employees concerned about this news and their jobs have to be prepared. The better prepared they are, the better position they will be in to find security in this changing workplace. One way employees can be prepared is to remain flexible and mobile.
\Flexibility and mobility are both assets in this changing workplace. Being able to move to locations rich in suitable employment is always a real plus to a career. Experienced workers tend to be in a position to negotiate a transfer to another division or site within their company when the company is making job cuts. Less experienced workers, who are willing to relocate, are attractive to a competitive company and seen as more “affordable”.
Unfortunately, employees have fears about job security and devalued homes. It may be too much risk for employees to consider relocation, as they have exhibited more reluctance to taking any risk in this economy. Some employers have been just aS unwilling to take the risk and bearing the cost of hiring a new employee from a new location.
Despite the current economy, anticipation of hotter competition will drive the need for the best talent. Companies are still looking for ways to attract the best talent, which will likely require offering candidates relocation assistance. Employees open to a new opportunity may find one that offers more security than their current role.
The huge job losses aren’t likely to lend support to the housing market or to an economy that has been overwhelmingly driven by consumer spending in recent years. However, many economists believe the worst is behind us and are optimistic the economy will improve in the long-term. In the interim, employees can increase their degree of preparedness through flexibility and willingness to relocate.
Posted on 06/11/2009 in Relocation Policy | Comments (0)
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Today’s Relocation Policy: Modifying Repayment Agreements
In today’s ever-changing economic environment companies are re-examining many facets of their human resources programs, including relocation. Working with clients, we have seen several evolving trends in the area of relocation policy including modifications to repayment agreements, specifically in the areas of process, timing and definition.
We are partnering with clients to tighten their processes regarding repayment agreements, ensuring that the agreement is signed prior to the occurrence of any relocation related expenses. The repayment agreement should be a part of the relocation policy and included with the original offer package, ensuring that the employee fully understands the terms of the relocation package and their benefits prior to formally accepting the position and subsequent relocation. This process also allows for the company’s relocation manager to hold any authorization of relocation services until the signed agreement is received. The employee will be anxious to speak with their relocation counselor and begin confirming the details of their move. As such, this process incents the employee to review and return the signed repayment agreement, which will initiate the service authorization and allow them to begin the planning. Of course, it’s imperative that the employee be reminded that they will be working with a relocation management company and not to solicit service providers on their own.
Many of our clients are also revising the terms of the repayment agreement, extending the timeframe from 12 to 24 months. The two primary catalysts are extended home marketing periods due to the real estate environment and working to ensure a return on investment. With the average days on market increasing by over 200% in the past three years, companies are faced with extending the time period for the use of relocation benefits. Since the extensions are so frequent in today’s marketplace, companies are making this a permanent change rather than treating it as a repeated exception.
Extending the repayment terms is also leveraged as a tactic to increase employee retention. Many companies have witnessed a growing number of transferees leaving shortly after their one year payback time frame has expired and feel that a percentage of employees stay on just long enough to avoid repayment. This is leading companies to add an additional year to the repayment agreement to help reduce attrition and increase their ability to recoup the investment relocation expenses should an employee leave.
Companies have also been focusing on clarifying the definition of “termination with cause” to differentiate that term from a “voluntary termination”. When working with our clients we recommend that the company include a specific definition of “termination with cause” in the repayment agreement to avoid any potential misinterpretations.
Finally, even if companies include all of these revisions, repayment agreements are often challenging to enforce. We recommend always seeking a final review from your legal counsel to ensure the document meets your specific company needs and objectives.
Posted on 05/5/2009 in Relocation Policy | Comments (0)
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Loss on Sale and Relocation Policy: Recommendations for Today’s Market
Loss on sale continues to be hot topic in the relocation industry. Over the past 12-18 months we have provided analysis and recommendations for many of our clients around Loss on sale assistance provisions for their relocation policies. While the majority of our clients have not adopted a formal policy element around Loss on Sale, they have developed specific guidelines to accommodate special situations or exceptions.
Historically, a loss on sale benefit was only included in a Senior Executive Level policy or for a specialized recruiting situation. However, we are to seeing an increase in consideration of this benefit for all transferring employees.
There are a variety of definitions of loss on sale or what is commonly referred to as "perceived loss on sale". Some transferring employees state that the loss on sale is the difference between the current loan balance(s) and the guaranteed offer amount. Many times this scenario shows that the employee truly is in a “loss” situation as the result of obtaining a cash-out first mortgage refinance or an equity loan/line of credit. In this situation the Company needs to determine if this definition would be classified as a loss on sale and, as such, receive the associated benefit.
Another example of "perceived loss on sale" would be when the employee contends that there is a loss on the value of the home that they should be compensated for. Even though they do not owe more than they will get for the home, they feel that, should the home have sold at a different time; they would have more equity and should be compensated for that "loss" of equity.
While these may sound rational to the transferring employee, a true loss on sale is the calculated difference between the appraised value offer or a buyer’s offer to purchase and either the employee’s purchase price or the employee’s purchase price plus all or some of the subsequent capital improvements. This difference, or some portion thereof, may be paid to the employee by the Company as a loss on sale benefit.
There is a split decision regarding whether or not to consider capital improvements in the calculation. This can sometimes be a very vague area of the policy subject to interpretation, which can prove to be challenging when applying the policy. Along with the challenge of defining capital improvements is the concern that the appraisal or purchase price is already taking into account the value of the improvements. By including capital improvements into a loss on sale calculation Company’s may, in fact, be compensating the homeowner twice.
Budgeting for a loss on sale may also be challenging. While benchmark studies show that not only do most companies limit the percentage of a transferee’s loss, they impose a dollar cap on the payments as well. The amount of the cap tends to vary. We have seen everything from $15,000 to $50,000+. Typically this benefit is not grossed up. Organizations should establish a loss on sale formula and make educated assumptions about how often you may be making these payments. For forecasting, we recommend using market data from frequently used origin(s) and destination(s) or actual numbers for a recent activity period. Another important component in the loss on sale budget calculation is the cost associated with exceptions granted to employees unable to sell their home. These may include extended temporary living, duplicate housing costs, household goods storage, return visits, and inventory costs.
Too often the impact of a loss on sale is not taken into consideration early on in the relocation process. Companies are not factoring in this consideration prior to offering relocation or recruiting a new candidate. Likewise, employees may accept an offer to relocate based on mis-information or perceptions about the housing market in the departure location. Once the true impact of the loss is made clear the employee could be well into their new role and the relocation process, leaving the employee in a position of great concern contemplating whether or not to continue with the relocation.
Posted on 03/9/2009 in Relocation Policy | Comments (1)
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Pre-Decision: Making an Informed Relocation Decision
With the current economic conditions, companies are more closely scrutinizing relocation, as it relates to both new recruits and existing employees. Failed assignments cost organizations over three times the relocation expense so company’s today need to be confident that the relocation investment is maximized and that the organization will yield a return on the investment.
Evaluating how relocation may impact your recruit or employee personally is critical as well. They are asking the following questions and factoring in the responses in their ultimate decision. Will I be able to sell my home? Will I be selling at a loss? Will I be able to afford a home in the new location? How do you answer these questions if asked? Are you faced with making policy exceptions? What specifically can you do to help your employees make an informed decision and ensure you have the right candidate for relocation?
After the pre-decision process is complete, we recommend the following, 3-step approach to our clients for their employees.
- Advise them to thoroughly assess their current situation. Obtain at least two broker market analyses to help clearly evaluate the current market and housing competition and determine what the best probable list price will be to ensure a sale.
- Research the destination Location. Learn about market conditions in the new location and identify and evaluate potential communities that will meet your personal needs.
- Get pre-approved for a mortgage. Obtain a pre-approval and know in advance how much home you can afford. This is critical in identifying potential destination communities.
Also key during this process is working with real estate professionals and mortgage originators who are relocation savvy. Their experience is critical to a successful relocation for your employee.
Posted on 02/5/2009 in Relocation Policy | Comments (1)
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