Relocation Policy

Controlling Relocation Costs: Establishing Protocols and Setting Realistic Expectations

In today's economic environment, corporate relocation budgets are being scrutinized more closely than ever. Human resource leaders, talent management professionals and recruiters are walking a fine line working to secure qualified candidates while aiming to reduce their overall relocation-related expenses and remain within budget.  

Of course, controlling relocation costs is a challenge, because relocation is not black and white. It’s very difficult to estimate full relocation/assignment costs in advance because there are so many ‘moving pieces’: where the employee is moving to and from, family size, travel costs for final move and house hunting, currency fluctuations and allowance calculations, what a home may actually sell for, what the actual loan amount of a new home will end up being, the actual weight of a household goods shipment and the final tax assistance/equalization costs.

And, making it even more difficult from a forecasting perspective is the fact that, more often than not, there are exception requests, which, when approved, drive up the costs. Managers or departmental leaders may play a role in an increase in the final relocation costs because, working to appease their employee, they approve exception requests without fully understanding the financial impact. While it’s easiest to have an internal corporate policy of, “Just Say No,” we all know that it’s not possible in employee relocation, because there are always exceptions.

With so many moving parts and focused on having happy and satisfied employees and meeting the department’s financial goals, there are a few recommendations we have to establish protocol and set realistic expectations within your team.

1. Require that a customized pre-move estimate be established for each relocation. This will help you build an accurate forecast based on the specific employee or candidate and not just the estimated costs according to the employee’s policy tier. As a reminder, ensure that the estimated costs are based on the full policy benefits and not what the employee or candidate states they may need at that time.
2. Once the formal pre-move estimate process is implemented, schedule monthly or quarterly accrual reporting to track actual costs versus the estimated budgets. It is important to note that relocation accruals should be viewed as an overall process. Many finance teams want to know which specific expenses are going to be processed in the upcoming month or quarter, however, because of the numerous variables, it can be a dangerous practice to guess what expenses you anticipate will come through because a house could sell tomorrow and a lower anticipated payout could increase substantially.  
3. Closely track exception requests and associated costs. When a relocation exceeds the original budget, exception approvals will most often provide the rationale and support the business decision. It is a best practice to have one designated approver for all exception requests to ensure consistency.
4. Finally, if you find that you’re in a position where the relocation expenses can absolutely not exceed the budget and an overall cap applies, we recommend deducting estimated tax assistance. Depending upon your company's gross-up methodology, we recommend that the approximate tax assistance dollars be backed out of the cap amount, and that it’s done prior to advising the employee of their budget or cap. The estimated tax assistance should be based on the premise that the full amount of the budget will be used for taxable expenses. This should keep you within, or even under, budget while allowing the employee to focus on an accurate cap amount for their relocation expenses.

Posted on 09/1/2010 in Relocation Policy | Comments (0)

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When’s the best time to move with school-aged children?

There are two distinct schools of thought - pun intended - on the best time of the year to relocate with school-aged children. Some may say that you let the child to finish out the school year, moving during summer break to allow them to start fresh in the new location for the beginning of school year. Others argue that the best time to move is mid-year while school is still in session. 

Waiting until the end of the school year to move the family may result in the family being separated for a period of time in order to allow the children to complete the school year, likely adding additional pressures for the family during an already stressful time. At the same time, removing a child out of their comfort zone within their existing school and placing them into a new and different environment in the midst of managing their school work and extracurricular activities can be difficult too.

When families relocate during the summer they will typically plan to immediately enroll their children in summer activities, summer camps, sports etc., however, upon arrival they are often disappointed to find that these activities are already filled. Many activities are affiliated with the school district and begin prior to the end of the school year. Some camps are so popular that registration begins in the fall for the following summer. Similarly sports teams and academic groups offered by schools require the students to register and "try out" before the school year ends in order to be considered for membership in the fall. When a family decides to relocate during summer break, they often find that families in their new neighborhoods are traveling or already involved in summer programs, thus greatly reducing the opportunities for children to meet neighborhood kids and begin to form friendships. The consequence is that the child will have time on their hands and they’re likely to become bored and eventually unenthusiastic about the move.

Some relocation specialists counter the opinion of waiting until summer break to relocate. By moving a child during the school year, you are enabling them to be immediately introduced to other children their own age. They quickly establish a routine, which makes the transition much easier. At school they can be exposed to many opportunities for academic organization membership, sports teams and overall familiarization with their new neighborhood. Schools help to facilitate introductions to other kids and activities as opposed to leaving that up to parents and children while in an empty neighborhood during a summer move. 

The bottom line is that there are pros and cons to both options. A determination should be made as to what time of year is best based on the needs of the entire family. Work towards a goal of finding a school in the new location that meets the specific needs of the family while providing the child with the best opportunities in terms of education and extracurricular activities.

Posted on 06/24/2010 in Relocation Policy | Comments (1)

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How the Economy Continues to Impact Domestic Relocation Policy?

Aside from the fact that many corporations have been focused on downsizing over the past 24 months and are simply not moving as many people as they did historically, there are a few key economic drivers that are fueling continued reluctance to relocation or a need for increased benefits provided by the corporation to entice a relocation acceptance.

As nearly 25 percent of Americans are currently ‘underwater’ on their homes, potential transferees are reluctant to take a loss on their existing home and relocate to a new destination. As such, individuals are either refusing a transfer or requesting additional benefits in terms of loss on sale assistance or home sale incentives, property management assistance or duplicate housing allowances so that they may rent in the new location and maintain their existing home. According to the Worldwide ERC's 2009 U.S. Benchmarking Survey, of those companies reporting making changes to their domestic relocation policy, the top four changes in order of prevalence were:

• Added or enhanced a home sale bonus/incentive for employees who find buyers for their homes
• Added or enhanced a home sale incentive for buyers
• Added loss-on-sale assistance
• Modified policy to provide loss-on-sale assistance to more employees
  

For corporations, employee reluctance to relocation has also prompted the investigation and implementation of new solutions including short-term domestic assignments, telecommuting, and extended business travelers. In fact, many large organizations have gone so far as to develop specific relocation policies for these new groups of individuals.

As domestic relocation has continued to decline since 2006, so has the profile of the individual. From new solutions such as telecommuters and business travelers to an increase in the number of renters, we question whether or not this will be the ‘new normal’ continuing into the future, or will the relocation industry recover as the economy does and return to historical trends. How are you addressing these challenges in your organization? What are your thoughts regarding the future of domestic relocation and it’s impact on policy, program structure, and talent management?

Posted on 05/18/2010 in Relocation Policy | Comments (0)

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Evaluating Service for Your Relocating Employees: Is No News Really Good News?

Posted on 03/22/2010 in Relocation Policy | Comments (2)

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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.

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 (0)

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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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