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 (3)
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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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Destination Services: A Must Have?
Global mobility, whether administered as a long-term expatriate
assignment or permanent international relocation, creates a number of
unique issues not experienced by employees moving within their own
country.
Even if an assignee moving to France has seen “An American in Paris,”
and “Amelie,” or sipped Bordeaux wine while eating steak tar tare, they
are ill prepared for the differences they will encounter. Arranging for
destination service assistance results in the greatest ROI of nearly
any policy benefit a company could provide to its employees moving
overseas. An international assignment can easily cost $1 million over a
three-year period, whereas destination services, such Orientation, Home
Finding, School Search, and Setting-in Services, average five thousand
dollars, and even though these one-time expenses ensure that the
assignee and family are knowledgeable and capable of navigating through
their new environment, independently and confidently, we still see
these services marginalized.
Those who have worked in global human resources and the international
assignment support industry have heard this countless times, and many
corporations have added destination services to their menu of policy
components, but too often time or cost have reduced usage of these
programs. In an article published in ERC’s “Mobility” magazine in 1994
that consisted of interviews with expatriate spouses recently moved to
Hong Kong, the over-whelming plea was for assistance understanding the
host city and how to start a new life there. Offering destination
services to support these families was highly recommended as a
low-cost, yet highly effective solution.
Unfortunately, we are still hearing from assignees today that “I had to
do it all myself,” or “What help? My company did nothing.” In a recent
internet survey of expatriate wives, MSI discovered that language
lessons, shipping of household goods, and help finding a place to live
where the three most common benefits provided, but many of those
surveyed still struggled with typical settling-in concerns, such as
setting up a bank account, locating recreational facilities and
activities, and making friends. Comprehensive destination services can
ease some of this distress, helping these newcomers understand how to
mesh with the host-country norms and customs. While those who answered
the questionnaire expressed initial feelings of neglect by their
husband’s company, all the women thoroughly enjoyed the experience of
living abroad, but wouldn’t it have been an easier road if they had
been provided with the proper tools and attention in the beginning?
The costs for full destination services are actually a fraction of the
overall costs for moving an employee and family overseas. And while
proven effective in reducing anxiety and assignment dissatisfaction,
these services continue to be one of the first programs reduced in
corporate expatriate policies.
Posted on 12/18/2008 in Relocation Policy | Comments (2)
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