Housing Ills Add to Relocation Expenses

As companies spend more to move employees, some are even - gasp - wading into the squishy property market

Looking to ship that go-getter junior executive or the snappy new hire to your company’s fastest-growing location?

You might have to think twice, especially if that individual bought a house within the past year.

That’s because the swooning housing market has made an increasing number of employees reluctant to accept a transfer that involves a move—promotion or not—according to human resources industry experts.

As a result, a growing number of companies are initiating more generous employee relocation packages since they’ve had to make so many exceptions to current policies to accommodate transferees facing a hit to their personal net worth as the result of a move, explained Barbara Casiere, vice president of operations for Mobility Services International, an employee relocation services firm.

Ray Bennett, vice president of human resources of the American Bureau of Shipping, and a member of the Society for Human Resources Management, said he heard a similar refrain from other corporate human resources managers at the industry group’s annual convention last month.

Worldwide ERC, another employee relocation industry group, reported in its survey of big companies late last year that employee reluctance to relocate grew to 55% in 2006 from 46% in 2005, a number sure to rise in 2007.

Real estate trends are enough to make anybody homesick. Last week, the National Association of Realtors said the median price of an existing home sold in May fell 2.1% from the year before, a record 10th consecutive month of price declines. The time it takes to sell a home is up significantly too, averaging 120 days in many markets vs. 37 days a year ago.

That means employees who have accepted transfers may see their former abode sit on the market while they’re making mortgage or rent payments on two places. Some are simply unable to buy a new home until the old one sells.

But that hasn’t deterred many companies from playing chess with their workers as they scramble to keep up with the rapidly changing economy. Prudential Relocations found that 44% of companies it polled expect the number of transfers in their organization to rise this year, while 49% expect it to remain at the same level.

Sweetening employee relocation benefits is definitely being discussed in corporate boardrooms because of the growing need for skilled and proven executives and the potential high costs of recruiting or retaining them in a more competitive job market, said Carmelita Brown, director of global solutions at Prudential Relocation, which specializes in relocating corporate executives.

“Retention is key from the client’s position, in order to maintain business continuity, so we’re finding most of our clients willing to go that extra mile,” she said, but at the same time, they don’t want to find themselves in the real estate business.

That last prospect doesn’t seem to trouble the American Bureau of Shipping, which has employees in 100 offices worldwide, including expensive cities such as London and Singapore. It offers employees a guaranteed buyout program that entails buying the individual’s home if he or she doesn’t want to be bothered with the process or has been unable to sell it using his or her own best efforts within a certain period of time, explained Mr. Bennett.

Typically, those programs require employees to attempt to sell their homes on their own through a company-approved plan involving a real estate agent provided by a relocation services firm. And if that doesn’t work, the relocation firm takes the home into its inventory and continues to work at selling it. The carrying costs are picked up by the employer while the employee moves on, free and clear.

“The employee can take the deal or continue to try to sell it on their own,” said Mr. Bennett. “If they sell it into the relocation program, it’s cleaner and easier, so that’s always been the fallback for our people.”

According to a review of SHRM’s 2007 annual survey of members, released last week, the most frequently offered relocation benefits include an overall relocation fee, usually in the form of a cash bonus, temporary relocation benefits (such as paying for short-term housing, covering house-hunting trip expenses, and providing a cost-of-living differential in the employee’s paycheck) and assistance selling the home. FW

- Frank Byrt
FinancialWeek.com