Leading companies suggest their top relocation cost-saving ideas.
In todays economic environment, relocation budgets are not protected from the microscopic view of upper managements request for reductions. Companies are seeking creative methods to reduce costs including working with relocation consultants, outsourcing relocation functions, and researching techniques and ideas that present savings without diminishing service.
Runzheimer International, a consulting company with more than 70 years of experience in employee mobility, interviewed leading companies to uncover cost-saving ideas that are being presented to next-level management. If you are currently (or considering) outsourcing your relocation functions, working with a consulting firm, or just looking to make internal changes to save costs, you might want to consider these ideas.
POLICY EDUCATION AND LANGUAGE
The ultimate goal of a relocation policy is to facilitate the companys need to have a valued employee be productive in a new job in a new location by covering the costs associated with the move without over payment. Long gone are the days when no expense was too great if it made the transferee happy. Language in the written policy must set clear parameters in order to reduce over payment and to deter employees from negotiating for more money or assistance.
Relocation professionals should also consider extending policy education beyond the transferee to the hiring managers. One professionals training presentation included review of policy in relation to:
- Cost to relocate employees into the division;
- How inconsistency in delivering benefits creates concerns about discrimination; and
- Why an exception to policy may set precedence for future relocations and hinder the goals of the program.
The training was intended to stop hiring managers from making promises that would not be supported by the company.
INITIATING PAYMENT CAPS
Reviewing your most costly moves may uncover excessive payments to employees. Evaluating these costs may help determine potential caps, and determining a maximum amount for a particular benefit can reduce the companys cost while at the same time treating all employees consistently. One area to consider is loss-on-sale policy.
Loss on Sale
Home market values have continued to appreciate at a faster pace than inflation. As long as this trend continues, loss on sale will not be a topic of discussion. And since it is not currently an issue, now would be a good time to initiate a cap in the relocation policy.
Organizations may implement a cap equal to a percentage of home sale (original purchase), a percentage of the loss, or a flat amount. A common policy may state: Occasionally, due to economic conditions, property values decline. If this causes you to incur a loss on the sale of your existing home, Company may reimburse you for the loss. This vague policy indicates the company would pay for loss on sale regardless of the size of loss; it also does not address capital improvements. Table 1 demonstrates the financial ramifications of this. This is a simple calculation, and it does not address improvements made to the home during the five years.
If the relocation policy addresses loss on sale, clearly defines capital improvements, and notes maximum disbursement, not only is interpretation limited, financial liability is also reduced. A better policy may say: Occasionally, due to economic conditions, property values decline. If this causes you to incur a loss on the sale of your existing home, Company may reimburse you for the loss. Eligibility for reimbursement is based on: the property value at the time of purchase (established by a pre-purchase appraisal, or contract purchase price, whichever is lower); plus contributory value of capital improvements, if any; less the current market value (sale contract). The contributory value of capital improvements, as determined by the appraisers, may be higher or lower than the actual cost of the capital improvements. The maximum compensation for this relocation benefit is 25 percent of your annual pre-move salary. Table 2 shows the calculation for this more clearly written policy. The mid-level manager would be reimbursed for $21,500 and incur a $3,750 loss based on the company-calculated loss on sale. The executive would have a non-reimbursed $19,000 loss, based on the calculation.
Table 3 shows the same example using a percentage of home cost. In this case, the policy would need to be changed to read: Occasionally, due to. The maximum compensation for this relocation benefit is 10 percent of the contract purchase price of the home. In this example, the calculated loss-on-sale benefit for both the mid-level manager and the executive would be within the policy limit.
It is important to compensate for a loss on sale. This information is presented as an example of what organizations are reviewing to protect themselves in regard to the loss-onsale benefit.
CHANGING EXPENSE REPORTING
Replacing direct expense reporting with a lump-sum program is another way for companies to realize savings. A typical lumpsum program bundles all travel, meal, and lodging expenses associated with the home finding, final move, and temporary living benefits.
The typical transferee takes 8 to 12 weeks to relocate and often completes 6 to 12 expense reports. Add the approval process and the cost to prepare the check or direct deposit for the transferee, and a lump-sum program can eliminate both expenses and headaches. Companies interviewed who are not currently using a lump-sum program are looking to start during their next fiscal year.
Some Runzheimer clients who are currently using a Lump-Sum Program are implementing reductions. One company, who averaged $7,600 per lump-sum payment, recently reduced the number of temporary living days from 45 to 30 for homeowners and to 15 for renters. They also reduced the home-finding trip by one day. Because of these minor changes, they expect to reduce the average payout to $6,785 and save an estimated $125,000 in relocation expenses.
One major food processing company has changed their lump-sum program several times since the inception. They started with a calculation that was very generous and, over time, reduced components. The employees continue to be satisfied with the lump-sum amount provided.
Table 4 demonstrates changes made for the homeowner calculation for the home finding trip. Reducing the home finding nights by one was a minor change. Switching from a 5-star hotel to a different class also enabled significant savings. The size of the car was another minimal change that resulted in significant savings.
Table 5 identifies changes that were made to the temporary living portion of the calculation. A majority of the savings are due to the reduction in temporary living days. Efficient arrangements to ship the employees personal vehicle makes seven days of car rental more realistic.
Table 6 demonstrates changes made to the final move. The increase in the threshold used to determine when air travel may be used allows for savings on airfare. Also, the change from the IRS business mileage rate (37.5 cents/mile) to the relocation mileage rate (14 cents/mile) provides for a minor savings in this category.
Going forward, satisfaction among transferring employees should continue to be measured. As transferees are surveyed, companies must evaluate this program to determine if the policy is too lean or if they have an opportunity to make even further reductions.
Cost savings and administration ease are just a few of the benefits of a lump-sum program. Companies adding a lump-sum program may start by offering a choice to their employeeseither direct expense reimbursement or a lump-sum payment. After a test period, companies usually eliminate the direct expense option because a majority (more than 80 percent) select the lump-sum payment over direct reimbursement.
Companies considering initiating policy changes, payment caps, or changes to expense reporting (such as lump-sum programs) may want to speak with a relocation consulting company or service provider about establishing goals and implementing new programs. In an era of increasing globalization and projected declining trained workforce, no one predicts relocation costs will be moving anywhere but up.