Providers continue to seek policies that make relocation the right choice
for organizations and their best talent.
By Russ Banham
After several years of penny pinching that narrowed the volume of international expatriate and other employee relocation assignments at many global organizations, the seemingly improving economy bodes more activity in the year ahead.
As assignments pick up in number and duration, several trends are emerging that warrant deeper consideration by companies dispatching their executives to far-flung places across the globe. Among these are ways to mitigate or avoid rancorous split-family assignments, innovative strategies to reduce relocation time intervals and costs, and cost-effective means of avoiding long-term international expatriate assignments.
“As the global economy improves and companies look to further expand internationally, there will be a direct correlation to the needs for talent, which, in turn, will cause a strong increase in relocation activity,” notes Bill Nemer, senior vice president of client services for Graebel Relocation.
Craig Selders, president of Paragon Relocation, has a similar perspective. “Assuming the economy continues to grow, interest rates remain low, and consumer spending continues to rise, these factors will drive company growth, which, in turn, will then lead to more relocation activity. The stronger the economy, the more moves (by executives). The weaker, the less.”
Splitting Up Without Splitting Up
Despite this potential increase in relocation activity, organizations confront such probing questions as determining how to position talent abroad (and domestically) in ways that leverage the individual’s skill sets and ignite his or her work ethic, without the routine distractions that can occur from living in a place with a different culture, language and economic challenges, not to mention the potential absence of one’s family members. Such split family relocations, and even those in which the entire family is relocated, “can literally rip a family apart,” says Selders.
Not only the family is at risk—so are the talent objectives of the employer. Laurissa Norwick, vice president of domestic consulting and process management for TheMIGroup, agrees that family dynamics can be complicated, and can backfire into poor job performance. “As a result, we’re seeing companies focus on identifying solutions to ease the burden of having the family split up,” she says.
In this regard, relocation services providers can assist client companies with a range of smart strategies designed to eliminate or soften split-family assignments. Among these concepts is an extended travel program, explains Viktor Reznicek, vice president at Xerox Relocation and Assignment Services. “We recently set up such a program for a client, where its executives were spending six months to a year sometimes on overseas assignments,” Reznicek says. “The program we developed provided that the executives could travel back and forth every other week, which created much less strain on the spouse and dependent children.”
There was a cost benefit to the program as well. “We saved the client more than $2 million a year,” Reznicek recalls. “We documented this down to the penny. Even a split family relocation domestically can be avoided through such programs, which also provide substantial cost savings.”
The solution is good one, but it’s not for everyone. It can put pressure on the traveling executive, particularly if he or she crosses several time zones during all that back and forth travel. Reznicek also pointed out that there are legal, tax, and regulatory issues in certain countries with regard to commuting individuals who spend more than 50 percent of their time at the foreign location.
When it comes down to it, there is no easy answer. A pre-decision program—one in which the total cost of the move is broken down for analysis before committing to the move—can assist clients facing difficult split family relocation decisions. “This way the client can better understand the employment options,” says Ellie Sullivan, Weichert’s vice president of marketing and consulting.
Pre-decision programs should be designed to answer the questions that arise when a family is confronting a move domestically or internationally, such as the children’s education, healthcare availability, the safety of the community, and so on. “We are seeing many companies offer a pre-assessment program that’s designed to support the transferee’s needs and identify the associated costs in advance of the relocation,” Norwick says. “As part of this program a detailed needs assessment is performed that allows the relocation provider to identify and discuss the housing and lifestyle needs and priorities of the relocating employee and family.”
This assessment comprises a discussion of the specific home sale and/or home purchase requirements, including location, price range, market conditions, schools, and preferred commute, she notes. “Based on these needs, a relocation provider will employ a variety of valuation tools to determine the … total relocation program costs, addressing employee needs, the timeline of events and associated costs,” she says.
Norwick says seeing the new locale first hand is often the most influential. “The key to avoiding split family relocations is a pre-decision trip designed to help the family evaluate their situation before accepting the relocation and identify this type of situation early on,” she says.
Nemer notes that split family relocations tend to occur at certain times during the year, such as prior to a break in the school year. “Many families prefer that their children remain in the home location to complete the semester before starting in a new curriculum,” he says. “The family is then reunited shortly afterwards.”
Leah Johnson, a senior director and Nemer’s colleague at Graebel Relocation, offered other ways to avoid a split family relocation, including a policy that helps soften the blow the current real market often incurs. “Many U.S.-based companies have added a `loss on sale’ benefit to their policy, which provides for the home to be sold at a loss so the family can move to the new location sooner,” Johnson says. “Several of our clients have transitioned from a loss on sale policy exception to making this benefit a policy. The change reduces the time that relocations require, as well as the need for added costs such as extended temporary living and duplicate housing.”
Nevertheless, she acknowledged that it is more difficult to avoid split-family relocations internationally, since more companies are utilizing short-term and extended business traveler types of programs, “which are usually unaccompanied assignments,” Johnson explains. “Here, more frequent home leave trips are usually allowed, and many companies permit the spouse or partner to visit the host location in lieu of its employee traveling home.”
In such cases where split family assignments cannot be avoided, Timm Runnion, CEO of Mobility Services International, advises family counseling. “Spouse and family transition counseling helps families prepare for the upheaval that can occur,” he explains.
Sullivan has her own perspective. “In some cases, it may behoove the company to dispatch the entire family abroad, but doing that invites a host of questions, such as educational reimbursements, sale of the existing home in what might be a down market, and the length of the stay,” she says. “The goal should always be for the client and the executive being considered for the assignment to have as many options as possible.”
Another HR talent concern is assessing the prudence of an expatriate assignment in the first place. Reznicek says the first thing a company needs to do when considering an international assignment is to step back and think through the purpose of the relocation—“moving talent to the right place at the right time and right cost,” as he put it. “At the same time, you need to explore other options, chiefly the breadth and expertise of local talent. You also may want to send the person there on an expat basis for a short time, with the goal of finding someone local to stand in.”
Ways to avoid long-term international expat assignments include the obvious—hiring someone local, says Selders. “For example, we’ve been involved in assignments involving technology transfer, where a subject matter expert is dispatched abroad and then transfers his or her knowledge and the actual technology through training to a local employee,” he explains. “We’re also seeing expanded commuting assignments across borders, rather than an international assignment. Lastly, we’re seeing situations where the expat is localized in the country, which ties back to economic drivers.”
Localization refers to an assignment where an executive might be in a country abroad for a certain number of years on an expatriate basis, and for cost reasons is localized, i.e., provided local pay and benefits, as opposed to a more costly expat package. Sullivan agrees that both commuting assignments and localization are robust alternatives to long-term expat relocations. “From a cost perspective, it is essential to lay out the long-range implications of the package to an employee, so they know upfront they have two years of educational assistance, this much of a cost of living allowance and this much in a housing allowance, at which point they might be localized,” she advises.
A survey by TheMIGroup cited several alternatives to traditional expat international assignments, insofar as their usage by companies. The study indicates that commuter strategies were used by 79 percent of respondents, followed by rotational assignments at 21 percent. Nevertheless, Nemer from Graebel says many of his clients with numerous international relocations are placing their people on a wide range of different types of assignments, as a means to trim costs and encourage mobility among a diverse workforce from regions across the world.
Reducing Relocation Durations and Cost
How can an organization cut relocation expenses without inviting a human capital disaster? The simplest way to reduce cost is to decrease the size and scope of the nonessential benefits provided to employees. “The ideal really is to find savings that aren’t borne on the backs of employees,” Reznicek says.
One way to do that is by carefully performing hypothetical tax calculations to ensure the company isn’t overpaying and is withholding the proper amount, he adds. Another is to hold the vendors like transportation providers, destination services providers ,and tax firms to task. Says Reznicek, “You want to be sure you’re getting optimal value for what you’re spending, hence the need for a robust RFP process.”
For companies that have to cut benefits, he says it is best to determine what are the absolute core benefits the employee will need, such as housing relocation cost reimbursements. “You don’t want to spend money unnecessarily,” he says.
Selders agrees, noting a particular scenario that ends up costing more money than it should. “Families think since the relocation costs are being borne by the employer, they can ship all their household goods, when the truth is they don’t need to ship everything,” he says. “Some clients now restrict the amount of goods to ship, and it does save money.”
Runnion from Mobility Services offers another way to potentially reduce expenses—a lump sum payment. “It can be efficient to provide the employee a specific lump sum and then let them fare for themselves, insofar as making the decisions where the money will go,” he says. “One of the highest cost factors in running a domestic or international relocation program is the exceptions from the relocation policy that come about because of special circumstances with the family. You have no control over that, and it is very hard to budget for.”
Selders offered the same point: “You want to avoid constantly approving exceptions by reexamining the policy to ensure it is current and up-to-date.”
Nemer comments that more of his clients are exploring lump sum policies for their international relocation assignments. “Such policies seem to have the most traction in Asia, and are typically employed for intra-country movement versus cross-border relocations,” he says. “This option is most often provided to new hires, and for employee-initiated moves.”
A drawback to a lump sum arrangement is the need for multinational companies to maintain tax and immigration compliance. Another is the difficulty designing a lump sum benefit that will adequately achieve numerous, different purposes. “There is a higher risk that a poor experience can affect the candidate’s view of the employer, which can potentially negate the overall talent retention goals,” Nemer explains.
Neil B. Krupp, vice president at HR Consulting & Global Compensation Services, says the optimum way to keep costs in check is to be specific and clear upfront about what is and is not covered. “You can state that certain benefits like the shipment of household goods, airfare and temporary housing will be provided, while others are deemed to be optional at the discretion of management, such as a home finding trip, lease cancellation and the storage of household goods,” he explains.
Krupp further recommends a tiered approach that distinguishes between relocation benefits provided to senior executives and those subordinate to the higher-ups. “Shared cost savings is an additional area worthy of note and one which we have assisted organizations,” he adds. “Simply stated, this approach provides for the proportionate sharing of savings which are the result of an assignee to forego a policy provision to which they might otherwise be entitled, such as a furniture allowance in lieu of household goods shipment.”
While our experts foresee an increase in both domestic and international relocations in the coming months, the way business is being done has been changed forever. Companies will continue to move employees to ensure the right person is at the right position at the right time—but relocation providers will play the pivotal role to help organizations to do it smarter.
Russ Banham can be reached at www.russbanham.com