The Great Recession hurt mobility. How long will the silo’s recovery take?
By Debbie Bolla
The relocation industry faced a tough predicament in 2009. The real estate market was grim, at best, with home values reaching all-time relative lows and foreclosure rates reaching all-time highs. Feeling the financial pressure of taking a loss on their home real estate investment, employees were reluctant—if at all willing—to relocate. According to Brookfield Global Relocation Services’ annual 2010 Global Relocation Trends Survey Report, 46 percent of multinational companies reported a drop in the number of relocations last year.
Was this surprising? Not really. But just how bad was bad? And how are those senior HR executives charged with oversight of relocation coping with this new reality?
Pump Down the Volume
It is intuitive that when the bubble burst, relocation volume went down—way down. Still, in some instances, the numbers were startling.
Becky Stadlman, regional human resources manager for Sauer-
Danfoss (manufacturer of hydraulic, electric, and electronic systems), reports a nearly 75 percent, one-year decrease. In a typical year, the company handled between 80 and 100 transferees in senior level positions through its provider NEI Global Relocation; in 2009, the company moved fewer than 20.
They weren’t alone. Although Sunrise Medical’s pre-crash volume was lower (about 20 per year), the percentage drop was about the same. Brandi Duncan, a corporate recruiter specialist who works with Graebel, reports five total moves at the executive level for 2009. The sentiment is echoed throughout varying industries. High-end hotel chain Hyatt experienced a 50 percent drop in relocation, previously averaging 500 per year, but reporting 250 in 2009 (through its provider, Mobility Services International.)
Clearly, the economic downturn was the main cause of the volume plummets. Companies strategically considered their options and contained costs wherever possible. Many companies reported little movement on the hiring front or imposed outright hiring freezes.
“We were trying to avoid moving people to contain costs—it had to be a real extreme need for use to do it,” notes Pamela Thomey, HR director for Snap-On, whose relocation provider for nearly a decade has been Paragon.
Those who were looking to fill spots considered tapping into talent in their own geography to avoid relocation costs. The 2010 Global Relocation Trends Survey Report saw a slight 1 percent climb in local-hire policies from 37 percent to 38 percent.
Beyond macroeconomic forces, individual employees also have expressed reluctance to relocate. More than half—56 percent—of firms saw employees decline the opportunity to transfer in 2009 according to the 2010 Corporate Relocation Survey by Atlas World Group. Not wanting to take a loss on their own real estate investments reportedly drove the decrease in willingness to relocate.
David Confer, vice president of HR for BB Infrastructure and Rail whose relocation provider is Lexicon, saw the weight of real estate worries affect employees’ decisions. “People have said, ‘I would be interested in moving, but the only way that would happen is if I was able to sell the house without taking a loss.’ That has reduced the number of people willing to transfer.”
Some homeowners’ fear of undue time on the market and the commensurate responsibility for two mortgages also made relocation unattractive. “It’s definitely taking a lot longer to sell houses,” notes Duncan. “In one case, which was an exception, we had an executive leave the company because they couldn’t sell the house where they had lived.”
These circumstances have forced executives to reevaluate their policies and enforce change, while trying to mitigate risk and maintain quality at the same level. The vast majority of companies (91 percent) reimburse or pay for some relocation costs for transferees or new hires, reported the 2010 Corporate Relocation Survey.
Confer says that BB Infrastructure and Rail formerly enlisted a buyer value option (BVO) for their transferees, but has since change its policy. “If an employee had their house up for sale and a buyer was identified, Lexicon would step in on behalf of the company and would purchase that home from the employee so they could be free to concentrate on moving to the new location,” he explains. “That’s changed since the real estate market went south. We’ve had a couple of issues: A buyer wasn’t able to purchase of house and it became our property. So we decided to go back to the other method of direct reimbursement. The employee is reimbursed at the time they sell the house.” This new policy helps mitigate risk for BBâInfrastructure since the company isn’t responsible for an inventory that doesn’t sell. The employee experience is similar since they are reimbursed for their property, just when that sale is final instead of before.
Tami Brown, manager of employee relations for The Chamberlain Group, says while they continue to offer BVO as part of their program through NEI, they are keeping communication lines very open with their employees. Their relocation program is based on transferring sales executives after they are trained from inside sales to outside sales: “We have definitely taken into consideration the real market to change the policy. We’re working together with NEI to help let the candidate know a realistic price of their home versus its perceived value. We work with them to understand what’s going on in their market, and that might mean a lower price will help them out.”
The market has also encouraged Sunrise Medical to reevaluate its plan, which now features a lump sum package to avoid getting involved with the selling process altogether.
While Hyatt’s employee program still involves relocation, the company made slight modifications during the down market on a few of their moves. “We are looking for ways to save costs at the same time trying to make sure the employee experience is positive,” explains Randy Goldberg, vice president recruiting, North America operations. “Instead of a typical full-service move, we started taking a look at moving systems that will drop off a pod-like device near the home. We provided labor on the packing side and unpacking side. The experience was relatively the same and that was saving on average $3,000 per move.”
Some organizations instituted incentives to encourage employees to list their homes for a more attractive price. “Home values have declined so we’ve put a percentage bonus in place,” notes Stadlman. “If a home closes in 90 days, the employee earns the bonus. This encourages them to price the home fairly, and we’ve seen it have some impact.”
Diane Vaughn, office and employee services managers for Ralcorp Holdings, which acquired Post Foods a few years ago, also says that they’ve instituted a 2 percent bonus on sale to their transferees within a 90-day time period through NEI. “That has helped employees take lower offers on their homes,” she says. She also has seen an increase in issuing home appraisals upfront. This provides potential employees guidance on what their home might sell for, which helps in deciding whether relocation is a viable option.
Increase in technology has helped aid some executives in avoiding relocation costs. Brookfield’s 2010 Global Relocation Trends Survey Report noted an increase in commuter policies from 29 percent to 35 percent. Stadlman notes one instance at Sauer-Danfoss in which an employee wanted to delay relocation, so the company offered temporary telecommuting as an exception. “It assisted in that situation, but it won’t change our relocation process forever,” she says.
Will Relo Rebound?
Signs of the economy recovering have been coming up slowly but surely in 2010. Will the real estate market follow suit?
“We’re still hoping the economy and real estate market will pick up at the same time,” says Confer. “It has had an adverse impact on attracting people if they are homeowners and are in an area where the real estate market is in worse shape than others. One thing I remind the individuals that are considering moving, depending on where you are moving from and to, a lot of time your house is worth $25,000 less, but you’ll find a house that has decreased in cost.”
Duncan foresees new real estate policies changing or staying the same depending on company size. “I think for small and mid-size companies, policies will stay the same. But larger companies will probably need to change to stay competitive,” she says. “There has to be a huge recovery for us to make any big changes.”
Goldberg also bases any forecasts on the size and timing of the recovery. “If demand gets tight again, we’ll loosen it up and make it more attractive, just like any other benefit,” he notes.
But one thing that has changed for good is the importance of balancing risk mitigation and relocation. This soft real estate market has unfortunately provided some tough lessons learned—homes going into inventory and valuable talent unwilling to move. “We won’t go back to not considering all options in advance,” says Brown. “We now look for estimates and knowledge upfront to educate the employee to make the best decision possible.”