Options Alleviate Employee Qualms About Relocating
Even during the recession, employees are reluctant to uproot their lives for a new assignment. New programs, ranging from real estate bonuses to helping parents find good schools, help employees make the decision to move.
The 1992 Relocation Trends Survey, conducted by the Employee Relocation Council (E-R-C) in Washington, D.C., supports this observation. In this survey, 76% of the companies responding report experiencing little or no employee resistance to relocating.
This doesn't mean, however, that employees are jumping at the idea of uprooting themselves or are willing to take whatever relocation assistance a company offers. Far from it. This figure hides the fact that in fully 35% of these companies, employees who are offered a transfer express reluctance to accept it, often because of money that would be lost in the depressed housing markets, increases in the cost of living, and spousal and family considerations.
These concerns aren't insignificant. An employee transferring from a depressed housing market stands to lose money on the sale of a home. If the move would be into an area that has a higher cost of living—say from St. Louis to Los Angeles—a quick glance at the housing prices at the new location could result in some staunch refusals to budge.
In addition, the majority of households today require two incomes to maintain their standard of living. Employees are increasingly hesitant to accept a transfer that would require the spouse to give up a job with no guarantee of a new one. Add concerns about finding good schools and day-care providers, meeting new friends and caring for elderly parents, and it's easy to see why companies now have to be more flexible and innovative with their relocation policies than before.
Flexibility is especially important, given the demographics of today's work force. The male head of household may have been the typical transferee 10 years ago. Today, however, companies also move single parents, married female executives, dual-career couples and employees who must care for children and elderly parents.
"It's impossible to write all the things into a relocation policy that you might need to cover," says Gary Gorran, director of administrative financial services at Johnson & Johnson in New Brunswick, New Jersey. "We have to be more flexible than ever. Each transfer is dealt with on a case-by-case basis, and we have to remain open to a number of options."
Halina Dragin, manager of relocation for Hoechst Celanese Corp. in Somerville, New Jersey, agrees. "Employees definitely aren't shy about asking for what they want," she says.
Housing issues have increased relocation costs.
In response to increasing employee demands, as well as the changing economy, employers have had to add a number of benefits to their relocation policies in recent years. This change has boosted the cost of relocating an employee who's a homeowner to an average of $46,668, according to the E-R-C.
The biggest change in relocation practices has been in the addition of loss-on-sale assistance. This is a process by which the company reimburses the employee for equity lost because of the sale of a house in a depressed market.
Fifty-one percent of companies responding to the E-R-C survey now offer loss-on-sale assistance. A majority of these companies cover both federal and state tax liability resulting from equity-loss reimbursements. Averaging slightly less than $15,000 per transferee, the benefit has become the most expensive item in a relocation package.
Although loss-on-sale assistance may relieve an employee's financial fears, there's still the daunting, time-consuming task of selling a home. To ease this burden, many employers have started to offer a financial incentive to employees who take the time to market and sell their homes. This isn't entirely for altruistic reasons, however. It's more cost-effective for employers to offer a sales incentive to employees than it would be to hire a third-party relocation service to manage the transaction.
Minneapolis-based Cargill Inc., for example, offers employees a taxable bonus worth 2% of the home sales price. "Employees like it because it gives them more cash to work with when negotiating the sales price. We like it because it cuts down on the number of homes in our inventory," says Sandy Palmer, Cargill's relocation manager.
Housing has created other relocation issues. Employees moving to a high-cost-of-living area, such as San Francisco, frequently can't afford to make a down payment on a house that's comparable to their present home. Even if they could, the monthly mortgage payments would be overwhelming.
Columbus, Ohio-based Dobson Technologies tries to help employees overcome the "sticker shock" of housing prices by extending the time the company will pay for transferees to live in temporary housing.
"Normally, we'll cover the cost of temporary living arrangements for three to six months," explains Dennis A. Kairis, the company's vice president of human resources. "But in high-cost areas, we'll extend it to nine months or a year." This gives employees more time to save money for a down payment. It gives them time to survey the housing market and pursue other alternatives, such as building a new home. For example, Kairis says the company recently relocated an employee to Boston, an area in which established housing on the market is costly. By extending the company's coverage of temporary housing, the employee had time to plan and build a new house.
Like Dobson Technologies, many companies are having to extend the time they'll cover temporary living expenses. In 1978, employers covered these expenses for an average of 39 days. By 1991, that number had jumped to 53 days. In addition, about 70% of companies have extended the benefit to cover food and lodging for family members as well as employees.
Employees who are transferred into expensive regions of the country also may receive help with their new, higher mortgage payments. This benefit, called a cost-of-living allowance, is known in the relocation profession as a COLA. According to Quietmeyer, COLAs typically are an addition to salary and last during a period of three to five years. At this time, the employee either should be making enough money through salary increases to afford the higher living expenses, or will have moved to another city. Housing generally takes the largest percentage of a COLA, but the allowance may be used for other expenses that can differ from city to city or state to state, such as taxes, insurance, licensing and transportation.
Hoechst Celanese offers a COLA worth 15% of a transferee's salary during the first year after a relocation, and provides a 5% allowance for the next two years. However, recognizing that employees have different financial needs, the company also offers transferees the option of participating in a mortgage-subsidy program instead of receiving the cost-of-living allowance.
With its 3-2-1 Mortgage-Subsidy program, the company subsidizes three percentage points of the employee's mortgage interest rate for the first year, two percentage points for the second year and one percentage point during the third. If the mortgage interest rate is 8.5%, for example, the employee is responsible for paying 5.5% for the first year. The next year, the employee would pay 6.5%, and so on.
Another form of mortgage assistance that was popular in the 1980s, and probably will be making a comeback during the next few years, is the mortgage-interest differential. With this benefit, a company pays the difference in the interest paid on home loans at employees' new locations versus what they were paying at the old locations.
"A decade ago, home loans went up to 18%. Employees were reluctant to move and give up mortgage payments at 9% or 10%," Quietmeyer says. To overcome this resistance, some companies paid the difference.
"This benefit definitely will come back into play because we've just gone through one of the biggest booms in refinancing in the history of the housing market in this country," Quietmeyer says. "As we move into a new economic cycle, interest rates will be higher, and employees again will be reluctant to leave low payments behind."
Relocation packages now include spousal assistance.
In addition to worries about selling or buying a home and living in costly areas of the country, today's transferees share a host of family concerns. To begin with, the spouse's job has become extremely important as a financial consideration. Most households now require two incomes just to meet routine expenses. Thirty-six percent of the respondents to the E-R-C survey cited the concerns about the spouse's job as a primary reason employees resist relocation.
In response, many companies are offering job replacement assistance programs to spouses. According to Jan Dickenson, president and chief executive officer of the Dickenson Consulting Group in Portland, Oregon, such assistance is even being offered in some cases to unmarried and same-sex partners, to recognize the growth in nontraditional families.
Spousal assistance programs may include:
- Providing referrals to employment agencies in the new location
- Counseling the spouse on resume writing
- Interviewing and job-search skills
- Allowing extra time on house-hunting trips for the spouse to look for a job
- Offering to replace the spouse's lost salary for a specified time.
The HR department at Dobson Technologies, for instance, works with job-search firms in the new location and networks with other HR departments to help the spouse find suitable employment. Though salary replacement is offered as a relocation benefit, Kairis says that the company would rather spend $4,000 to $5,000 on an outplacement firm to help the spouse find employment.
At Cargill, the approach is similar. "We cover the costs associated with the spouse's job search equal to one month's salary or a minimum of $1,500," explains Palmer, "but the spouse must turn in expense records to receive reimbursement." Both companies express the opinion that covering job-search expenses—as opposed to reimbursing lost salary—decreases the time that the spouse is unemployed after the move.
The problem of finding employment for the spouse is just as difficult when a company is courting a new hire as it is when moving an existing employee. "Relocating new hires is getting more difficult every year, primarily because of the spouse's job," says Mick Donahue, senior partner with Donahue/ Bales Associates Inc., an executive search firm in Chicago. "If the spouse has a good position, there's no certainty that a position of equal value will be available in the new location," Donahue explains.
Donahue says that his clients are working to overcome this problem by hiring outplacement firms to assist transferees' spouses during the job search in their new locations. Companies also network with the human resources departments in nearby companies about open positions, and involve the spouse in the actual job negotiations.
Job concerns aside, there often are other, more emotional reasons for spouses' resisting a transfer, according to Laura Herring of the Impact Group in St. Louis. These reasons include anticipated stress, the feelings of loss and loneliness, and the overwhelming number of practical details to consider, such as where to find child- and elder-care services, how to locate a good family physician and dentist, how to transfer current credits to a local college, and so on.
The Impact Group offers an assistance program called Momentum, which helps employees address these issues. Johnson & Johnson recently began using Momentum, and Gorran believes the program allows employees to remain productive throughout the transfer because it helps them deal effectively with the psychological impact of a move.
Gorran also credits Johnson & Johnson's work-and-family initiatives program with assisting its employees in overcoming relocation resistance. Through this program, Johnson & Johnson offers:
- On-site child-care centers
- Child- and elder-care referrals
- Dependent-care accounts
- Alternative work arrangements
- Family leave.
Because employees know the company is going to provide family assistance no matter where they're located, Gorran says that they're more willing to accept a transfer.
Another concern for transferees is the quality of education in their new locations, given the large number of schools to choose from in some areas. Boston, for example, has 201 public schools and 344 private schools within 30 miles of downtown. Consequently, finding the right school can be a challenge. To help transferees make the right decision regarding schools, which can then, in turn, influence housing choices, many employers make SchoolMatch available. This is an information service based in Westerville, Ohio, that lists all American public, parochial and accredited private schools throughout the world.
By using this service, relocating families can make school selections by simply completing a questionnaire indicating their family preferences regarding tuition, class size, the extracurricular activities, and so on. SchoolMatch names the top 15 schools in the new area, along with pertinent facts about each one. According to William Bainbridge, the organization's president and CEO, more than 18,000 families from more than 500 companies used SchoolMatch in 1992.
"Schools have become an important consideration as transferees become more savvy about social issues," says Tom Peiffer, executive vice president of the housing cost division at Runzheimer International in Rochester, Wisconsin. Employees want information—and assistance—that will help them make wise decisions about a move.
Providing this information may mean a bit more legwork for the relocation manager. It also means companies have to be able to meet requests that employees may have based on that information. Dobson Technologies, for instance, paid the $14,000 cost to move an employee's sailboat, although the relocation policy wouldn't have covered it normally. According to Kairis, the employee's decision to accept the transfer hinged on this coverage. "He was a real deal maker," says Kairis.
Although flexibility and responsiveness to employee demands are important, for HR executives the challenge of relocation remains the same. Gorran says, "The biggest challenge is to move the right person at the right time at a reasonable cost."
Personnel Journal, March 1993, Vol. 72, No. 3, pp. 34-40