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Special Report on Employee Relocation Barely Moving

July 29, 2009
The recession pummeled companies’ domestic and global mobility programs in the past year, magnifying changes that had been taking place for some time.

Inside the United States, HR departments continue to grapple with a real estate downturn that has led employees to resist job transfers because they can’t sell their homes. Overseas, multinational companies are curbing the costs of expat programs by cutting assignments short, restructuring expat compensation packages and, in some parts of the world, filling positions with local hires instead of relatively more expensive Western employees.

The fallout has reached some of the industry’s leading relocation outsourcers, which have reacted by laying off employees, filing for bankruptcy or selling operations. Although the domestic and international relocation issues are very different, they have the same root: a tanking economy that offers fewer options for organizations that need to get their employees from here to there.

Domestic decline
Julie Loubaton knows firsthand how the recession is changing U.S. companies’ domestic relocation policies. As director of recruiting and talent management for Consolidated Container Co., Loubaton helps move people for jobs at the Atlanta bottle maker.

Only this year there hasn’t been a lot of moving going on. The 3,000-employee private company stopped offering full relocation packages to new hires a while back and trimmed the number of existing employees it moved for transfers or promotions to seven so far this year, down from 10 in 2008 and 18 in 2007. The main reason: People can’t sell their homes, and there’s only so much cost that Consolidated Container is willing to take on to help.

“A lot of people are having a hard time accepting what their house is valued at,” Loubaton says. “They still think they can sell it for X, despite what an agent is telling them. We can’t afford to have them try for six months then come to us for more money.”

Things have eased up slightly since hitting bottom in the spring. Even so, Loubaton is revising her department’s relocation policies to better reflect the times, changes she spent months researching before bringing them to Consolidated Container’s executive committee in June for approval.

The situation Consolidated Container faces and the actions it is taking mirror what’s happening throughout the country as businesses large and small come to grips with the financial effects of the real estate bust and recession. Nationwide, fewer employees are willing to move for a job. Of 179 companies in a 2009 survey by relocation outsourcer Cartus, 79 percent said employees’ resistance to moving increased somewhat or a great deal over the past year. For 94 percent of those, worries over selling an existing home were the main reason.

“People are afraid of losing money or being underwater”—owing more on a mortgage than what they could sell their house for—says Lina Paskevicius, a consulting manager at Cartus. “If they’re moving, they’re waiting for some official word that the market has bottomed out, so they’re renting instead of buying at the new location, where traditionally they’d buy as soon as they got there.”

When companies do help employees relocate, they’re demanding tougher terms. Thirty-seven percent of 210 companies in a recent poll by Weichert Relocation Resources adopted tighter list-price guidelines or added list-price restrictions to relocation policies for the first time in 2008.

The news isn’t all grim. Last year, 40 percent of companies in Weichert’s survey added or increased loss-on-sale assistance, making up some portion of the difference between the original purchase price of a transferee’s home and its sale price. In the same poll, 34 percent of respondents increased the temporary housing allowance they offered. If a candidate is desirable enough, some companies will even pay a portion of the difference between what a transferee owes on a mortgage and what they can get for their house. “There’s no other way to get people to move,” Cartus’ Paskevicius says.

Consolidated Container, which cranks out 7 million plastic bottles, drums and canisters a day in 65 factories in the U.S. and Mexico, never used to set sales prices for homes of employees who had accepted a transfer. But given the current realities of the residential real estate market, the company revised the policy. Now the company requires that candidates list their home within 105 percent of the average estimated selling price, based on two independent real estate agents’ market analyses.

Aware that homes are taking more time to sell, however, Loubaton is extending how long the company will pay temporary living expenses, to three months from two. She’s also considering giving employees who sell within 90 days a bonus of 2 percent of the net sales price. “This way if they sell at less than they want we’re making up some of the difference, so it’s not as big of a hit mentally,” Loubaton says.

Halting relocation offers to outside candidates hasn’t deterred them from applying for jobs at the bottle maker, which despite the recession is still hiring in its factories and for openings among 450 salaried positions at its Atlanta headquarters. In fact, Loubaton says candidates for management positions—especially junior-level jobs—are willing to do without company help.

“In the old days they’d want a full relocation package. Now they say, ‘Don’t worry, I’ll make it happen if you give me the job,’ ” she says.

Loubaton uses Primacy, a Memphis, Tennessee-based relocation outsourcer, to perform the actual relocation work. She manages the program, and with so many changes taking place, “I’m on the phone with them five times a week. I’m tracking things weekly for our senior leadership team. I’m more involved than I ever thought I’d be,” she says. Like Consolidated Container, more companies are relying on outsourcers to manage relocation programs. Brookfield Global Relocation Services, which merged with GMAC’s relocation business in late 2008, found that about one-third of U.S. companies in its 2009 relocation survey use outsourcers to manage their domestic relocation programs. It’s the latest function being handed off to outsiders as HR departments economize, says Scott Sullivan, the company’s senior vice president.

With housing prices still in the doldrums in many regions and jobless rates continuing to climb, nobody’s predicting relocation policies will go back to what they were anytime soon. “Unless there’s a turnaround, it’s going to be more of the same reluctance to relocate,” says Paskevicius, the Cartus consulting manager.

Global changes
To see what’s happening to multinationals’ global mobility programs, look at China. The country has become a leading expat destination—No. 1 in the world, according to Brookfield Global Relocation Services’ 2009 global mobility trends survey—yet remains one of the most challenging destinations for international assignments.

Even in a global recession, China continues to be a manufacturing powerhouse, creating ongoing demand for management jobs, especially middle-manager positions. But assignments there can be tricky. Expats who live in post-Olympics Beijing maintain the city has become every bit as cosmopolitan as Singapore or Hong Kong—with the same high prices.

Other areas of the country are still considered second-, third- or even fourth-tier destinations based on their lack of infrastructure, options for housing and schools, and other Western-style amenities. This makes it difficult to attract expats. Even in cities such as Beijing and Shanghai, overcoming the twin barriers of language and culture continue to make assignments tough, according to HR managers, consultants and relocation outsourcers.

With revenue and profits beaten down by the recession, multinationals are curbing mobility expenses in a number of ways: ending expat assignments early, reducing compensation packages and perks, and choosing single employees for international stints over those with families, according to 2009 reports from Brookfield and other global relocation outsourcers.

These days, when expats are called home, their replacements are likely to be local hires whose total compensation can run well below what U.S. or European expats command, according to the reports and accounts from expat HR managers.

All these trends are evident in China, where multinationals are replacing departing expats with their pick of a growing population of foreigners already living in the country. “There was just an expat job fair here a month ago and a couple thousand people were there looking for jobs,” says John Lackey, a Beijing-based international HR manager for International SOS.

In more than a decade helping manage expat programs for such multinationals as Goldman Sachs and Microsoft, Lackey has had a bird’s-eye view of the changes taking place. He currently oversees HR for 85 expats working in Beijing for International SOS, which provides medical assistance, security services and international health care, including a chain of private medical clinics. The company has a global workforce of 6,000.

Today, about half of International SOS’ expat employees in Beijing are traditional expats from 15 countries, including the U.S., Germany and New Zealand; a quarter are local hires; and the balance are expats who rotate through positions on a short-stay basis.

While the total number has remained steady, Lackey predicts more expat positions will be filled by ethnic Chinese transferring from nearby countries or “half pats”—Chinese nationals returning to the country after living elsewhere for a long time.

“An [American] expat with a spouse and two kids making $100,000 a year can run $250,000 to $500,000 in costs, compared to a local hire you can pay $100,000 and that’s all you have to pay,” Lackey says. “The savings is easily at least half and could be up to 75 percent.”

Another attraction of local hires or half pats in China: their ability to fill in-demand middle-manager positions that require business experience and knowledge of language and culture, says Timothy Dwyer, client services director at Expaticore, a New York expatriate payroll outsourcer, and a former global mobility manager at Goldman Sachs and KMPG.

These workers may not be a multinational’s perfect candidate. But as cost plays a bigger role in hiring decisions, companies are willing to overlook some deficiencies, especially if candidates accept a hybrid compensation deal that’s less than what a traditional expat would expect, Dwyer says.

In addition to using local hires, multinationals are curbing costs of global mobility programs by cutting the length of long-term assignments by a year or more, creating more short-stay assignments of a year or less and sending employees on extended business trips of several weeks or months instead of moving them, says Paskevicius, the consulting manager at Cartus, which in addition to its domestic business also works with multinational clients.

All those changes mean HR managers must look across the globe for available candidates, and more are relying on relocation outsourcers for help. Overall, 38 percent of 180 companies in Brookfield’s 2009 survey outsource the management of their global mobility program. Cartus, for example, offers its clients a candidate assessment program that uses performance metrics and other data to pick the best pros- pects for international jobs.

Nevertheless, some organizations’ expat program managers prefer to go it alone. Lackey, who has worked with and for relocation outsourcers, acts as his own program administrator because of the flexibility it gives him. Outsourcers “tend to limit services to a fixed menu, whereas I can get a local company to provide services with no limitations,” he says. The global recession has put pressure on HR managers to justify how well global mobility programs align with a company’s overall business objectives. That means producing more data on the program’s operations “and more dialogue between HR and management about the outcome of assignments,” says Scott Sullivan, senior vice president at Brookfield Global Relocation Services, which acquired GMAC’s mobility division last year.

Those same financial realities have accelerated the demise of companies’ once standard practice of doling out cushy expat assignments to junior executives as part of their management training process, says Rebecca Powers, a Mercer global compensation and mobility practice principal.

Companies no longer feel the responsibility. It’s now employees who are eager to accept international postings, even in less than top-tier locations. They are also willing to make such moves for pay and benefits packages that are less than what they used to be, “as a way to boost their marketability,” Powers says.

Workforce Management, July 20, 2009, p. 23-27 -- Subscribe Now!