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Special Report Employee Relocation—Rolling Through the Downturn

August 7, 2008
Related Topics: Benefit Design and Communication, Relocation Management, Workforce Planning, HR & Business Administration, Tools

At Tenet Healthcare, housing assistance was typically among the last items discussed in employee relocation as recently as two years ago. Tougher questions like pay and job assignment came first, while real estate assistance was a fairly straightforward matter.

    Things are different today. A deep real estate slump has undercut relocation programs across the country, making it increasingly difficult and often expensive for companies to persuade workers who own homes to move. Tenet, like other corporations, has had to scramble to deal with plunging home values and anemic real estate markets.

    "Now people can’t make a decision without knowing what the company can do on real estate," says Shelley Giles, director of relocation at the Dallas-based hospital owner. In particularly hard-hit communities, Tenet has started ordering home appraisals as a first step in the relocation process. "If they know they are way underwater, then there is often no reason to pursue the move."

    For corporate America, with its continuing need to match talent to locations, the real estate situation has become the top concern in domestic relocation. As the real estate market went from bad to worse, companies began re-evaluating policies and adjusting programs in their struggle to get needed employees to the right sites while also controlling relocation costs.

    "It is clear that real estate is the item of everyone’s attention right now," says Earl Lee, president of Prudential Relocation.

    Despite the domestic real estate slump, corporations are forging ahead with relocation programs, with relatively few anticipating major reductions. As a result, relocation spending will likely continue rising throughout 2008.

    In its annual corporate relocation survey, Atlas World Group found that 18 percent expected to decrease the volume of relocations in 2008. While that number was up from 14 percent in the 2007 survey, this year’s results indicated the vast majority still planned to either increase or maintain relocation volume in 2008. The Atlas survey, which is aimed primarily at U.S.-based companies, this year included responses from 347 companies that completed an online questionnaire from January 16 to February 29.

    "People tend to be optimistic, although they are not quite as optimistic as they were last year," says Greg Hoover, president and COO of the Evansville, Indiana-based moving and transportation company.

    In fact, companies were more optimistic about their own situations and ability to continue relocation activity, but were less hopeful about the overall economy. More than three-quarters of those surveyed said they expected the domestic real estate market to worsen in 2008, while 45 percent said they expected a continuing decline in the U.S. economy this year.

    While domestic relocations appear to be down slightly, global relocation continues to boom. A survey released in May by Oakbrook, Illinois-based GMAC Global Relocation Services found that only 5 percent planned to decrease their number of relocations in 2008. The majority of companies (68 percent) said they plan to increase relocations, while the rest anticipated holding steady. GMAC polled 154 multinational firms that manage a total of 4.3 million workers worldwide.

    But the GMAC survey also found that companies planned to pare spending, at least on the international front, even as they increase relocation volume, with 58 percent saying they anticipated cuts to international relocation expenses.

Economy's influence
    Companies are responding to the economic pressures and difficult demands on relocation programs in various ways. Among the trends that surveys and relocation experts see:

u Short-term assignments are on the rise domestically. In a survey of 208 U.S.-based human resources officers, Cartus Worldwide, a Danbury, Connecticut-based relocation firm, together with workforce mobility association Worldwide ERC, found that more companies are making relocations temporary instead of permanent, with 62 percent saying the numbers on those types of assignments are on the rise. Those short-term arrangements, which usually come with rental assistance, can allow employees living in depressed real estate markets to keep their homes rather than sell at a steep loss. But the move frequently means a family separation, which exacts a toll on worker morale.

u More employees are turning down relocations, primarily because of real estate concerns, even if the move means more pay and higher status. In the Atlas survey, 16 percent of companies said they had more relocation rejections in 2007 than the previous year (only 7 percent reported increased rejections in 2006). The biggest jump was reported by the largest companies.

u The rising inventory of unsold homes is causing a corresponding rise in relocation costs. Companies are incurring the extra costs on two fronts. Companies see increases from carrying costs for homes purchased from relocated employees under real estate buyout programs. Other programs seeing increased costs are those in which companies pay duplicate housing expenses for relocated employees. In a survey of North American employers conducted in early 2008 by Weichert Relocation Resources of Morris Plains, New Jersey, 62 percent said they offer duplicate housing reimbursements as part of relocation programs.

u On the international front, relocation is growing fastest in China and other parts of Asia. At the moment, U.S. corporations are less globally mobile than companies headquartered outside the country. In its survey, GMAC found that fewer U.S.-based companies expected to increase their expatriate populations in 2008 than companies based outside the United States.

u The demographics of international relocations continue to shift, with young, single males making up an increasing percentage. The GMAC survey found the percentage of those on international assignments who are married men fell from 62 percent in 2002 to 51 percent in 2007. The female expatriate population peaked at 23 percent in 2005 and slipped to 19 percent in 2007.

International moves
    The changing demographics of international relocation reflect an important change in how corporations are using global assignments. According to the GMAC survey, companies are now using international assignments as a way to train and prepare younger executives to work in a global economy. Five years ago, building management expertise was the fourth most-often cited reason companies said they sent employees on international assignments, with filling skills gaps being No. 1. In the latest survey, building management expertise was No. 2, close behind the need to fill skills gaps (29 percent for skills versus 24 percent for management expertise).

    "Companies today find that they are earning revenues from several different markets," says Scott Sullivan, senior vice president of GMAC Global Relocation. "In order to succeed, they need leadership as a global company. So companies send high-potential managers to Europe for six to 12 months, Asia for six to 12 months, then Latin America for six to 12 months. They are getting the immersion version of a global view."

    Microsoft Corp. is among many U.S. companies that have begun using international rotational assignments as a training tool. Peggy Smith, director of global relocation for Microsoft, says the company currently has 14 divisions using international rotation programs. Last year, Microsoft had none. Those rotation programs have helped boost an already growing international relocation program at Microsoft. Smith says Microsoft’s international relocation volume is up by nearly 50 percent from last year.

    "We are incredibly busy," Smith says.

    Companies are not just sending U.S. managers to work abroad; they’re also increasing the movement of workers from one foreign location to another—a hot trend among not just U.S.-based companies but other multinationals as well.

    These jobs tend to be frontline management or technical posts in which foreign employees who have proved themselves in one location will be tapped for an assignment in a different country. The movements often involve managers or engineers drawn from a lower-wage country like India who might be moved to other lower-wage countries such as China or Vietnam. Those relocations tend to be cheaper than moving a manager from the U.S. who would still have to be paid U.S.-level wages in a country like China.

    "Companies are able to get the skills they need at lower costs," Sullivan says. "We used to talk about moving the work to where the people were. Now we are talking about moving people to the work."

    Prudential’s Lee says U.S.-based companies are becoming less tied to having their international workforces spend time working in the U.S. at all. He sees moves based strictly on where talent is located and where it is needed, with no U.S. stop required.

    "The U.S. used to be the hub," Lee says. "Now we are seeing a lot of inter-regional moves that bypass the U.S. People go from Asia to Europe, Europe to the Middle East. There is a tremendous amount of international movement."

    This growing flow of skilled workers and managers across borders leads to an increasingly multinational employee base. And that has complicated the task for companies in getting international assignees prepared for work in their new host countries. Cultural training programs have sprung up the past few years around the globe that offer instruction and counseling aimed at helping relocated workers adjust to and understand their new surroundings.

    Sullivan says the value that companies place on cultural training is reflected in GMAC surveys, in which about eight of 10 companies said they consider cultural training very important for international relocations. But Sullivan says there is a disconnect between what companies say and what they do on this front, with only about one in four companies making cultural training mandatory for international assignments.

    Part of the reason, Sullivan says, is the increasing amount of world travel workers have done. A company might take an employee based in Japan who has traveled to China and relocate that person to Shanghai, then let the person skip cultural training. Bad move, Sullivan says. "It is one thing to visit Shanghai and another to live there," he says.

    Prudential’s Lee says companies often fail to properly screen employees to determine whether they are the right fit for an international assignment. Prudential offers a testing program to its clients that helps assess the international adaptability of candidates, he says. "When you are moving someone across the world, and they are ill prepared or unsuited for that type of assignment, you have just wasted a tremendous amount of money," Lee says.

    Prudential’s online assessment program lets a company measure how well an employee is likely to adapt to a foreign assignment. The test can be used to structure cultural training programs best suited to the needs of individual employees and their families.

    Brenda Bellon, who heads the Prudential relocation culture training group, says more companies are using the assessment tests and are following up with training. Some companies are even using assessment tests to screen employees who might be candidates for overseas assignments in the future.

Domestic issues
    While international relocation is on the rise, it still represents a small part of the relocation volume for U.S. companies. Most human resources managers in the U.S. today spend considerably more time on domestic housing issues than international concerns. And much of that time revolves around trying to manage home-sales issues facing employees tapped for relocation.

    The biggest problem facing many companies comes from employees who bought homes during the recent boom period and suddenly find that their homes are worth less than they paid. Dealing with those situations has required considerable creativity in the relocation process.

    The most generous relocation packages, usually reserved for top executives, contain loss-on-sale clauses under which a company will help make up for any loss an employee realizes through the sale of an existing home. Those programs are usually capped and rarely go above $50,000. But tales of companies spending much higher amounts to consummate a relocation are becoming more common.

    In some cases where it is crucial to move the employee, a company will simply pay a bonus to help cover the loss rather than make the payment part of the relocation process. Those bonus payments are often hard to track because they frequently come from division or regional managers rather than through HR divisions.

    Some of these bonuses to induce transfers are coming with extra strings attached. For example, signing bonuses to encourage new employees to join a company and relocate are being drafted with longer payback clauses. The bonuses may be higher than in previous years to compensate for a real estate situation, but instead of having to stay with the new company for 12 months to keep the entire bonus, employees now frequently must stay 24 months.

    The use of bonuses is just one of a number of policy issues confronting companies today as they grapple with the impact of the housing slump on relocation. To control costs, companies are instituting more rigorous appraisal standards to make sure true market values are understood. To expedite sales, companies are demanding better marketing of homes, including stipulations that offering prices stick close to appraisals. Buyer value option programs, in which employees get to market homes themselves to try to get a better price, are being reined in. Employees are getting less time to try to sell homes themselves under that option. Some companies are moving their relocation programs more toward guaranteed buyout options, in which the company offers to buy a home at a set, appraised price and then the company tries to resell the home itself.

    With the U.S. housing situation not predicted to improve anytime soon, companies can expect to continue dealing with the issue for at least the next year as they try to keep their inventory of unsold homes from ballooning while also getting employees to locations where they are needed.

    At Tenet, Giles relates the story of one relocation case in which an employee’s house had dropped in value by $200,000 in two years. The company and the employee discussed various options. Unable to reach an agreement, the employee moved into temporary housing in the new location. The company paid temporary living costs while negotiations continued. Months later, the employee remains in temporary housing.

    "We still haven’t resolved that one," Giles says

Workforce Management, August 11, 2008, p. 31-37 -- Subscribe Now!

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