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Special Report on Employee Relocation Strategic Moves

July 15, 2010
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Related Topics: Relocation Services, Expatriate Management, Managing International Operations, Relocation Management, Tools
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A lthough employee relocations historically have been viewed as obligatory for workers to accept, employers seldom saw the transfers in a strategic light.

That appears to be changing, as moves are finally being analyzed as elements of long-term talent development processes instead of haphazard responses to skills or personnel crises.

The recession forced a drastic shift in relocation philosophies in the last two years, as companies struggled to find the right people for a position, move them where they’re needed and keep them there in an economically feasible way. Yet one of the latest trends in relocation—if not the leading one—is employees’ refusal to move, leaving employers scrambling to fill positions as hiring struggles to return to pre-recession levels.

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“Many people are turning down assignments because of their negative equity situations,” says Jeffrey W. Palmer, president and owner of Palmer Moving and Storage in Warren, Michigan. “One in five homes has negative equity, and the number of people who have lost money on their homes has strongly affected relocations. We have seen double-digit drops in relocations in the last two years.”

This widespread predicament has generated huge interest in pre-decision services—detailed analyses of all the costs of a relocation for both the employee and the employer. For the employee, they include broker appraisals of the value of an employee’s home and the steps a company will take to help the employee sell it.

They also include evaluation of help and funds the employee will receive for the move, such as packing, moving and storage services, assistance in finding a residence, help with finding a job or paying for additional education for a spouse, and funds for everything from incentives to make the move to assistance for education costs and trips home. Employers learn not only what the total cost of the move will be, but also whether the employee can afford to make the move based on his or her home equity situation.

“Pre-decision services used to be offered only for international relocation,” says Ellie Sullivan, director of consulting for Weichert Relocation Resources. “Now they are being offered to key talent for domestic relocation.”

Pre-decision boom
The popularity of pre-decision services is growing rapidly, says Nick Stevovich, vice president of client engagement at relocation provider Sirva. “In 2009, we had only three companies use our pre-decision services; we have 47 clients using it now and expect 15 to 20 more in the next three months. This is the fastest adoption I’ve ever seen.”

Norwell, Massachusetts-based Weichert’s 2010 “Mobility and the Current Real Estate Market” survey of 200 North American companies also showed fast take-up: Sixty-five percent of respondents currently offer pre-decision and loss-on-sale assistance, and 11 percent plan to do so by the end of the year.

With home sales taking months, “companies can’t mobilize the talent they need,” says Scott Sullivan, vice president of Brookfield Global Relocation Services. So companies are using relocation service providers to determine the “impact of the transfer on both the employee and the employer. They want to see if the employee can even take the assignment or if the company can or wants to pay all the relocation costs,” he says.

Loss-on-sale assistance, in which the company compensates the employee for some portion of the difference between the house’s purchase price and current market value, sometimes is an aspect of pre-decision services. “The loss-of-sale benefit is being used a lot more frequently than two years ago, so companies are examining it a lot more closely,” Palmer says. “Some companies are eliminating it completely, and some are capping it.”

Many employees fear that turning down a relocation could hurt their career, but that may not be the case, says Scott Sullivan, whose company has its U.S. headquarters in Woodridge, Illinois. “Companies do understand the housing situation. We recommend that companies talk with the transferee about costs and the pros and cons of taking or not taking a relocation.”

Tenet Healthcare, which owns hospitals in 10 states, relocates 500 to 600 people a year, but only 20 percent of those are long-term or permanent moves. That group consists of executives at the director level and above, such as hospital administrators, CEOs, CFOs and chief nursing officers. “The other 80 percent of moves are doctors, nurses and technicians,” says Shelley Giles, director of relocation, travel and meeting services.

Because doctors are heavily regulated for moves, Dallas-based Tenet offers them a lump sum of $20,000 to $30,000 and helps administer it. Nurses and technicians also receive lump sums of $5,000 to $10,000 along with the moving of household goods and some final travel funds.

It might seem that Tenet would offer more relocation benefits to nurses in light of the profession’s personnel shortage, but the shortfall also means high turnover. “Tenet won’t spend a lot of money to relocate someone who may leave,” Giles says.

Pre-decision services are offered to final executive candidates at Tenet. Top executives can also take advantage of an in-house buyer value option benefit. “The executive finds a buyer, and Tenet takes over the sale,” Giles says. “After six months, if there’s no buyer, Tenet buys the house.”

Other executives receive direct reimbursement for closing costs.

“Our team has always worked closely with executive recruiting to discuss relocation with final candidates,” Giles says. “We’ve stepped this up and are doing it across the board. We will talk to candidates about what they need for the move to be financially feasible and what the relocation policy will offer.”

In cases where an employee has negative home equity, Tenet will obtain broker market analyses. “Tenet doesn’t provide loss-in-sale in general,” Giles says. “If we see the need for change we will, but we haven’t needed to.” Even though Tenet’s use of pre-decision is limited, the services help prevent financially difficult moves that are bad for everyone.

“They let the employee know if [the move will] work. If not, the company can open the position up to a second person or to more recruiting,” Ellie Sullivan says. “The upfront costs are pretty small compared to a move, but the time to go back for a second or third choice is not insignificant.”

Localizing expats
It is increasingly common for companies to convert expatriates, with all their traditional benefits, to local employees. Although salaries don’t get cut, most expat benefits do. Brookfield Global Relocation Services’ “2010 Global Relocation Trends” survey of 120 companies around the world found that 58 percent of respondents were using localization policies, compared with 52 percent last year. Forty-four percent of respondents, an all-time high, reported they were localizing employees after five or more years.

“The No. 1 developing policy for corporation relocation is localization,” Scott Sullivan says. “It’s a direct reflection of the last two and maybe the next two years of the decline in the economy and the pressure on companies to cut costs and reduce workforces.”

The increasing development of localization policies is significant. Localization used to be done on a case-by-case basis, says Eileen Mullaney, a principal in international assignment services practices with PricewaterhouseCoopers. “The emphasis started in early 2009. The driver was cost, but it was thoughtful about policy and if the person should stay in the country,” she says. “Companies would lay people off if they really needed to cut costs.”

Localization has traditionally been a gradual process in which benefits taper off over three to five years. Today, immediate localization is increasingly popular. “We are definitely seeing a trend to increase both types of localization,” says Kathryn Cassidy, vice president and general manager of global assignment services at Westmont, Illinois-based Sirva. “It’s done for cost management, but it’s also done because individuals and their families volunteer to go or want to stay in that country.”

Houston-based Mustang Engineering, which makes the above-water portions of offshore oil rigs, has few permanent relocations. The majority are long term, lasting more than a year, while the balance is made up of rotational and short-term assignments. Only permanent relocations are localized.

“We try to localize them as soon as possible,” says John Pfeiffer, manager of global human resources. “If it’s part of their career plan to stay in a place, the company will localize them as soon as possible. Those jobs were always known to be local, but if the job grows into a permanent one, localization takes a little longer.”

Localization isn’t always fast or easy. Pensions and taxation are especially tricky. “Localization policy is dictated by the company’s headquarters country,” Mullaney says. “But the employment regulations depend on where the employer is. If it’s a French unit of a United States country, the employer’s country would be France. Who is the employer and where is the employment contract? Those are the regulations that determine localization on the employee side.”

Company policies vary in terms of gradual or immediate localization. “Localization used to be phased in,” Mullaney says. “Now companies are doing it immediately with a transition payment [usually a one-time lump sum]. When you wean someone off expat benefits, the company doesn’t see the cost savings for some time. Plus, when you take time, expats keep the expat mind-set. The transition is more painful and less successful. Expats also continue to negotiate all the way through.”

Is immediate localization the best approach? “When you localize people immediately, there is an inherent risk in terms of whether that person will settle in,” says Julian Yates, vice president of global client services at Sirva. “Often, they have a vacation mentality about the location, and then they find the location isn’t that good. You must protect that person to see if they can adjust—that is, do a traditional assignment and then localize. If you do it right away, they may not be able to adjust.”

Workforce Management, July 2010, p. 23-26 -- Subscribe Now!

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