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Sweetening the Pot

With the real-estate market in swift decline, relocation managers are forced to make a decision: Is it worth ramping up relocation packages to entice people to move?

Monday, June 16, 2008
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At this point, Rob Morin knows the drill. A division vice president of small-business-services sales at ADP, Morin is about to relocate for the third time in the past seven years. He first went from Simsbury, Conn., to Sparta, N.J., in 2001; then from Sparta to Naperville, Ill., in 2005. With the real-estate market booming during those years, there was little for Morin to worry about other than making sure the transition was easy on his wife and three young sons, who now range from 8 to 14.

But something tells him that this latest relocation -- to Alpharetta, Ga. -- will take a little more effort. In a real-estate market that has been rattled by declining values and houses languishing for months in the listings, selling his family's home won't be so easy this time around.

"I'm a little concerned; I've owned this home for several years in Naperville. The market has been good, but now there are a lot of homes in inventory," says Morin.

Once he begins the relocation process, Morin will have options from ADP that are specifically tailored to helping employees relocate in the face of a struggling real-estate market. For instance, ADP recently initiated a program that gives employees the option to rent their former home, rather than sell it at its current value, in the hope that the price will increase after a few years, according to Rebecca Kirschbaum, ADP's senior director of corporate relocation and real estate assistance programs.

The company will help the relocating employee find a suitable tenant and, if the rent does not equal the total amount of the homeowner's principal, interest, taxes and insurance, it will subsidize the difference in full for the first year, then partially for the next two years.

Since Morin is intent on selling his current home and buying another in Alpharetta, he is more likely to take advantage of ADP's "up-front appraisal" program, where ADP's third-party relocation company offers appraisals before prospective relocatees even decide whether or not to make their move.

Kirschbaum says the company implemented the program because so many homeowners have an "inflated view" of what their homes are worth.

"We know the real-estate market is declining in many locations," says Kirschbaum. "People don't really understand it. They know it in their heads but have not accepted it. We were very concerned people would take positions, then [try to] sell their homes and it might not happen."

Morin may also use another one of ADP's relocation benefits -- loss on a sale. If a house sits on the market for more than 120 days, ADP offers to buy the relocatee's home for 3 percent under the appraisal price. The last two times he moved, Morin sold within the allotted time period and received the full asking price.

"This time will be different because of the market, so we'll see how it plays," says Morin, adding that he knows, to get his home sold this time around, he needs to stay aggressive and market it wisely.

Kirschbaum says she "strongly supports" the rental option and hopes it allows the company to have some breathing room during a tough market. With 40,000 employees, ADP relocates about 200 people every year, 30 percent of whom are in a loss-of-sale situation or are "upside down" in their mortgages -- meaning they owe more money than their home is worth.

"Moving people into new positions is a very healthy part of a company," she says. "[A bad real-estate market] could stop the growth of a company."

Tough Times

Indeed, the real-estate market and sluggish overall economy have made it much more difficult for companies to recruit the talent they need to survive. In a survey of 85 companies conducted by Morris Plains, N.J.-based Weichert Relocation Resources in the fall of 2007 focusing on domestic new hires, 78 percent of companies said they are finding it more difficult to recruit the right candidates. Their greatest challenge is getting first-choice candidates to move.

For recruits, 81 percent said their greatest challenge is losing money on the sale of their homes, followed by 65 percent who are concerned most about the cost of housing at their new locations.

"Before, the reluctance used to be family and family ties; you had employees who grew up in that area or parents who were providing babysitting. Now it's the real-estate market," says Lina Paskevicius, manager at Danbury, Conn.-based Cartus Global Consulting. "The housing market is the top reason people are not moving or are reluctant to move."

In the Weichert study, 27 percent of companies said they are increasing relocation benefits in 2008 to entice new hires into new locations. In a similar study of 50 companies surveyed by Valhalla, N.Y.-based Prudential Relocation's Global Consulting Group, 58 percent said they have made changes or plan to change their relocation policies to address today's market.

But just what types of packages are being offered? A survey of 350 U.S.-based corporate relocation professionals by Atlas Van Lines indicates full, partial and lump-sum payments for workers' relocation expenses.

According to the study, 63 percent offered full relocation packages -- meaning the company pays for everything involved with a move, from movers to home-sale assistance to house hunting -- an increase from 58 percent in 2005, but down slightly from the 74 percent in 2003.

Partial payments, which cover some, but not all, of the moving costs, were offered by 44 percent of respondents, up from 32 percent in 2005 and 22 percent in 2003.

Lump-sum packages, through which employees get certain dollar figures and set up the moves themselves, increased from 24 percent in 2003 to 33 percent in 2005 to 37 percent in 2007.

Greg Hoover, president and chief operating officer at Atlas, which is based in Evansville, Ind., says the lump-sum increase indicates companies are realizing the importance of differentiating their packages offered to lower-level and higher-level employees.

"The gap is widening [between those receiving full payments and those getting finite amounts of cash]," he says. "It's either a full-blown relocation or they are just saying 'here's a lump sum, go move.' " Nevertheless, he says, the benefits are increasing across the board.

Yet even with companies making better offers, there are still no guarantees potential relocatees will make the move; and, indeed, more are declining the offers. More than half of the firms surveyed by Atlas reported that at least one employee had declined a relocation in 2007 and twice as many firms saw an increase in the number of declined relocations from the prior year, the highest in six years.

Hoover says the greatest factor behind people turning down those offers is home-sale slumping.

"Right now, it's not so much people not wanting to move as people not being able to sell their homes," he says.

The Prudential survey, also focusing on domestic relocation, found 88 percent of employers say the real-estate downturn's biggest impact on relocation is the amount of time houses stay on the market. For the companies that have increased benefits, the top reported change has been an increase in temporary housing -- companies providing employees with places to live for allotted periods of time.

In the Weichert survey, the top increased benefit was home-sale incentives, such as closing costs, repairs, taxes or decorating allowances, with temporary housing coming in a close second.

In an effort to control what they can since they cannot control the real-estate market, employers are increasing offers in other areas as well, says Laura Herring, president and CEO of the St. Louis-based career management firm, the IMPACT Group. Some are stepping up spousal-assistance programs, including career coaching, skills assessments, resume development and job market research for an employee's husband or wife.

Although companies did not push those programs in the past, they are now "a real pitch," says Herring.

In fact, the Atlas study found that the number of companies offering employment assistance for spouses is at its highest level in five years, at 42 percent.

"A spouse-assistance program can [cost a company] $1,200 to $2,500," says Herring, referring to helping a person through a few months of a job search financially. "That sweetens the pot without burning up the pocketbook of the shareholders because they're not throwing money at every new recruit, for every new relocatee, to overcome the loss on sale."

Most companies, says Paskevicius, are leaning toward increasing benefits on a case-by-case basis rather than overhauling policies.

The key, Paskevicius adds, is for hiring managers to weigh three interrelated factors: "How much they want the candidate, the level of the candidate and then, what the job market is doing."

To Change or Not

While some HR and relocation professionals are enhancing benefits to entice new hires and transferees to relocate, others are just monitoring the trend and keeping their existing policies in place.

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At the insurance giant Aflac, relocation leaders have not needed to increase benefits and have no intention of implementing a home-purchase program, but have made small tweaks along the way, such as extending the time frame for dual housing benefits and increasing the number of paid trips back to an employee's prior location.

Audrey Boone Tillman, senior vice president and director of human resources, facilities and health services at Aflac, says the company's relocation package -- mainly used to move people to its headquarters in Columbus, Ga. -- is already pretty generous, providing a signing bonus, temporary housing, a home-selection trip, a real-estate broker and additional services to help the employee and his or her family get acclimated to the new community.

So far, relocations at Aflac -- between 40 and 45 per quarter, mainly for manager and consultant positions -- haven't slowed down, and they have had no problem getting people to move, says Tillman.

"They sense our commitment to them and they come on board," says Tillman. "If we were getting large-scale refusals to join us because we said we wouldn't buy someone's house, we'd be revising it. We'd likely be changing our policy. But we've been very fortunate that we haven't had to do that."

According to the Prudential report, companies such as Aflac don't need to make sweeping changes just because the markets are down.

"Making no changes is not necessarily a wrong answer, provided each company rationalizes this decision in the context of its own unique objectives and culture," states the report. "Making no changes as a result of inaction and without consideration of the consequences should be of concern."

Russ Hayne, a consulting director for Prudential, says that when deciding whether or not to make changes, companies should consider market conditions, company history and benchmarking studies.

The current market, he says, has forced companies to do a "good deal of soul-searching." If a company is more paternalistic, its leaders may "obligate themselves to protect the employee from increased cost exposure," he says.

"On the flip side, there are organizations whose cultures are less paternalistic; they look at benefits that are shared by the employee. They expect the employee to step up and accept some of the burden of the market."

Hard Look in the Mirror

So how are companies assessing -- or how should they be assessing -- their relocation packages to keep up with these dramatic economic and housing shifts?

ADP's Kirschbaum writes monthly reports tracking relocation progress and makes sure to do a full-scale assessment at least once a year. Aflac's Tillman says her company formally addresses the process every few years, while "constantly" asking for opinions from recruiters about its policy.

Indeed, according to the Prudential report, "clients engaged in consistent to constant policy reviews that have implemented specific policy changes in light of the changing markets have weathered the storm better that those companies that have not."

Joe Benevides, president of Worldwide ERC, a Washington-based membership association for the relocation industry, agrees relocation should be analyzed on a regular basis, assessing employee performance and satisfaction.

"Many organizations that have very rich policies and really provide great benefits see relocation as a very strategic part of their succession-management planning," says Benevides. "That's [going to yield] a better result than a company that has a very bare-bones policy -- 'we need you in Philadelphia next Thursday; see you there.' "

What happens if the real-estate market continues to worsen?

"If it gets to the point where we're losing good people we want over the effects of the market, we'll do what we always do, analyze and change our plans accordingly," says Tillman.

For Kirschbaum, a real-estate market in even greater decline would be even more reason for employees to consider the rental program.

"If you can't financially relocate, it could paralyze a company," says Kirschbaum. Could the market get so bad that companies will be forced to suspend relocations?

Benevides doesn't think so. "People will look at the costs of relocation and potentially make a concerted effort to hire locally to avoid [them]," he says.

But this won't always fly. While you may get some quality local hires, getting the right people in the right occupations is just too important to most companies.

"Having the right human capital in the right location is a key component [of organizational survival and success]," says Benevides. From that perspective, don't ... expect to see a huge drop-off in relocations."

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