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Relo Costs Still a Moving Target

Global mobility professionals cite cost as their major concern with international relocation assignments, but they also are seeing an increased reluctance by employees to take such assignments and an increased tendency by such employees to negotiate relo packages. And, as always, determining ROI remains an issue.

Thursday, February 23, 2012
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When it comes to relocating employees abroad, employers are ones who seem to be moving very carefully these days.

A recent study by Cartus Corp. of 116 relocation managers reveals that roughly two-thirds of global mobility managers (68 percent) cite the cost of international assignment as their No. 1 concern. This was followed by changing employee expectations and attitudes (45 percent).

The Cartus study confirms that most multinational employers are clearly worried about the high price tag associated with international relocations (which some estimate can be as much a three times an expat's salary) and, in turn, are taking specific steps to ensure their costs don't spin out of the control.

What's more, those surveyed by the Danbury, Conn.-based relocation-services firm anticipate this issue will continue to be top of mind for them going forward.

Among the actions being taken by survey respondents are instituting formal cost-estimation and budgeting procedures for transferees (32 percent) and realigning benefits to more closely match employees' levels within the organization (21 percent).

"Many companies over the past year or two are taking a very methodical approach when it comes to looking at their programs and policies," says Crystal Abbey, a manager in Cartus' consulting practice. "They want to make sure that the services and benefits they're providing to their assignees are level appropriate and respond to the specific objectives of the assignment."

Abbey says she's seen a growing number of companies begin to tier their benefits based on the type of assignment during the past 18 months. For example, she says, a senior executive going to a foreign country to open a new office might receive one set of benefits while a person who "self-selects" for their own development purposes might get a less-robust package.

By doing so, Abbey says, they've been able to scale down their benefits and begin to realize cost savings.

While employers have used tiered approaches for decades, some experts believes what's different today is the way in which they're now being structured and managed.

Ed Hannibal, global mobility leader for Mercer North America in Chicago, says companies are closely evaluating each and every assignment to determine if there's a solid business case behind the move. He predicts this is likely to continue going forward.

"Cost-estimate processes have been around in many organizations for years," he says. "But coming out of the economic downturn, more companies have started to adapt such measures and put in place much stricter controls."

As a result, Hannibal says, employers today have a much better understanding up-front of what an assignment is going to cost them.

Cost pressures associated with expat assignments are likely to intensify in the future, he says, as U.S. multinationals continue to expand their global footprint.

While domestic relocations have slowed, that isn't necessarily true for international relocations (including short-term assignments), where he's witnessed an uptick in activity. That's especially been the case for emerging markets such as China, he adds.

In light of this, Hannibal predicts, companies will continue to pay greater attention to their global-mobility strategies and practices.

Better governance is particular crucial today, especially in an environment where "many jurisdictions are looking for revenue opportunities," Hannibal says. "This means organizations are going to need to know [in advance] what their costs are going to be."

Besides cost, the Cartus survey also reveals that changing "employee expectations and attitudes" are also causing a high level of angst for many mobility professionals.

Nearly half (45 percent) of the respondents report that they're struggling to find capable and willing candidates for international assignments. Moreover, the data suggests, employees are being more assertive when it comes to negotiating a package.

Nowadays, Cartus Executive Vice President John Arcario says, many "seasoned employees" are more closely securitizing and weighing international opportunities with financial concerns and the needs of their families.

"It's quite apparent that, although tiering and new assignment types [have] led to increased flexibility, they have also created more opportunity for negotiation," he says.

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At the same time, he adds, Generation Y employees being targeted for international assignment tend to have higher expectations. Even though many aren't yet married or have households, he says, they still are very comfortable negotiating the benefits that come along with an assignment.

William Sheridan, vice president of international human resource services for the National Foreign Trade Council in New York, puts it this way: "Employees are much more in the driver's seat. Many young professionals, with three or five years experience and a spouse or life partner with income, are pushing back and saying, 'What's in it for me today?' and 'How are you going to cushion the impact on my spouse?' "

The environment, he says, is noticeably different from three years ago, when the economy was tanking and people were very hesitant about changing employers.

Sheridan says many companies are addressing some of the cost and hesitancy issues through shorter-term assignments.

"Instead of tapping Bill on the shoulder and saying, 'We're going to assign you somewhere for the next three years ... employers are asking themselves, 'Can we send him there for six months?' or 'Can we find [someone who is already there].' "

The answer, experts say, isn't necessarily a focus on five-year international assignments.

At the end of the day, they add, employers are going to want mobility professionals who can successfully build the business case for a particular assignment, be it a move to an established market such as London or an emerging market such as Beijing.

In the Cartus study, only three of 10 (30 percent) of respondents identified return on investment as their most pressing challenge, ranking fifth on the list after "expansion into new and emerging markets" (No. 3) and "control and compliance" (No. 4).

But most experts aren't surprised to see measuring an ROI for expat assignments rank low on the list of challenges, since it's an area that's extremely difficult to measure.

 "My sense," says Hannibal, "is a very low percentage of companies have gotten their hands around this."

Sheridan concurs. In global mobility, he says, "ROI has become the Holy Grail. You can determine an ROI for certain revenue-generating jobs such as sales, but for most jobs it's simply very difficult to do."

 

 

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