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Four Steps to Reduce Employee-Relocation Costs

Friday, October 2, 2015
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For years now, the No. 1 discussion topic between relocation-service providers and corporate clients has been cost reduction. Today, service suppliers would argue that the extremely competitive selection process has squeezed almost every penny out of the supply chain. So what do employers do now?

If companies want to achieve significant cost reduction in the future, they need to focus on changing their relocation decision-making process. More specifically, employers should consider scrapping the current policy-driven, exception-management approach and replacing it with decision-making practices that are supported by new technologies.

Policy Language and Exceptions Lead to High Costs

Many employers use a policy-based approach to managing relocation. The common language of a relocation policy reads, "You are authorized for up to 90 days of temporary housing," or, "You may ship up to 20,000 pounds of household goods." There are typically multiple policies, usually tied to the employee's level or job position.

If the policy doesn't meet the specific needs of the relocating employee, it is common to request an "exception." Exceptions add costs -- sometimes significant costs -- but they are usually granted because it is difficult to refuse a valuable employee in the middle of a very stressful event.

Relocation policies commonly use the word "benefit" to describe the assistance that the employer provides. In general, a policy approach is appropriate when dealing with most employee benefits, such as a health plan.

But relocation is not a benefit! Employees are not entitled to relocation. Relocation assistance is a form of compensation. Tax laws treat it as such, and employers would be well-served to do the same.

This approach has led to high costs for employers and employees. Something has to change so companies can effectively manage costs while still providing suitable relocation assistance for the right employees.

Focus on Controlling The Cost of Each Relocation

We believe the next step is to focus on the transaction level -- each relocation event.

Think about this: Would your business engage a consultant for a $100,000 project without a cost estimate, a work plan and an approved budget? No! But most companies do this every time they approve the relocation of a mid-level employee and rely only on the guidance of a relocation policy.

Is there an alternative to this approach? Yes.

We argue that using fundamental business practices to make individual relocation decisions will result in much better control of costs. The goals of these practices are simple:

* Only authorize relocations that have a positive cost benefit.

* Match costs to the employee's specific circumstances.

* Engage the employee in cost control.

* Eliminate exceptions.

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These are goals that a policy approach cannot accomplish.

There are four simple steps to implement this new approach.

1. Do a cost estimate with employee input. Based on a policy template, determine what it will cost to relocate each employee. Use the employee's specific circumstances to accurately determine the estimated costs.

2. Perform a cost-benefit analysis. The hiring manager should determine whether the cost of the relocation is justified by the benefits. If not, the relocation should be rejected or the specifics can be negotiated with the employee to get the costs to an acceptable level.

3. Prepare a relocation plan and budget. Convert the cost estimate to a specific plan and budget for the services to be provided.

4. Gain approval and acceptance. Circulate the relocation plan to those who must approve the expenditures, then gain the employee's formal acceptance.

Where Do We Go From Here?

There are multiple concerns about this approach. It can be too complicated, data might not always be available or it might take too long.

That's true. If you had to collect cost data for each move, use a spreadsheet to analyze options and distribute paperwork to get approvals, it would be impossible to complete on time. 

There is good news, though. New cloud-based technology is now available to manage this process -- easily, accurately and quickly.

We project that, over the next five years, companies will make a strategic transition away from traditional relocation models. If you are really serious about controlling relocation costs in the future, you will leverage these new technology platforms to help you get the job done.

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