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Is the GBO Making a Comeback?

Don't PanicYou swore them off four years ago. “Never again,” you said.

Never say never.

The tables are turning and the Guaranteed Buyout is making a comeback beyond the most senior executives.  It’s hard to imagine now but, before the recession, the GBO was common in many organizations. Back then, employees were concerned that the historic data used to determine price didn’t account for the appreciation that was driving values higher…almost daily.  It wasn’t a big problem, however, because most houses sold quickly and at prices that were higher than the appraised offer. At the end of the day, everyone was happy. Sigh…we didn’t know how lucky we all were.

After the crash, there was a major reversal. Transferees began to request that employers to focus on the previously maligned historic pricing. Companies who had the GBO in their program as a safety net to give hesitant transferees piece of mind, were now using them in almost every move.  Almost overnight, employers saw their costs swell as the relocation and home sale processes dragged.  Temporary living, extra storage, loss on sale, inventory carrying costs and other hardship challenges left HR Managers, Accounts Payable and finance departments scrambling for solutions to stop the drain on capital.

Not surprisingly, the immediate, knee jerk reaction was to stop the bleeding.  Relocations were reduced to only the most needed positions and most needed benefits.  Guaranteed buy-outs, amended value sales and even buyer value options, were replaced with much safer direct reimbursements or lump sum programs.  These new plans eliminated corporate risk in an uncertain time but, like anything in life, someone had to bear the burden and transferees found themselves shouldering the brunt of the shift.

Although most employers would never say the intent of a relocation program is to make the transferee whole, the transferee perceived it to be that way up until now.  The shock of having to make decisions about whether or not to sell their home at a loss was bad enough, but then it got worse. Not only did they have to decide whether or not to sell, but many had to consider emptying retirement and savings plans to bring enough money to the closing to cover any negative equity.  The negotiated short sale became so prevalent that some Realtors advertised it as their specialty.  As the angst became more palpable, transferees grew skeptical about relocation and they weren’t afraid to tell anyone who would listen.

Consequently, more relocation candidates turned down moves, even for great opportunities.  They were looking for that assurance that the move would not destroy their credit, their savings, and their family.  So, employers began using the Buyer Value Option (BVO) program again, albeit sparingly.  But, even this program, which offered employers some protection from having a home go into corporate inventory, did little to stem the backlash.

So where are we now?  The economy is still slow to recover.  But, you have a mid-level employee, or even a new hire, who has unique skills that you desperately need in another location.  However, this candidate has other options and is concerned about the relocation program. What do you do?

Smart relocation managers are tossing the one-sized fits all approach in favor of an individual analysis.  Further, HR is learning to do some homework before extending an offer.  Today’s transferees are much savvier and many know what questions to ask before accepting the offer.  By providing pre-decision counseling sessions (directly or through a third-party relocation company) and, in some instances, destination visits, HR managers can get a better grasp of the challenges that their relocation candidate will face.  Conversely, the candidates get a better understanding of what the program entails, which will enable them to identify any challenges specific to their specific circumstance.

While this is a great first step, some candidates will consider anything short of a buy-out program to be a non-starter.  And, you’re probably shaking your head at the idea.  But, as talent wars heat up, this is a reality that we will all need to face again. Don’t be afraid.  We have all learned something from the housing crash and we are smarter for it.

If you decide to bite the bullet and bring the GBO back, you must be aggressive and steadfast with your terms and conditions to your transferee.  Explain what is covered and what is not.  Insist on Employee Relocation Council (ERC) or equivalent in scope, detailed home appraisals and inspections to determine value, deductible defects, or obstructions to a sale.  When there are inconsistencies in reports, get additional input.  Use the same care and caution you would if you were buying a home for yourself.  Insist on a pre-marketing period at an aggressive price based on the home’s market value and not on what the homeowner needs to get out of it.  Ultimately, if you decide to come out of your bunker and cautiously givethe GBO another shot, the proper leg work up front can bring success and, once again, the GBO can be a valuable tool in your arsenal to entice those high value candidates.

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MIKE CANNING
VP, Client Services

RICK CALANNI
VP of Business Development Northeast Region

 

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