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Relocation Budget

Articles on how to develop a relocation budget and manage relocation costs.

Why Lump Sum is a Long Term “Slump”

Lump Sum Relocation PoliciesWith today’s new tax laws, the notion of cutting a check to a relocating employee to cover the relocation costs and reducing the amount of administrative work sounds like a reasonable plan. After all, now that just about every relocation expense is considered taxable income to an employee, you might as well cut a check and “gross it up” to help offset the employee’s tax liability.

However, there are three key reasons why lump sum programs will jeopardize your relocation program’s objectives.

Ongoing Administrative Adjustments

Once you figure out the amount that’s needed to move the employee, you just need to cut the check. Oh, wait a minute! That’s right, you need to figure out how to budget for specific transferee’s move. Then you need to research costs for the next regional move which is to a different location. OOPS! Don’t’ forget about the next move which is the same location as the first move, except now you are moving a family, and then the 4th move…. Ok, I think I made my point. If a company is using Lump Sum approaches, there needs to be ongoing research and adjustments to keep up to date on relocation costs so the company can distribute fair and reasonable amounts. Even if the corporation uses 3rd party services to provide the regional data, there is a significant amount of administrative work involved to update policies, manage the supplier relationships and consult with the transferees on the recommended use of their lump sum budget.

Loss of all Relocation Costs Data

Although Lump Sum programs give transferees full control of their funds and the flexibility to choose the benefits that are most needed, there is a price to be paid for not knowing how the funds are spent. As mentioned previously, understanding current relocation costs and trends help a company make future program adjustments. Without tracking systems or management of the lump sum spend, all knowledge about actual program costs will be lost.

In addition, as relocation programs continue to be evaluated in terms of performance, productivity and efficiency, there will not be enough adequate data available about how certain benefits may perform for different demographics of relocating employees. For example, did a certain benefit for relocating homeowners help make their transition easier than a renter population?  Understanding a deeper sense of how each benefit in a policy can impact a program will certainly give corporations the knowledge to make strategic decisions on policy development and cost containment. With a Lump Sum program, the ability to evaluate specific benefits across various move types is simply lost.

Lack of Support Equals Lack of Control

Now, for those who will argue with me that online Lump Sum services can help companies track costs, I will completely agree that this holds true. The use of online resources that may provide transferees with self-service options and a network of pre-selected supplier partners can certainly provide companies with accurate reporting on what services are being ordered and how funds are being spent.

However, as a long-time rule, the industry knows that just providing money to Transferees, and in some cases, Expatriates, is not going to make the relocation a success. Whether the transferee is a recent college graduate, middle management 1st time transferee or the current, typical industry profile (male, age 36-40, married, not a first-time transferee and moving for a lateral position), the use of relocation counseling is inherently the key to proving a full level of support for your employee.

As relocation administrators, we must all remember that the Lump Sum funds are still the “corporate dollar,” and as such, have a responsibility to make sure the funds are being used wisely and efficiently. The value of professional resources assisting them in understanding the relocation process, selecting service provider, raising financial considerations and simply offering best practices cannot be underestimated.

Taking a Higher Road

Although at first glance, the use of Lump Sum may offer both the employee and company  an easy solution for covering anticipated benefits, we have seen how “the grass isn’t always greener.” For companies who use Lump Sum or are considering the increase in this policy type, there is no opportunity to cut costs when projected need exceeds actual need.  Before going down this path, an employer might want to consider a managed cap approach.  While this type program is still flawed in determining an effective and equitable cap (typically by salary, job level, own/rent status or family size), it offers more structure and captures the actual expenses, which can be used for future projections.

 

So, if you are currently using or contemplating a Lump Sum approach, remember that it’s not a silver bullet. Don’t forget about the cost containment and efficiency that is realized through the utilization of a partner providing a vetted supply chain, real time reporting and best practices benefit auditing.  In the long run, through efficiency and reduced exceptions, their assistance will result in cost savings beyond that of simply writing a check!

Analytics and the Review Process

Reviewing your mobility program requires more than an overview of numbers. It needs to include a deeper dive into why those numbers may be changing.  In addition to helping you determine if exceptions are getting out of control, or one cost center is being more generous that others, sometimes, a statistical change can be misinterpreted if not looked at from every angle.

Recently, a client reached out, concerned that, although initiations had not increased, the year to date expense had taken a notable spike.  On the surface, their conclusion was correct.  While expenses increased over 16% over the same period last year, overall initiations were actually down almost 7 percent.

 

The first thing I did was break out the expenses by category.  Immediately, I could see the culprit.  While other category expenses stayed in line with the previous year, the homesale expenses increased significantly, mirroring the year over year expense variance. Additionally, while there was a small increase in average sale price, this uptick in homesale expenses was more due to the number of sales completed during the two periods.

 

This is where I found the good news.  Looking at the average days on market for each home that sold over the past two years, I was able to see a positive trend. Homes are selling faster.  In the past 12 months, homes sold in an average of 32 days on the market, verses 59 days in the previous year.

 

Additionally, I found the average program cost went down almost 30 percent over the same period!  Logically, this makes sense, if you think about it.  The biggest drag on a relocation program is the homesale piece.  In addition to typically being the biggest ticket item, it also impacts other benefits when the market is soft.  When transferees cannot sell their home, you find they need to use more temporary living, home trips, loss on sale benefits and exceptions.

 

analytics over review

 

So, in the example above, what appeared to be a negative program development, is in actuality a sign of an improving economy and an indication of future savings.

 

Should this positive trend continue, employers should look at those benefits used to entice potential candidates in a slower, uncertain market and grant them by exception, or remove them outright. By removing these benefits (which no longer make the difference between accepting or refusing the move), employers can cut costs further.

 

When you look at your historic program data, do you have a clear understanding on the cause of trends?

The Low Down on Temporary Living Expenses

Temporary living can be a doozy of a line item in a relocation budget.

What Does Your Payback Agreement Look Like?

Before I get into anything, I think it’s important to note that payback agreements vary widely. Every company approaches the payback agreement differently and that can be confusing for HR, senior management and transferees alike.

How to Project Relocation Costs More Efficiently

With relocation busy season around the corner, relocation managers are probably dusting off their policies and taking a good look at relocation budgets. But, how realistic are those budgets? One of the biggest challenges that human resources and procurement managers face is the difficulty of designing a proper relocation budget and then sticking to it when the rubber hits the road. That’s why clear cost projections are the linchpins that connect cost containment with adequate relocation benefit delivery. In order to ensure clear projections, its critical to get the most accurate view of anticipated costs right out the gate, preferably before an offer has been extended to the potential transferee.

Managed Cap Program Managers: Yay or Nay?

Like corporations, employee relocation service providers have had to adapt to shrinking program budgets, less company gatekeepers, and ongoing pressure to simplify the process. Some companies, in response to budgetary constraints, and just not having the personnel to administer multi-benefit programs have switched (especially with Managed Cap Programstheir lower level and rental programs) to a lump sum or managed cap program. Both these programs offer the companies more budget certainty and uniformity. Noting this, some relocation providers have entered the market with a stripped down, limited scope approach. Whereas the traditional service provider had previously geared their approach toward homeowners, with modifications scaling back benefit levels for the renters, and college recruits, these new companies focus on the growing population of less defined relocations.

Last Minute Moves are Relocation Budget Killers

In our most recent relocation whitepaper, discussed the nature of last minute relocations and the impact it has had on relocation budgets, as well as the transferee’s overall relocation experience. For one reason or another, there seems to be a growing trend towards last minute hires. As such, there were many cases where transferees were initiated in the same week as their start date, leaving very little time to adequately counsel the transferee and effectively set up relocation benefits.

The Low Down on Temporary Living Expenses

Temporary living can be a doozy of a line item in a relocation budget.

Employers, capped-budget transferees, and even those who really do care how much their move costs their company (yes, some really do!) can find themselves sticker shocked from temporary living totals. Occasionally, we are confronted for overcharging for temporary living arrangements we have made. The reality, however, is that temporary living charges are directly passed through to our clients with no markup.  Here’s what’s happening.

How to Project Relocation Costs More Efficiently

Relocation BudgetWith relocation busy season around the corner, relocation managers are probably dusting off their policies and taking a good look at relocation budgets. But, how realistic are those budgets? One of the biggest challenges that human resources and procurement managers face is the difficulty of designing a proper relocation budget and then sticking to it when the rubber hits the road. That’s why clear cost projections are the linchpins that connect cost containment with adequate relocation benefit delivery. In order to ensure clear projections, its critical to get the most accurate view of anticipated costs right out the gate, preferably before an offer has been extended to the potential transferee. 

How to Make Your Lump Sum Programs More Efficient

How to Make Lump Sum Programd More EfficientAt the end of 2012, we issued an EBook on the Top 10 Ways Relocation Programs Lost Money in 2012. It was well received. HR managers and relocation experts should consider ways to save money now that 2013 has started and there is still time before busy season starts in April. As a partner to HR, we want to help cut costs and will continue to work on new ways to streamline the relocation process, reduce redundancies and tighten overall program management. 

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MIKE CANNING
VP, Client Services

RICK CALANNI
VP of Business Development Northeast Region

 

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