By Heather O'Neill
Feb. 6, 2012
After the nation’s economy descended into the Great Recession in late 2007, the lagging recovery during the next couple of years forced companies to get creative with workforce policies that hadn’t been a big concern in the past.
Plummeting home values had a particularly dramatic effect on companies’ ability to relocate employees, which created a challenge to talent-mobility strategies that were of minimal concern before the recession.
Employees who weathered the recession are still hesitant to relocate. Companies that once offered loss-on-sale benefits—compensation to relocate employees on any loss incurred on the sale of their home—still sit atop depreciated homes that remain unsellable in a stagnant real estate market.
Yet David Barlow, senior vice president of the Westmont, Illinois-based Sirva Inc., a provider of company relocation services and moving solutions, says new trends in relocation are growing out of economic necessity as companies find new ways to move their talent while protecting both the employee and the company from the volatility of the real estate market.
“The classic relocation model, where an employee sells a home in the old location and buys a home in the new location, is changing,” Barlow says. “Now that is just one of an array of options that companies need to look at.
“They need to look at renting in the old location and renting in the new locations. They need to look at commuting policies, including long-distance ones. In certain situations temporary domestic assignments can be used. The need for talent is still very much there, but the realities and the logistics in getting them to go where you need them to be has changed due to outside factors.”
According to a Prudential Real Estate and Relocation Services report, 74 percent of surveyed companies projected relocation program costs to increase in 2011, with 65 percent reporting a “high to extreme” impact of the current real estate market.
“Before 2008, when homes were appreciating at their historical average of 4 percent a year, loss on sale was relatively uncommon, so companies didn’t think much about it when it came to their relocation benefits,” says Viktor Reznicek, vice president of relocation and assignment services for the Dallas-based ACS Relocation & Assignment Services, a subsidiary of Xerox.
“All of a sudden 2008 and 2009 roll in and companies are beginning to see losses on sale that are in the six figures. We have personally seen some losses on sale that have exceeded $400,000 on a single home, so the relocation policy has gotten a tremendous amount of scrutiny.”
One trend in relocation is education, according to Russ Haynie, director of global consulting for Prudential Real Estate and Relocation. Some companies are using pre-decision counseling during the interview process to educate a prospective employee about what relocation entails and its financial impact.
“In years past you would have seen those two functions split: Talent acquisition would have brought recruits into the organization and passed them along to relocation without a lot of communication and planning,” Haynie says. “Now we are seeing movement to integrate those programs.”
In addition to protecting the employee, according to Peggy Smith, CEO of the Arlington, Virginia-based Worldwide ERC, the Workforce Mobility Association, pre-decision counseling protects the company from wasting valuable resources on a candidate who will ultimately decide that relocation isn’t an option.
“It helps companies prevent going down a path with someone who might ultimately realize that they are going to lose a lot of money on their home or that they can’t afford to move across the country,” she says.
Mobility also poses the question: Can a job offer hinge on an applicant’s real estate situation?
“There is no formal statement that an offer is contingent upon this discussion,” Reznicek says. “However, companies are asking the relocation management companies to have this discussion, and the outcome is one of the factors that they consider when making an offer. They may take the candidate through the interview process and, in parallel, work with an RMC to assess their housing situation,” he says referring to a relocation management company.
Smith doubts that a person’s real estate situation would determine whether a candidate is the right fit for the job.
“I don’t think that an organization has ever discriminated against a person because of their real estate situation,” she says. “Organizations still have a strong focus on hiring the best and the brightest. That still trumps all cards. If you really are the right candidate, you will get the job.”
Some companies have discontinued loss-on-sale benefits, instead offering lump-sum payments to cover employees’ moves. Other companies continue to offer loss-on-sale in some situations—usually in executive relocation packages.
To hedge the risk of a huge loss, some companies retaining the benefit have instituted a cap on the amount of loss they will cover. Reznicek says the typical cap normally ranges from $20,000 to $30,000.
Smith says that renting in the new location is becoming attractive, even to homeowners. Some relocation packages will provide property management companies to rent out the owned property at the original location, in addition to providing employees with either reduced or covered rent for a period of time in the new location.
Reznicek says the state of the real estate market is such that some companies have decided that relocation isn’t the best option and instead allow their employees to telecommute.
When that isn’t feasible, many companies are introducing extended business travel policies where employees travel Monday through Friday, staying in hotels or corporate housing during the week.
Experts agree that the climb out of the real estate slump will be slow thanks to the current glut of homes on the market and in foreclosure.
A stilted economic recovery and high unemployment also gives employers more bargaining chips in relocation negotiations.
“Until the supply and demand for labor changes, with unemployment now at 8 and 9 percent, it is clear that the employers have the upper hand and that relocation benefits will remain lean,” Reznicek says. “I know that companies will continue courting talent—it is a necessity—but it will be by redesigning existing relocation policies to be more attractive, not by spending more on relocation.”
Heather O’Neill is a freelance writer based in San Francisco. To comment, email firstname.lastname@example.org.
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