Author: Leslie Klaff

When the network computer maker Sun Microsystems wants to relocate a manager from its Austin, Texas, office to its headquarters in the much pricier San Francisco Bay area, the decision is not as easy as it was a few years ago. Even then, the difference in housing prices was dramatic, but today it’s even worse. In 1999, an employee could buy a three-bedroom home in Austin for $298,800, whereas a comparable home in San Francisco costs $630,300, a difference of $331,500. Today that same house in Austin costs $400,700, while the house in San Francisco is worth $987,500, a difference of $586,800.

    Convincing employees to move to high-cost areas almost always means paying mortgage subsidies and cost-of-living assistance, and carries the expensive risk of taking homes into inventory. With the economy in a slump and relocation costs climbing each year, Sun Microsystems is an example of a company that is treading more carefully in deciding whether to relocate employees. In the past five years, the firm, which was hit hard by the tech downturn and continues to lay off employees, has slashed relocations annually by 70 percent, from 800 to 250 moves. Sometimes moves to high-cost areas are a must, and Sun, like many other organizations, must be more creative about managing relocation costs. For the Santa Clara, California-based company, that means allowing employees to live in less expensive outlying areas and work from home rather than automatically moving them to high-rent districts. Employees also can work from “flexible offices”–cubicles or closed-door offices located in Sun office buildings or leased space that’s closer to the suburbs than the company’s headquarters.

    “The economic downturn made us take a hard look at how and why we were moving people,” says Julie Dollahite, Sun’s corporate relocation manager. “We’re asking ourselves, ‘Is there really a need to move that person?’ ”

    The average cost of moving a homeowner climbed from $60,831 to $65,555 in 2002–an 8 percent increase over the previous year, according to the Employee Relocation Council. A big chunk of that expense is assistance for transferees moving to areas with a higher cost of living: an average of $5,259 in mortgage subsidies, $5,036 in home-sale incentives and $8,936 in loss-on-sale assistance. As the economy improves and companies compete more for good employees, organizations will be under greater pressure to offer these cost-of-living benefits. Also, it may be tougher to get key talent to relocate, particularly to high-cost areas. A recent study by Prudential Relocation shows that high cost of living is the primary reason why employees are reluctant to move.

    “The economy is changing, and we will see another war for talent,” says Margery Marshall, president of Prudential Relocation in Irvine, California. “Now more than ever, companies need to be more creative about getting people to say yes to relocating.”

    Experts say that there are many proven strategies for managing costs when moving employees to pricey locales–from learning ways to sell employees’ homes more quickly to using new tactics in negotiating cost-of-living adjustments.

“The economic downturn made us take a hard look at how and why we were moving people. We’re asking ourselves, ‘Is there really a need to move that person?’ ”

Selling the house
    Tom Marshall, manager of relocation for the Wilmington, Delaware-based DuPont Company, is well acquainted with the bind that companies get into when homes don’t sell. Getting a transferee’s home to sell quickly is the key to managing moving costs, he says. About 10 years ago, DuPont had 800 homes in inventory, valued at approximately $275 million. This year the company relocated almost 700 home-owning employees. But after implementing an incentive program in which employees receive 3 percent of the sale price if they sell their home within four months, the company has just 15 homes in inventory. “It’s a major savings for the company,” he says. “A home sold by an employee costs half the associated closing costs of a home sold from inventory.”

    Like DuPont, more and more companies are requiring employees to try to sell their homes first, before they are taken into inventory, says Lina Paskevicius, consulting manager at Cendant Mobility, a relocation services company in Danbury, Connecticut. If the employee sells the home, the company doesn’t have to pay for an appraisal, an added benefit worth between $1,500 and $2,000. Companies also are requiring employees to list the home’s price within a certain percentage of an appraiser’s value. That helps prevent the employee from overpricing the home and having it on the market longer.

    “The culture is changing,” Paskevicius says. “More companies are requiring these things, rather than suggesting it…Companies want to get these homes sold.”

    Some companies have found success in not even offering to buy employees’ homes if they can’t sell them, says Michael Schaetzle, senior vice president of U.S. relocation services for GMAC Global Relocation Services. “When there’s no other option, employees often become very focused on selling the home,” he says. And it can save companies a lot of money, Schaetzle says. If GMAC, for example, helps an employee sell and close a home without using real estate appraisers to create an offer, the cost is approximately 9 percent of the value of the home. On a $200,000 home, that’s $18,000. If GMAC orders appraisals and makes an offer to buy the home from the transferee, the cost climbs to 19 percent of the value of the home, or $38,000.

Helping employees financially
    Since a higher cost of living is a significant barrier to convincing employees to move, corporations must offer financial help to get them to agree to relocate. Mortgage subsidies are one of the most common benefits of moving, and companies can control costs by offering the subsidies for a fixed period, usually three years. With interest rates so low, some companies have eliminated this benefit until rates increase, consultants say.

    Cost-of-living adjustments also should be given for a fixed period, usually three to five years. A cost-of-living adjustment, which is usually paid on a monthly basis, is a subsidy that takes into account the increase in cost of housing, taxes, groceries, gas and goods and services. It’s important to be clear with employees that the COLA is designed to help them adjust to higher costs in their new city, not to live an improved lifestyle, Margery Marshall says. “Set realistic expectations with employees about their financial well-being.” It’s also crucial for managers to keep cost-of-living assistance separate from discussions about annual compensation, she says. Employees often envision the COLA as a permanent salary boost, but that’s dangerous because once their base increases, it can throw off the organization’s salary structure.

    When helping employees cover moving expenses, companies are saving money by using lump-sum allowances. The lump sum is usually based on the employee’s job level and number of dependents. More than half of companies surveyed by Runzheimer International offered a lump sum in 2001, with an average of $8,270. Since it’s up to employees how they budget the money, they usually spend it more carefully than if they were expensing the company for each part of the move, consultants and relocation managers say. “Rather than staying at a four-star hotel [for a house-hunting trip], they’ll stay at a friend’s house,” Schaetzle says. “By empowering the employee, it works very well [for the company].”

    At Sun Microsystems, transferees have the option to “cash out” of benefits they don’t need, such as a house-hunting trip or temporary living expenses, and to receive a lump sum instead. The company saves a lot because the lump sum is not an even dollar-for-dollar exchange of benefits. The standard benefits offered to employees, which include temporary living accommodations, a house-hunting trip, car rental, meals and a miscellaneous allowance, cost the company about $10,000. If employees cash out of the benefits, they would receive $7,000, a savings of $3,000. About half of transferees opt to cash out. “Often cash is more important to [the employees] at that time,” Dollahite says. DuPont, which moves about 1,000 employees domestically and globally each year, started using lump-sum allowances in 1997, then studied the program two years ago and learned that employees rarely used all the money. The science company trimmed the allowance and saved $4.4 million in just one year.

    Offering tiered benefits packages is another way to save money. More than half of companies surveyed by the Employee Relocation Council offered tiered relocation packages in 2001. At DuPont, for example, recent college graduates receive different relocation benefits than more experienced employees or critical hires. Some companies also offer different benefits packages to renters and homeowners. Renters may get only one house-hunting trip, while homeowners receive more time.

Relocation strategy
    How a company crafts its relocation strategy can help control costs, too. About six years ago, DuPont shifted its relocation philosophy. Instead of offering the same package of benefits to all employees–a practice that led to overspending, particularly in the area of mortgage subsidies–it treats moves on more of a case-by-case basis, especially when there is a relocation to a higher-cost city, Thomas Marshall says. When employees are transferred to DuPont’s Manhattan office, they receive a “Manhattan allowance,” a cost-of-living adjustment for the time they live in the city. For moves to other cities, DuPont pays a three-year COLA only if the cost-of-living difference is above 5 percent. But if an employee is moved to DuPont’s holographics business in Santa Barbara, where the cost of living is extremely high, the 5 percent threshold is waived, and employees are paid the entire difference.

    Consultants recommend that companies study their relocation policies every year. A plan should be in sync with corporate strategy, says Michelle Nerny, vice president of the Midwest region for Weichert Relocation in Morris Plains, New Jersey. If a company is aggressively recruiting, the policy should be more comprehensive. If the organization is downsizing, it may have to trim some of its benefits, she says. Companies also should benchmark their policies against those of their top competitors. After looking at its competitors, DuPont saved $500,000 by reducing the length of time it pays cost-of-living adjustments from four years to three.

    “It’s always something we’re talking about: What can you do about cost containment?” Tom Marshall says. “We’re always looking for ways to save–to still give the benefits, but to trim so you’re not overpaying.”

Workforce Management, November 2003, pp. 47-50 — Subscribe Now!

Employers often dole out as much as $1 million for each employee they send on an overseas assignment. So when an employee returns home and jumps ship, it’s a huge investment loss.

Almost a third of repatriates end up quitting within two years of returning from abroad, research shows. Why do they leave? Often there’s no career path in place for them, they’re not using skills they gained overseas, or they’ve grown accustomed to more autonomy abroad and don’t feel challenged.

But there are steps that employers can take to retain repatriates. Consultants say the key is having a full-circle repatriation program, one that supports employees and their families before they leave, during their stay, and—perhaps most important—after they return.

The high cost of not having a process
“Sometimes the repatriation process is an afterthought for many companies,” says Laura Herring, CEO of The Impact Group, a relocation consulting firm in Minneapolis. “The number one reason for having a repatriation program is to protect your $1 million investment.”An increasing number of companies today do have repatriation programs, but many still can’t retain people because the organization doesn’t guarantee jobs when the assignment ends, says John Wada, business development consultant at Runzheimer International, a relocation firm in Rochester, Wisconsin. Two-thirds of companies offer no job guarantee, according to the Global Relocation Trends 2001 Survey Report, a study on relocation data and trends sponsored by GMAC Global Relocation Services, National Foreign Trade Council, and SHRM Global Forum. And many repatriation programs don’t counsel employees when they come home—when repats are at the highest risk of quitting.

That re-entry counseling is not only the most critical aspect of keeping the employee, it’s also the cheapest, says Margery Marshall, president of Prudential Financial’s Relocation Services in Irvine, California. “And that’s what companies are ignoring the most.”

An effective repatriation program costs between $3,500 and $10,000 per family, Herring says. To retain a repatriate, smart companies plan a program that spells out career goals, prepares the family for cultural differences and adjustments, keeps the person connected to the home office, and allows the employee to use his international skills when he returns.

Return planning begins before they leave
A strong repatriation program begins well before an employee moves to a foreign post. Unfortunately, Wada says, HR professionals tend to get bogged down in the logistics of the assignment when they should be focusing on setting career expectations. They should define assignment goals and specify how they fit into the employee’s long-term career plan.

The Global Relocation Trends report, which surveyed 150 human resource professionals, shows that more than a third of companies are unsure of how international assignments affect expats’ careers. At the New York-based accounting firm Deloitte & Touche, managers discuss which job each of the company’s 200 expats will take after returning—before the person goes abroad, says John McNamara, national director of international assurance. That is when they sign a written commitment letter, which includes a “return ticket”—a job guarantee at the end of the assignment.

“If they come back and you don’t take advantage of what they’ve learned … they can easily get disillusioned,” McNamara says.

Karen Schwindt, a Deloitte & Touche repatriate who returned from Melbourne, Australia, in April 2000, speaks from experience when she says, “If you have a vision of what you want to bring back, you can build those skills while you’re there.”

It’s not easy to place every repat in a job that uses international experience, so don’t define goals too narrowly, Wada says. If the expat is going to London, for example, the goal might be learning how best to interact with the British and how to negotiate with a diverse group of people.

Leveraging overseas experience
Employees will view working abroad as valuable if a company’s high-level executives have international experience, Wada adds. At FedEx, many former repats fill leadership positions, including FedEx Express president and CEO David Bronczek and international executive vice president Michael Ducker.

“As we become more and more global, it shows that experience overseas is leveraged back home,” says Tom Mullady, manager of international compensation planning and administration at FedEx. The global mail and transportation company understands the need for expats to be secure about their employment future.

While the employee is overseas, one of the factors critical to retention is keeping the person in the loop with her company and coworkers at home.

Before an assignment begins, employers should counsel employees and their families on what to expect culturally and logistically in their new host country. Research shows that the most common reason assignments fail is that the family is unhappy. Honeywell, a global technology and manufacturing company based in Morristown, New Jersey, offers employees and their families a two-day cultural orientation on the region where they will be living, says Sharon Byrnes, manager of international compensation. As early as one year before the employee leaves, the company conducts an assessment to identify certain skills the employee might need to be successful, such as learning a foreign language. The assessment assists the company in identifying successful expatriate candidates, and helps the potential expat decide whether to accept the assignment.

Staying connected
While the employee is overseas, one of the factors critical to retention is keeping the person in the loop with her company and coworkers at home. One effective way of accomplishing this is for the employer to assign the employee a mentor, ideally a former repat, says Tara Brabazon, director of intercultural services at GMAC Global Relocation Services in Warren, New Jersey. These sponsors keep expatriates abreast of job openings and organizational changes at home so they can more easily feel comfortable and fit in when they return.

At the medical technology company Medtronic, based in Minneapolis, mentors are usually at the vice-presidential level, says Martha Hippe, manager of global assignments. The mentor helps to set career goals and to place the repat in a job when she comes home. The two stay in close communication through phone calls, e-mail, and visits.

Employers also can keep in touch with expats by giving them access to the company’s intranet and monthly newsletters. Many companies require mentors to make at least one face-to-face visit with the expat each year. In an effort to ensure that relationships in the home office are nurtured, FedEx encourages its expats to “have one foot in each country” while they’re abroad, Mullady says. In order to stay connected and ease the transition, discussions about returning home should begin six to eight months before an assignment ends, Wada says. “Most companies wait until the last minute.”

For Schwindt, keeping on top of her next career move was especially important, because she had decided while she was away that upon her return home, she’d move from the audit department to mergers and acquisitions. Her mentor put her in touch with other employees in the new department.

“I never felt really forgotten,” she says.

“Repatriation is many, many times more difficult than relocation. To fix the situation, [repats] look to change something. It’s often the job.”

The homecoming challenge
Most employers don’t realize that coming home from an overseas assignment is often harder than leaving. Repats face a myriad of changes, often referred to as “reverse culture shock.” When they return, there’s a tendency to expect that life will be just the way it was when they left, but it rarely is. There are professional changes that may require adapting to a different corporate culture, and personal adjustments. A spouse who didn’t work abroad, for example, has to learn how to re-enter the workforce, and the children are now older and have different needs, Herring says. The family’s friends may have moved, and they may find that coworkers and others get tired of hearing stories about life abroad. At the office, they often are placed in temporary jobs and feel as though they’re being put on hold.

“Repatriation is many, many times more difficult than relocation,” Brabazon says. “To fix the situation, [repats] look to change something. It’s often the job.”

Many managers perceive the repat as difficult. They don’t understand how hard a homecoming can be, she says. Gaye Reynolds-Gooch, a consultant for Window on the World, a relocation consulting firm headquartered in Minneapolis, says it’s vital to offer employees and their families counseling. Counselors should help repats step back and consider how they might want to live their lives differently. Some, for example, might have changed their priorities and want more work-life balance, she says. It could take a repat nine months to a year to settle into a job and learn how to leverage his international experience.

At Honeywell, employees and their families go through a repatriation program within six months of returning home. Counselors discuss issues such as the challenges of adjusting, and also help employees understand how to apply what they’ve learned abroad. The one-day program includes a roundtable discussion with members of another former repat family.

Employers also must make sure that repats are able to use their international experience. Researchers at American University found that expatriates are eager to use the skills they developed overseas, but that only 39 percent actually ever do, according to a paper by David Martin, a professor of management and human resource management at American University’s Kogod School of Business.

At Deloitte & Touche, managers try to place repats in positions that allow them to conduct business with clients from the country where they lived. Sometimes they are placed in offices in big cities that are more involved in international business so that the employee can associate with other people who have worked abroad. Former repats also can participate in an orientation program for future expats.

Reynolds-Gooch also suggests sponsoring brown-bag lunches for discussions about life overseas, and encouraging repats to join international associations tied to the country where they lived, such as a local Australian, French, or Chinese-American community association.

“You don’t want to lose your best and brightest talent. And if a repat leaves the company, it could discourage other employees from wanting to go abroad and hurt the success of the program.”

Workforce, July 2002, pp. 40-44 — Subscribe Now!