Coming in Fourth – Policy Structure

July 12, 2012

This is the fourth blog in the series? The Five Things that Canadian Corporations Should do to Their Relocation Policies NOW!? In the last blog I recommended changes to Miscellaneous Allowances, if they have not been made already.

In a way, this week’s recommendation is similar. We recommend that companies shift from fully Defined Benefits policies to Core-Flexible Relocation policies.

These policies protect those benefits that, after corporate review, are determined should be protected as defined benefits, while also having a pre-calculated flexible pool of funds the transferees can use in a manner that is best suited to them.

What are Core Benefits?

These are generally benefits over which the employee does not have significant control. For instance, an employee with a $500,000 will not have the same home sale costs coverage as an employee with a $200,000 home. If this benefit is treated as a defined benefit, then the employee with the more expensive has his/her costs covered no matter what they are.

Restrictions and limitations are not monetary, but instead are based on specific elements. For instance, limiting or restricting the types of household goods that can be moved, puts a reasonable limitation on the cost of that move, without putting a monetary cap on the actual benefit.

What are Flexible Benefits?

The Flexible portion of the policy is a pre-calculated pool of funds. The calculation is done based on a pre-determined matrix for the country or at the outset of the relocation based on an interview with the transferee to understand family size, size of home, etc. In both cases, the calculation is completed based on certain relocation benefits that it is felt employees have some control over.

These tend to be things like house hunting trips, final trip travel, and storage amongst others. The employee can choose to take advantage of all these Flexible benefits up to the allowable pre-calculated cap. If the Flexible allowances are not completely used up, then these amounts revert back to the company.

Why switch from Defined Benefits to Flexible Benefits?

After working with numerous clients in the past, there were several benefits that core-flexible policies provided to their organizations. Of particular interest were a) the increase in employee satisfaction, b) balance between full employee support and cost predictability, c) the reduction in exception requests and d) the reduction in relocation costs.

Employees are Satisfied

Flexible Relocation policies tend to increase employee satisfaction: Transferees are able to craft their flexible benefits to meet their specific needs they have control over how they spend their flexible account.

Employee Support and Cost Predictability: A Balance

Flexible Relocation policies balance full employee support and cost predictability: line managers frequently push towards having greater cost predictability in its relocation. While not as predictable as lump sums, flexible policies provide full employee support in a way that lump sums cannot, and does create a portion of the policy which is fully predictable.

Flexible Relocation policies tend to reduce exception requests: in a time where HR staff is time-starved, reducing exception requests increases HR efficiency. It also avoids the possibility of creating new precedents: relocation exceptions that are granted to one employee may easily become an exception for another employee, if not a fully policy change.

Relocation Costs Go Down

Flexible Relocation policies can reduce relocation costs: If crafted carefully, with forethought about the mobile population and what benefits should be protected as defined benefits and others that need not be protected, then the company can also decrease costs. The company can trim down some benefits from its legacy defined benefits policy knowing that the policy is designed to place decision-making power in the hand of the transferee, and that this means that they have to plan their relocation to make the most use of their funds.

For instance, if the employee wants to cover a larger mortgage prepayment penalty, they can plan their relocation so as to avoid their household goods going into storage, and this may create space in the flexible pool of funds to help them do this.

Flexible policies also go hand in hand with a general reduction of Miscellaneous Allowances as described in the last blog.

Companies may need assistance moving from a defined benefits policy to a flexible policy, as its initial set-up is one of the more complex tasks that need to be administered. If you require more information regarding how core-flexible policies can help your firm or the process involved in creating one, feel free to contact us at All Points.

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